Round tripping occurs when one company sells assets to another party in order to generate sales, and later buys back the assets. For example, a real estate company sells several condominiums to a related party for $4 million and then buys them back a year later for the same price. Doing so generates sales not only for the original seller, but also for the related party when it sells the condominiums back. In these arrangements, there is minimal net long-term change in a firm’s profits.
Round tripping is used to artificially inflate the reported amount of a company’s sales. Management may feel that this practice is necessary in order to meet analyst expectations for sales, or to boost sales when the company is about to be sold at a multiple of sales. It can also be used to hoodwink investors into believing that the company’s sales are robust, so that they will buy more company shares, thereby driving up the stock price.