The Earnings Game: Everyone Plays, Nobody Wins

SHC 4153 Accounting Theory and Practice Case Study The Earnings Game: Everyone Plays, Nobody Wins. Group member: Chong Li Yun| AH090043| Ho Shuang Tien| AH090095| Chua Huey Shieng| AH090053| Lau Foong Seong| AH090126| Aminah binti Nasaruddin| BH100002| Lecturer: Dr. Aniza binti Othman INTRODUCTION It is all about the shares price. The shares market is so active and everybody wants to win in this game. In reality, nobody would want to become a loser. They try to think the best way to gain the advantage and win in this game. Unfortunately, the players in the game used questionable tactics in order to win the game.All players are connected with each other and the winner will only goes to the player who able to control the game. Finally, who will be the loser? It could be the players itself or the outsiders e. g. the citizen who does not play the game. The dynamic share market could make the economy become gloomy and undesirable consequences will be occurs. Most of the companies involved in the earnings game where the companies have desire or have took actions to meet the analysts’ earnings per share predictions. The common players of this game include the companies themselves, analysts, investors, and accounting firms.There are many issues had been arise in the earnings game. ISSUES AND ANALYSIS 1. 0 MANAGEMENT In order to meet the analysts’ expectation on the earnings per share, companies will use some tactics to distort their current earnings even those tactics may against the law or regulations. The tactics included: a) Channel Stuffing Channel Stuffing is a tactic where the companies borrow from future sales to increase current results by selling goods to customers who aren’t ready to buy yet. In order to attract buyers, the companies are willing to take the cost of storing the goods.Sunbeam, consumer appliance maker is a company who use channel stuffing to boost its earnings in winter by selling millions of dollars’ worth of backya rd grills to customers. The customers not really need the goods at that season and they are allowed to defer payment until the spring. b) Premature Revenue Recognition Premature revenue recognition means the companies recording a highly contingent transaction as a firm sale. For example, MicroStrategy, a web software developer recorded the expected revenue from software upgrades other than actual sales.This is different from accrual revenue that allowed in accounting standard which the sales have been confirmed but the revenue has not been received yet. The software upgrades by customers are just an expectation of MicroStrategy. c) Unusual Structure For example, Boston Chicken has an unusual structure by which their hundreds of stores were owned by large regional franchisees called â€Å"financed area developers† or FAD. Boston Chicken lent money to FAD to start the business or open stores. After that, FAD recovered the funds in the form of fees, royalties and interest. There fore, Boston Chicken earns more profits as the stores opened more.However, the funds that they got back from FAD were not their real revenue. 1. 1 Advantages The advantages of doing these tactics are due to several factors. Firstly, they wanted to show a good result to the public especially those investors who are potential to invest in their companies. Therefore, they will either collaborate with accounting firms to show a good audit report, increase their sales by using future sales to replace current sales, communicate with analyst and so on. Regardless of ethical or unethical, what they want is to increase their earning per share (EPS) in order to attract investors.As a result, it can be concluded that channel stuffing, premature revenue recognition and unusual structure have the similar effects to achieve their ultimate goal. 1. 2 Disadvantages For the disadvantages, each approach has different side effects if the method does not work. For channel stuffing, the future sales mig ht be threatened if they cannot find replacement for it. They need to cover for the loan as soon as possible for everything they used this channel stuffing method. If they are failing to cover the loan, probably the person in charged might need to responsible for this matter thoroughly.In the case, CEO of Sunbeam, â€Å"Chainsaw Dunlap†, lost his job and reputation due to channel stuffing. While, for premature revenue recognition, the action actually does not follow the accounting standard because the revenue is recognized before the transaction have been made or before it happens. For example, in the case, MicroStrategy has recorded their future revenue that they expected to collect from software upgrades. This action can cause the company to overstate their sales and it will affect the trueness and fairness of financial statement of the company.Lastly, in order to enhance current earnings at the expenses of future earnings, the unusual structure system has been applied. For example, in the case, Boston Chicken actually acts like a financial institution that give loans for both its franchisees and area developers in order to open new stores. Boston Chicken only creates the impression that their operation is successful and profitable by opened many stores but in reality, the stores was never made any profit. The profits that they gain were not coming from selling chicken but coming from selling franchises.Boston Chicken only wants to boost their Boston Market â€Å"concept† just to increase their earnings per share (EPS). At the end, the system collapsed and the company filed for bankruptcy protection because the company would not able to complete its restructuring plan due to company debt. 2. 0 STAKEHOLDERS There are two main stakeholders that involved in this case which are investors and analysts. All the creative activities that had been done by the management are to meet the expectation of the analysts and at the same time the investors. 2. 1 InvestorsThere is an issue that the investors only depend on earning per share (EPS) as an indicator in making their investment decisions. All of them, no matter those who have the knowledge that EPS show almost nothing about the business’s health or those who know nothing, still follow the trend of relying on only EPS in making their investment decisions even though some of them may know it is unreasonable to do so. They will abandon those shares that could not achieve the quarterly expectation without referring other information. For them, EPS is the easy indicator to know whether the company is performing well or not.However, EPS are not accurate and adequate indicator to show the performance of company because EPS can easily to be manipulated in the market to attract investors to look at the outstanding share of a company’s stock. The higher EPS, the more investors can be attracted. Although investors know that the investment is a very risky, they do not have inte ntions to look other than EPS. This situation can cause some of the investors gain more profit or vice versa. 2. 2 Analysts Analysts as the intermediaries only focus on the earnings estimates.Furnishing correct earnings estimates is what analysts are paid to do. The accuracy of their forecasts would help analysts maximize compensation; gain reputation and ranking on various analysts and at the same time manage their workload. Therefore, they are more willing to focus on earning rather than analyze the other information of the company. 3. 0 ETHICAL ISSUES Most of the organization has been collapsed because of ethical issue practiced in the organization. Same goes to the company, if this ethical issue never had been settled, they will face the same situation like other company faced it before. . 1 Collaboration of company management and analyst Even though there is a regulation for fair disclosure, company management still finds a loophole to collaborate with analysts in influencing a nd manipulating their expectation or forecast value on share. Although it is not against the law, it is unethical for them to control and influence the stock market by collaborating under the table. It is unfair to the investors who seem to be the puppets controlled and influenced by others. 3. 2 Auditors Auditors stretch the regulation to keep the good relationships with the client.Although the auditors know every creative actions and creative accounting of the companies, they still pretend do not know anything in order to retain their clients which contribute to their revenue. It is unethical for them to do so, although it may be legal for companies to do so, however, as auditors, they have the responsible to disclose any actions which may shaken the daily operation and going concern of the companies. RECOMMENDATION 4. 0 ROLE OF ANALYSTS Analysts should be independence and make the risk analysis without influences by the companies’ management team.By providing accurate and sufficient information, investors are able to make their judgments based on their knowledge. An independence body should be established to govern the analysts in order to monitor the analysts and ready to take discipline action once misconduct happened. 5. 0 ROLE OF COMPANIES 5. 1 To include annual plan in quarter earnings report Since quarter earnings report is used as a reference to identify whether the company is doing well or not, companies should enclosed annual plan in the quarter earnings report.This can provide a clearer view to the investors about the company’s plan in one year time. Investors also can understand deeply on how the company is doing besides put all their attentions on the earning per share (EPS) only. 5. 2 To implement the shareholders forum Company should give a platform the shareholders to voice out their opinion. Shareholders would able to monitor the management and give opinion to the management actions. 6. 0 ROLE OF AUDITORS An auditor should foll ow the code of conduct. As an independence body, an auditor should give true and fair view of the financial statements. . 0 ROLE OF INVESTORS The investor should adequate them self with investment knowledge, where do not too depends on the EPS as an indicators. As an intelligent investor, they should prepare them self before they enter the game. For example, attend some investment course or self-learning through internet. The investor has to know how to analyze the financial statement which also indicates the prospective to the company. For example, the training, introducing a new product or investment in R&D will increase the company future value.Means while, there will be a high probability of company default if there are high bad debts or contingency assets. CONCLUSION In a nutshell, as we know and also mentioned in the case, the only solution to stop this game is for all the companies willing to abandon it. Therefore, the recommendations we suggested involving all parties in thi s game to change their mindset and have a brand new start in the corporate world. Everyone plays their own parts ethically to make this world have a brighter future. With the cooperation of all parties, the â€Å"Earnings Game† will be game over as soon as possible.

Fashion Business and marketing report PRINTXKNIT Essay

Fashion Business and marketing report PRINTXKNIT - Essay Example The paper "Fashion Business and marketing report PRINTXKNIT" provides report of the business marketing of PRINTXKNIT. The retail brand aimed to be created is a collection of luxury casual wear that comes with a sportswear edge. This means that the brand shall combine simplicity with class to ensure that the focus strategic option can have a highly transcending reach. This is because the farther the reach, the higher the number of customers that can be brought on board. Because PRINTXKNIT will combine simplicity with class, its unique selling point is expected to be the offer of high tech leisure wear fabrics and yarns which combine luxurious feel with active wear sensation. This is indeed expected to be the brand’s identity as most competitors fail to offer such combination but only dwell on either cost leadership (non-luxurious product) or differentiation. The customer is a young lady in the age group of 28 to 38. Such a lady can be said to be one who is looking to achieve a wardrobe of contrast by having different shades, colours, designs, and materials of clothing. The customer is also expected to be a city lady largely affected by weather and climate and thus concerned about both mixed and matched wear depending on prevailing conditions. As can be seen below, the customer is a dynamic and versatile young woman who believes in both class and simplicity, depending on prevailing circumstance. Weather and climate are also important factors in the selection of wear, as well as venue.

HR Oursoursment Essay Example | Topics and Well Written Essays - 2000 words

HR Oursoursment - Essay Example It is evident from the research that Business Transformation Outsourcing (BTO) is an emerging segment, which focuses on improving the effectiveness of an entire corporate function like the HR, according to Sako and Tierney. The rationale is to outsource administrative tasks leaving the personnel to focus on strategy formulation using their competencies and to experience greater flexibility in allocating resources, and greater cost efficiencies but Khatri and Budhwar cite many scholars who argue that human resource can be a source of sustainable competitive advantage for an organization. This argument suggests that all functions related to human resources should be dealt in-house. The line managers have assumed key positions thereby demonstrating a shift in the roles and responsibilities. This has been caused due to downsizing and devolution of responsibilities. The line managers are hence in a position to influence both strategic and operational organizational priorities. Added to th is are introduction of sophisticated software and the development of smart computer systems, which have further reduced the workload on the HR freeing the key personnel to concentrate on the change agent and strategic partner roles. The line managers are not competent in HR work and need to regularly reflect and be critical about their work. They attempt to increase the speed of decision making by wanting to by-pass procedures, which demonstrates that HR should not be outsourced but the HR functions should be expanded.

Demographic Assignment Essay Example | Topics and Well Written Essays - 250 words

Demographic Assignment - Essay Example Other than all formal meetings, I like to wear T-shirts and loose pants to give the impression of carelessness. Having tight budgets, I tend to travel by bus and train rather than airline. Part II. Select and watch 2 hours of television (does not have to be continuous), including the commercials. Based on what you’ve seen, provide a viewer profile for each show and discuss your findings. During the two hours, multiple programs are shown on Television. They include reality shows, news programs, commercials and entertainment shows. The audience of every type of program is different. Businessmen are mostly interested in current affairs; house wives are interested in commercials, while people of all age and profession are attracted by entertainment shows. It is because, it provides them an opportunity to change their mood and relax from the busy hectic daily routine. News headlines are attractive to all, while the detail is often skipped. Understanding of demographics will help firms to better design their products and marketing activities to fit customer preferences. They will design commercials to attract the specific target group and schedule their commercials keeping in view their

Financing the Short Term Obligations of The Business Coursework

Financing the Short Term Obligations of The Business - Coursework Example Sources of short term finances available to a business 1. Trade credit – this is also referred as suppliers’ credit, ledger credit or open book account. It is needed when commercial purchases are not to be cleared immediately. In this case the company holds an accounts payable for the amount it owes to the suppliers while in turn running business on not paid for bills. Trade credit varies in length, type of customers and terms prevailing in a particular industry. However, the customer has to forego any discounts that would have been offered on prompt payment. The company can resolve to one month single statement bill or even the open book; this is where they have an extra ten days to clear the bill (Guerard, 2007, 108). 2. Bank loans – companies source for commercial loans from banks in order to meet or cover temporary gross working capital needs. The loan can either be secured or nonsecured. Secured loans have a lien against a company’s asset e.g. invento ry, outstanding receivables et cetera, or a pledge of credit, to back the loan. Unsecured loans are issued depending on creditworthiness of the business. The cost of the loan varies with its size and rates charged on the loan. However, a prime rate is used as a benchmark for these types of loans. Other methods used are revolving line where money is lent on a recurring basis; letters of credit where the bank guarantees by writing, the payment of a company’s overdraft for a given period of time and for specified amounts (Gitman, 2003, 24). 3. Open market commercial papers – these are negotiable notes with maturities from a range of one to nine months which are floated on the market by big corporations. Commercial paper dealers sell the issues to pension funds, smaller commercial banks, corporations, insurance companies to raise funds. The rates on commercial papers are however, below the prime rate for loans. The advantage to the company using commercial papers for borro wing funds is that the issue is widely distributed in the national market. This frees the company from relying on commercial banks. 4. Finance companies and factors – large commercial companies are deemed as the departmental stores of the financial world. These companies have subsidiaries or branches where they practice direct sales financing. They are in close contact with dealers of their merchandise therefore can offer goods to be paid for on installments. Their rates are much higher than commercial banks. Factoring arrangements are based on an advance of funds to a company by the factor against an assignment of trade receivables. An agreement is signed between the two companies to govern their relation. This is usually on a continuous basis depending on the terms applied by the two companies. Nonrecourse factoring allows the factor to buy the accounts of the company and takes up the losses thereto. However, in recourse factoring, the factor does not take up the loss on ba d accounts. Either case, factoring charges are based on a firms daily balance, general interest rate, specific factoring agreement and outstanding credit (Guerard, 2007, 115). Question two a) Financing Mark and spencer uses short term borrowings from banks and medium term notes to source for funds. Trade credit has been used for meeting financial obligations. Morrison on the other hand, has applied trade credits, borrowings from banks to source for short term funds. b) Liquidity ratios liquidity ratios for Mark & spencer Current Ratio = Total

Service Encounters Essay Example | Topics and Well Written Essays - 2000 words

Service Encounters - Essay Example The industry has also attracted more investors leading to a high competition for the market for the services. The management of an organization is therefore charged with a responsibility of ensuring that they acquire and sustain a competitive advantage over the other competing organizations that provide similar services. To be able to achieve this, the management relies on their employees to provide the customers with the level of satisfaction that can make the customers develop good reputations for the organization (Connoley, n.d, p.5). In this regard, it will be the major role of the front-line officers in a service industry to ensure that there is a kind of rapport created between them and the customers at the first instant in order to retain the customers for a long time. One of the key issues to be addressed in the service industry is how the customers perceive the kind of service that they are given by the particular industry. This is primarily determined by the kind of ‘ dyadic’ interaction that occurs between the customers and the service providers (Bitner et al, 1990, p2). The service encounter and subsequent relationship developed between the customers and the front office service providers make the management of the organizations value the employees as one of the most valuable assets in the organization. Customers and the service personnel in service organizations The diverse expectations of the participants in a service industry makes social encounters complicated in a number of ways. Firstly, the employees that are delivering the service need to derive some level of job satisfaction in the way they perform their duties. There is also a need to satisfy the needs of the customers in the industry. This makes these two actors become important participants in the service industry (Solomon et al, 1985, p). The quality of services provided by a given organization may be pointed out by the customers. The complaints that are given by the custome rs concerning the quality of the services offered by an organization can help the management of the organization establish the cause of a given problem in the delivery process (Tax & Brown, 1998, p.2). There are different views on the quality of the services offered depending on the industry itself. For instance, in hotel industry, what can be considered as quality service is the peaceful stay that has been accorded to a given customer in a given hotel. The quality of a service then follows the perception that the customers have about it. It was observed that in hotel industry, ‘the expectations and the perceptions of the customers are crucial because they are involved in the performance of the service’ (Kusluvan, 2003, p.265). However, there are important factors that impede the inclusion of the customers in the service quality management by the organization. Each of the customers in a given hotel has some unique demands and want to be served in a manner that suits thi s individual demands (Kusluvan, 2003, p.265). The service providers are then charged with a difficult task of keeping a wide track of the different customer demands. Besides, unlike the production industries where the quality of the products can be measured against the original standards that had been established, the quality a service may not be specifically broken down to the individual tangible components. The perception of the custome

Dominos Pizza Essay Example for Free

Dominos Pizza Essay Domino’s Pizza experienced a decrease in revenue of 16. 3% from year-end 2005 through the year-end 2009. It is true that the economic recession was partly at blame. However, the enterprise suffered from a negative reputation in the marketplace. Domino’s Pizza delivered pizzas that did not quite meet the demands of consumer taste. Their costumers would use social media to protest the ill delivery of pizzas and terrible taste. In addition, consumers were now more educated about their eating habits and had a growing concern with diets that led to obesity. Moreover, these facts combined with competition including companies such as Pizza Hut and Papa John’s, posed a hostile environment for Domino’s Pizza. In order to overcome these pitfalls, Domino’s pizza not only introduced a new recipe but also launched one of the riskiest advertising campaigns to this day. The recipe was a reinvention of their pizza with new ingredients that improved flavor. The advertising campaign oh yes we did guaranteed customer satisfaction otherwise they would return their money and deliver another pizza free. Another aspect of this marvelous campaign was the use of real life costumers who participated in the making of the pizza in televised commercials. Here is a comparison between pre-2009 strategies with its new approach. And, some qualities that were engaged to implement the revised strategies. Pre-2009 ?Dominos was focused on producing pizza for as cheap as possible. ?Cost leader ?8. 35% of pizzas sold in U. S ?Second behind Pizza Hut 13. 7% ?Bad rep for poor quality pizza ?Worst tasting pizza in its industry ?Market share fell 2% from 2005-2009 Post 2009 ?â€Å"Oh Ye We Did Campaign†? Dominos renewed focus on â€Å" Better ingredients, Better Pizza† and a broader menu. ?Focused on improving taste of its pizza ?Added garlic and butter to crust ?Added new side dishes and desserts ?Match competitors taste ?Expanded overall product choices Leadership ?David Brandon – C. E. O ?Innovate products ?Expand brand scope ?Everything on the menu is heavily tested and demanded by our customer ?All menu items are integrated ?â€Å"Get the door, Its Dominos† – Industry leader in efficiency ?Gathered feedback from employees ?â€Å"whats up dominos? † ?â€Å"Lunch with Dave†? Brandon would learned a lot from his employees ?Unique leadership style ?Always looking to improve even when successful Domino’s sales distribution is both domestic and internationally. The company gets 53 percent of its sales domestically and 47 percent internationally. In 2010, domestic sales were $3. 3 billion and internationally it was $2. 95 billion. Not only did fiscal year 2010 revenues show a healthy return, but cost of sales decreased by 3. 25 percent between fiscal year 2008 and 2010. Domino’s showed a very big decrease in its sales because the consumers were concerned about the quality of the pizza that dominos offered compare to the other companies in the industry. 2005 was the peak of the company where it made the most net income, since then revenues have been declining. Revenue declines aside, due to interest, repurchasing of stock, and other financial implications, after a 65 percent fall from 2006 to 2007, net income increased over the last four years. Domino’s current strategy is working well in the sense of income and revenue wise. The Net income increase was $37. 9 million in 2007, $54. 0 million in 2008, $79. 8 million in 2009, and $87. 9 million in 2010, which is annual increases of 42. 5 percent, 47. 7 percent, and 10. 25 percent respectively. The result of the revenue increase also helped eliminate debt from 2007 to 2010 from when they took a big decrease in sales and popularity from 2006 to 2007. By 2010, Domino’s became the leading pizza company in the industry; it had higher revenue and a higher net income than the leading Papa Johns. On the other hand, Dominos is only leading in revenue because it has more locations than the other pizza stores do. Compared to Papa Johns in 2010, Dominos has 9300 stores worldwide, while Papa John’s has only half of that with 3,600 worldwide. Dominos generates $170,000 per store and Papa John’s generates $313,000 per store. Dominos needs to focus on creating more revenue per store so they can provide better value to their shareholders. Taking on a better strategic approach by introducing new items to the menu and increasing the quality of the pizza did help the company get back on track from when it took the fall in 2007. The most recent year 2014, revenues almost doubled than it did in 2013 with a revenue of 589 million in 2014 and 295 million in 2013. Dominos have increased over the last six years in revenues, net income, and Earnings Per Share. Based on these numbers, the company has executed a good strategic plan. We one of most important thing any food establishment should do listen to what their consumers want. They have look into what feedback their consumers are giving them and then have a quick response to consumer’s feedback. A food chain can have all the technology in the world but if they don’t know what their consumers want they will never grow.