Valuation Challenges Arising From the New Leasing Standard ASC 842: A Teaching Note

Accounting Standards Codification (ASC) Topic 842, the new accounting standard on leasing, aims to improve transparency related to leasing and to enable users of financial statements to more readily compare firms that lease with firms that borrow to buy assets. The standard is effective for 2020 and has had a significant impact on the balance sheets of many firms. This note provides an overview of the accounting changes and highlights key issues related to financial analysis and valuation with guidance on how to avoid common errors and accurately calculate and compare enterprise value, EBIT, EBITDA, valuation multiples and key valuation ratios. We also explain how financial data providers, Bloomberg, Capital IQ and FactSet, have adapted the information provided on these metrics

Rivera Custom Cabinetry: Financial Statement Analysis Using Excel

This case illustrates the impact of various business transactions on a firm’s financial statements. The case objective is to highlight how business transactions affect financial statements and to illustrate the links between financial statements and key ratios. The case was developed and piloted as a final project in an introductory accounting class and as an accounting review in a corporate finance course. In each part of the case, students are asked to show the impact of a business transaction on the firm’s balance sheet and income statement. The cash flow statement and financial ratios calculate automatically. Part 1 of the case focuses on the transactions involved in establishing the company. Part 2 illustrates basic operating transactions. Part 3 considers the impact of growth and leverage

How Unilever HPC-Na Sold its Employees on the Balanced Scorecard

Unilever Home & Personal Care-North America (HPC-NA) not only takes marketing its products very seriously, but it heavily promotes its balanced scorecard to employees as well. No wonder Unilever HPC-NA successfully designed a unique strategy to communicate awareness of the BSC while encouraging its participation and use. Their experiences should prove valuable to other organizations implementing a balanced scorecard and to those just beginning to formulate a communications approach to internal stakeholders about its role, significance, and use. The Unilever HPC-NA marketing campaign provides an effective strategy that other firms may consider when marketing a balanced scorecard internally. The HPC-NA journey yielded some important lessons: 1. Select a few critical measures, and track them rigorously. 2. Remember to market the BSC. 3. Align BSC results with compensation to maximize use and effectiveness. 4. Know your audience in all communications vehicles. 5. Keep in mind there will be early adopters and stragglers, but persevere

From Workout to Winning

Over the past three years, executives at General Electric (GE) have taught administrators at Sacred Heart University, located in Fairfield, CT, how to use the workout technique to identify and improve inefficient institutional processes and practices. This article will explain how Sacred Heart implemented the workout process, with a particular emphasis on factors contributing to successful workouts and the issues nonprofits encounter. GE has credited the workout with both improving processes and empowering the workforce. The workout, which has led to accelerated change and enhanced Six Sigma efforts, begins with identifying a problem. Many at GE note that the workout process is most effective in improving a process, not solving a technical problem. Although they have experienced a great deal of success using the workout process, there are unique challenges in not-for-profit settings. Another challenge is that authority lines are not always as clear as in for-profit corporations, which can make it difficult to assemble the right team

Transparency in Financial Markets and Institutions: A Catholic Social Thought Perspective

We argue that transparency, or information disclosure by public and private sector institutions should be viewed as an important component of the Catholic Social Thought process. A higher degree of transparency by a single institution denotes revealing a greater magnitude of truthful information that leads to optimization of actions by other individuals and institutions, thus ultimately, to maximization of social welfare. Based on the precepts of Catholic Social Thought, more detailed and unbiased information allows individuals to make more truthful observations of reality that subsequently rationalize their judgment and actions. This is particularly relevant for financial markets and institutions that are inherently forward-looking in their reasoning and actions, thus highly sensitive to information disclosure. We analyze this causal dependence with respect to transparency of selected central banks and financial reporting requirements

Workplace Harassment: The Social Costs of Bullying

Most research on workplace bullying uses survey results to understand working conditions, target and bully characteristics, and results of bullying situations. This study uses content analysis to determine themes emerging from a writing assignment that asks students to respond to questions about workplace bullying. The intent of the research is to enable bullying targets to better understand the situation, to help managers to learn how to mitigate possible bullying situations, and to assist witnesses to better react to workplace incidents

Transparency in Financial Markets and Institutions: A Catholic Social Thought Perspecitve

We argue that transparency, or information disclosure by public and private sector institutions should be viewed as an important component of the Catholic Social Thought process. A higher degree of transparency by a single institution denotes revealing a greater magnitude of truthful information that leads to optimization of actions by other individuals and institutions, thus ultimately, to maximization of social welfare. Based on the precepts of Catholic Social Thought, more detailed and unbiased information allows individuals to make more truthful observations of reality that subsequently rationalize their judgment and actions. This is particularly relevant for financial markets and institutions that are inherently forward-looking in their reasoning and actions, thus highly sensitive to information disclosure. We analyze this causal dependence with respect to transparency of selected central banks and financial reporting requirements

Finance Flies High: How Unilever Redesigned the Finance Function to Build Brand Value and Drive Growth

Unilever\u27s finance team played a key role in the success of their brands. The company achieved its fourth consecutive year of accelerating organic sales growth from less than 0.5% in 2004 to more than 7% in 2008, according to Jim Lawrence, Unilever\u27s CFO. Its strategy is to focus on volume growth and strengthening the competitive position of the company\u27s brands. In this article, the authors examine how the finance function at Unilever was redesigned to deliver the firm\u27s strategic goals, including an emphasis on volume growth and competitive position of its brands. Beginning in 2005, the finance team at Unilever asked on how the finance function should operate to achieve their goals. The result was the creation of a five-step process dubbed Finance of the Future. The steps are: 1. Define Finance of the Future. 2. Develop strategic thrusts. 3. Create global Finance Excellence Center. 4. Develop innovative business partners. 5. Organize for success: The New Finance Structure

The Balanced Scorecard at Philips Electronics

The drive to implement the balanced scorecard at Philips Electronics came from the top down - as a directive from the Board of Management in Europe to all Philips divisions and companies worldwide. The directive went to each of the companies and their quality departments, with the effort in the medical division headed by the Quality Steering Committee that reports to the president of Philips Medical Systems. Philips Electronics has used the balanced scorecard to align company vision, focus employees on how they fit into the big picture, and educate them on what drives the business. An essential aid to communicating the business strategy, the BSC works as a vehicle to take key financial indicators and create a quantitative expression of the business strategy. In fact, Philips Electronics\u27 management team uses it to guide the quarterly business reviews worldwide in order to promote organizational learning and continuous improvement

A Transformational Change Program in IT - The Case of a Global Consumer Products Company

This paper presents a framework for development of a transformational change management program (Flamholtz and Randle, 2008) in an information technology (IT) organization of a global Fortune 200 consumer products company. The goal of the transformation was to build leading edge global IT service offerings, to internal and ultimately external customers. the program played a pivotal role in the company\u27s Path to Growth Strategy. This strategy included very specific targets for sales, margins and earnings growth over a five year period. The case illustrates how a well conceived change program, integrated with an organization\u27s overall strategic plan, is a competitive advantage