Do you think that P&G’s CEO should have given specifics re: $10 billion in proposed cost savings? What are the benefits of being specific? What are the costs? What are some ratios that might be affected by costs savings? How might the firm’s share price be affected?
The FASB changed how firms record excess tax benefits or tax deficiencies associated with stock options and restricted stock. How does using an income account (tax expense/tax benefit), rather than APIC, simplify the process? Do you believe users of financial statements will react to the change? If so, how? What will be the associated effect on Diluted EPS?
INTEL changed its depreciation estimates, resulting in about $1.5 billion less depreciation. Is this in any way a “red flag?” If so, how?
Why do you think Boeing’s accounting is being “probed” if the accounting complies with GAAP? Have you heard of “program accounting” before this case? Could you explain it? Should firms be investigated if good faith estimates prove to be, in hindsight, inaccurate?
Bed Bath and Beyond’s results show the strain of competing with on-line platforms, such as Amazon. Does this surprise you? If you were the CFO of BBBY, would you “warn” via a press release if you anticipate that the results would “disappoint”? Why or why not?
If you were CEO, what options do you now have to improve margins? How long can cost cutting do the trick? How would you determine the point at which cutting costs does more harm than good to grow the firm and improve margins?
Why is Lowe’s able to extend payment terms? How does this help free cash flow? What are the downsides to pushing out payments to suppliers?
Do you think it is a good idea for publicly traded firms to stop quarterly reporting and move to a less frequent reporting cycle, such as semi-annual? Why or why not? What are the costs? The benefits?
Netflix is splitting its stock 7 for 1. What might a hoped for increase in market cap as a result of the split say about the efficiency of the stock market in setting stock prices?
Do you think the stock market is smart enough to figure out the results of a firm’s operations (such as earnings) even though the earnings announcements are obfuscated? How would you design a test to see if the markets are smart (efficient) and can figure it out?
Michael Kors shares dropped 24% upon announcing a drop in sales. Do you agree with the CEO that the market has undervalued the firm’s stock? Do you believe the share-buyback plan is a reasonable course of action? Why or why not?
Are accounting standards and the required financial disclosures meaningful to stock pickers who use computerized (quantitative) investing? Is it necessary for quants to understand accounting? If you are interested in a career in equity trading, should you study accounting, or math?
What cash flows are difficult to classify? How could one of the “misclassified” cash flows affect firm valuations?
According to the article, Target’s profitability suffered in part because of the rigid performance metrics that were introduced. Explain how introducing performance metrics can alter employees’ behavior and affect the “creative culture” that Target had. What financial ratios would capture reduced performance?
Radio Shack will close up to 1,100 stores. What are the ratios that may have predicted store closings? What sort of accounting event would require recognition of the cost of the store closings? What future results (on future financial statements) do you think will be affected by the store closings?
What is a red flag that inventory levels are too high? What are some potential consequences of too much inventory on future cash flows and earnings? Can you name any early warning data that could alert you that inventory might grow too fast?
Should the income statement be restructured in the way proposed? What are some of the pros and cons of the proposed new structure? What do you think companies would think of having to change their statements in this way?
If you were the CFO, what factors would you consider in deciding whether to hedge against price changes in commodities, against changes in interest rates, and against changes in foreign currency? Do you think investors assess a firm’s hedging program before making an investment decision?
