http://news.bbc.co.uk/2/hi/business/10101785.stm
Summary
On May 7th 2010, Royal Bank of Scotland announced they narrowed their losses of £765M to £248M after a significant 14% drop in bad debt expenses. Stephen Hester, Chief Executive of RBS, was pleased to see “Economic recovery is benefiting (our) customers and thereby ourselves (RBS)”. People now have more wealth to pay off mortgages or loans that were borrowed from RBS. Apart from decreasing in bad debt expenses, RBS posted operating revenue of £713 M comparing to £1.35B lost the last time. 84% of RBS’ equity is now owned by the taxpayers as a result of the massive government bailout in 2008 to prevent RBS from collapsing.
Connection
Bad debt expense that is associated with banks is not quite similar to bad debt expenses that regular companies would have. In a retail or wholesale business, goods and services are delivered in exchange of revenue. However, because the core operation of bank is loans and mortgages, generating revenue will mean they have to give up their cash in exchange of interest revenue that is going to be earned from the customers. The estimation of bad debt expense for RBS will be the combination of principal lent and interest receivables. A £0.2B decrease in RBS bad debt expense signaled people now have more wealth to pay off their debts, yet perhaps only minimal payments are paid to avoid penalties as economic conditions remain harsh because of the possible outbreak of Greece credit defaults.
Reflection
RBS reported net loss of £248B, despite a 14% drop in their bad debt expenses. As economic condition is slowly recovering, RBS should be optimistic that will continue to receive more payment from their customers. However, because of uncertainty of Greece debt crisis and political election process, outlook for United Kingdom in 2010 remained challenging. As a result of challenging outlook, I predict the interest rate in UK will remain low and in order to generate more revenue, RBS should start considering offering lower interest rate in the bank industry to acquire more market shares. By offering lower interest rate, owners’ mortgage or loans that fluctuate with interest rate will benefit from reducing interest rate and therefore more likely to pay off their debt as soon as possible. Reducing bad debt expenses and increasing revenue will then enlarge banks’ profit margin.
Monday, May 10, 2010
Tuesday, April 13, 2010
NFL less cash flow
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a0NyrM4Uck8E
Summary
Anthony Noto, the CEO of NFL, reported a 9% gain in total revenue while salaries (60% of expenses) and cash flow resulted in a 9% and 8% respectively in the season of 2008-2009. As a result of decreased cash flow and increased expenses, Noto realized it is urgent for NFL to start controlling players’ salaries. The management of NFL planned to terminate players’ contract two years before it ends in 2012. However, management team of NFL clearly know it will be hard to convince player to take less from NFL. There are rumours that there will be a “possible strike and lockout following 2011 season.” Presently, NFL has already capped the salaries for each team to be $128 millions and top 8 teams in the league are restricted to certain number of free trades and payroll.
Connection
This article mentioned how operating activities can affect the cash flow of the operating section in the cash flow statement. Despite the elevation in revenue, NFL reported a decrease in both net cash flow and operating expenses. This is mainly due to increase in players’ salaries and full payment of cash must be credited from bank account at the end of the fiscal period. Less cash flow and decrease in net income will less likely attract investors as they are seeking for steady and long-term growth return. If the problem lingers, financing will become harder for NFL and NFL might experience insolvency in a long-term run. Moreover, because there is a possibilities that a strike will take place, events of such will lag the cash flow of the NFL. The main reason behind the drag is NFL still has to pay operating expenses while having zero revenue from television broadcast and gate entries during strikes.
Reflection
I agree with Noto’s move to renegotiate salaries with NFL players because salaries are the largest portion of operating expenses and it can significantly reduce NFL cost in the future. If deduction is not reached, a frozen salaries level must be implemented to ensure NFL's benefit. While controlling salaries, it is also important for NFL to explore new markets like India and China. A possible method can be sponsoring inter-school league teams or work together with milk industry to gain popularity in these “football deserts.” By presenting this promotion plan to investors, NFL will be able to acquire extra funding from them which will consequently increase their cash flow through financing activities. When television broadcasts in China and India are determined, players and NFL can then negotiate to come up with a “win-win” solution.
Summary
Anthony Noto, the CEO of NFL, reported a 9% gain in total revenue while salaries (60% of expenses) and cash flow resulted in a 9% and 8% respectively in the season of 2008-2009. As a result of decreased cash flow and increased expenses, Noto realized it is urgent for NFL to start controlling players’ salaries. The management of NFL planned to terminate players’ contract two years before it ends in 2012. However, management team of NFL clearly know it will be hard to convince player to take less from NFL. There are rumours that there will be a “possible strike and lockout following 2011 season.” Presently, NFL has already capped the salaries for each team to be $128 millions and top 8 teams in the league are restricted to certain number of free trades and payroll.
Connection
This article mentioned how operating activities can affect the cash flow of the operating section in the cash flow statement. Despite the elevation in revenue, NFL reported a decrease in both net cash flow and operating expenses. This is mainly due to increase in players’ salaries and full payment of cash must be credited from bank account at the end of the fiscal period. Less cash flow and decrease in net income will less likely attract investors as they are seeking for steady and long-term growth return. If the problem lingers, financing will become harder for NFL and NFL might experience insolvency in a long-term run. Moreover, because there is a possibilities that a strike will take place, events of such will lag the cash flow of the NFL. The main reason behind the drag is NFL still has to pay operating expenses while having zero revenue from television broadcast and gate entries during strikes.
Reflection
I agree with Noto’s move to renegotiate salaries with NFL players because salaries are the largest portion of operating expenses and it can significantly reduce NFL cost in the future. If deduction is not reached, a frozen salaries level must be implemented to ensure NFL's benefit. While controlling salaries, it is also important for NFL to explore new markets like India and China. A possible method can be sponsoring inter-school league teams or work together with milk industry to gain popularity in these “football deserts.” By presenting this promotion plan to investors, NFL will be able to acquire extra funding from them which will consequently increase their cash flow through financing activities. When television broadcasts in China and India are determined, players and NFL can then negotiate to come up with a “win-win” solution.
Friday, February 26, 2010
Revenue Recognition
http://cnrp.ccnmatthews.com/client/red_back_mining/release.jsp?year=2010&actionFor=1122996&releaseSeq=0
Summary
Red Back Mining Inc. is a Vancouver based mining gold company which had two mining sites in Africa currently operating. For the fiscal year ended on December 31st, 2009, Red Back reported a net income of $109 million and EPS was $0.48. These enhanced performance was mainly result of increased productions, decrease in cash cost and higher gold prices. These two minning sites, Chirano and Tasiast, were located in Ghana and Mauritania respectively. Despite the increase in net income, expenses escalated to a higher level due to increase in amortization expenses and administrative fees in the past year. Furthermore, costs of plant expansion are also recognized in this fiscal period as plant expansion in Chirano and Tasiast were completed.
Connection
This financial report is closely related to revenue recognition principle in Chapter 4. First of all, Red Back mining has a multiple lines of production in two African countries. Therefore, revenue and expenses in these mines are listed separately in the financial report in order to provide a clear performance evaluation of two gold mines. Secondly, all expenses that are related the revenue generation are recorded in the 2009 financial report. For example, an amortization expense is an evaluation of equipment, plant or machines that are used in mining. That might not directly relate to revenue, but because revenue was created from the damages to these plants, amortization must be recorded in the same period of the revenue.
Reflection
GAAP, General Accepted Accounting Principle, is used worldwide as guidelines for the production of financial statements. However, it has been an awkward situation that GAAP has not been made in law and in lots of case, business have the right to avoid following the GAAP. For instance, matching principle states company must incur all expenses that are related to revenue. It is possible or perhaps legal for company to manipulate expenses figures and create a unrealistic reflection of company’s performance. They can put all the expenses in the first period so that rest of the quarters will have significant increase in net income. In my opinion, GAAP should be made in laws to protect investors from fraud or scandals.
Summary
Red Back Mining Inc. is a Vancouver based mining gold company which had two mining sites in Africa currently operating. For the fiscal year ended on December 31st, 2009, Red Back reported a net income of $109 million and EPS was $0.48. These enhanced performance was mainly result of increased productions, decrease in cash cost and higher gold prices. These two minning sites, Chirano and Tasiast, were located in Ghana and Mauritania respectively. Despite the increase in net income, expenses escalated to a higher level due to increase in amortization expenses and administrative fees in the past year. Furthermore, costs of plant expansion are also recognized in this fiscal period as plant expansion in Chirano and Tasiast were completed.
Connection
This financial report is closely related to revenue recognition principle in Chapter 4. First of all, Red Back mining has a multiple lines of production in two African countries. Therefore, revenue and expenses in these mines are listed separately in the financial report in order to provide a clear performance evaluation of two gold mines. Secondly, all expenses that are related the revenue generation are recorded in the 2009 financial report. For example, an amortization expense is an evaluation of equipment, plant or machines that are used in mining. That might not directly relate to revenue, but because revenue was created from the damages to these plants, amortization must be recorded in the same period of the revenue.
Reflection
GAAP, General Accepted Accounting Principle, is used worldwide as guidelines for the production of financial statements. However, it has been an awkward situation that GAAP has not been made in law and in lots of case, business have the right to avoid following the GAAP. For instance, matching principle states company must incur all expenses that are related to revenue. It is possible or perhaps legal for company to manipulate expenses figures and create a unrealistic reflection of company’s performance. They can put all the expenses in the first period so that rest of the quarters will have significant increase in net income. In my opinion, GAAP should be made in laws to protect investors from fraud or scandals.
Thursday, January 14, 2010
Accounting System
Summary
Connection
Reflection
Thursday, October 8, 2009
Tata Motors
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ammgS5Pc.Nuc
Summary
Tata Motor Ltd., Indian Jaguar Land Rover's Owner, seeked to raise 300 millsion by listing GDR on the Luxembourg stock exchange. . The new shares were offered at $12.54,which was equivalent to 580.34 rupee per common share. In 2008, when the financial crisis detonated, Tata motor Ltd. realized it was a great opportunity for them to expand their business as three auto big heads were suffering because of the recession. Tata purchased Jaguar at a cost of 2.5 billion from Ford Motor Inc, one of the U.S. auto big heads. Tata's action of issuing its share has taken an "advantage of surging demand for Indian Stocks". This decision will not only unload some of their heaving debt, but also provide the company with greater flexibility. Due the positive share sales incentive, Tata rose 5.5% to 589.25 Rupee on yesterday.
Connection
Tata Motor issued approximately 2 millions of shares in the market to generate new fund in shareholders' equity. This is a financing activity which will be shown in the cash flow statement. Both the bank account and retained earning section of the balance sheet will increase because of that. However, since most of this fund will be contributed toward the debt that Tata has created when they acquired Jaguar from Ford Motor, there might also be a sudden decrease in the cash account and account payable. There is no net change to the equation of Asset= Liabilities + Shareholders' equity. The accounting equation is maintained in this case.
Reflection
Tata motor Ltd. was famous for its cheap cars like the recently released $2500 nano cars. It has bought Jaguar Land Rover from Ford in 2008. Jaguar and Land Rovers are luxury and SUV, 4 *4 cars respectively. Because of the economic downfall, demand for these expensive or oil-consuming cars decrease. Tata motors bought this company because they thought when the economy gets better, demands for these cars will climb up again. Acquisition for Jaguar land rover was cheaper comparing to other period of time, but nonetheless, it is a very risky decision as the market has lots of substitutions for such vehicles and it has also created a heavy loan for them. Fortunately, their new issue of shares will ease off the pressure of this heavy loan.
Summary
Tata Motor Ltd., Indian Jaguar Land Rover's Owner, seeked to raise 300 millsion by listing GDR on the Luxembourg stock exchange. . The new shares were offered at $12.54,which was equivalent to 580.34 rupee per common share. In 2008, when the financial crisis detonated, Tata motor Ltd. realized it was a great opportunity for them to expand their business as three auto big heads were suffering because of the recession. Tata purchased Jaguar at a cost of 2.5 billion from Ford Motor Inc, one of the U.S. auto big heads. Tata's action of issuing its share has taken an "advantage of surging demand for Indian Stocks". This decision will not only unload some of their heaving debt, but also provide the company with greater flexibility. Due the positive share sales incentive, Tata rose 5.5% to 589.25 Rupee on yesterday.
Connection
Tata Motor issued approximately 2 millions of shares in the market to generate new fund in shareholders' equity. This is a financing activity which will be shown in the cash flow statement. Both the bank account and retained earning section of the balance sheet will increase because of that. However, since most of this fund will be contributed toward the debt that Tata has created when they acquired Jaguar from Ford Motor, there might also be a sudden decrease in the cash account and account payable. There is no net change to the equation of Asset= Liabilities + Shareholders' equity. The accounting equation is maintained in this case.
Reflection
Tata motor Ltd. was famous for its cheap cars like the recently released $2500 nano cars. It has bought Jaguar Land Rover from Ford in 2008. Jaguar and Land Rovers are luxury and SUV, 4 *4 cars respectively. Because of the economic downfall, demand for these expensive or oil-consuming cars decrease. Tata motors bought this company because they thought when the economy gets better, demands for these cars will climb up again. Acquisition for Jaguar land rover was cheaper comparing to other period of time, but nonetheless, it is a very risky decision as the market has lots of substitutions for such vehicles and it has also created a heavy loan for them. Fortunately, their new issue of shares will ease off the pressure of this heavy loan.
Thursday, September 17, 2009
Accouting System
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aot0_R72kBiw
Sept. 16- A Hong Kong Accounting firm Ernst & Young has been charged to be using "false documents" in Akai Holding Ltd's audit works. Mark Hapgood, the representative of Ernst & Young denied the charge and claimed "it breached its obligations as an auditor" for Akai. However, the Lawyer representing the liquidator of Akai Holding Ltd, Leslie Kosmin, questioned the accounting firm's reliability by indicating alterations of financial documents after they have been dated. Hapgood refused to admit any of the charges and claimed all their report have been reviewed and proven by experts. Judge William stone “said he was surprise by the allegation of fraud”.
Connection
Under the principle of GAAP, financial statements prepared by public-traded businesses must be verified by independent auditors to ensure investors are receiving accurate and correct information about the company. Auditors from Ernst & Young were accused they had failed to verify the fraud in the financial statement of Akai Holding Ltd. For example, Kosmin indicated the lack of proof that Akai’s ownership of lands in Germany and Japan. Land is part of asset and the asset value will significantly increase because lands are usually valuable. This false reflection of asset might mislead investors. Auditors hold a strong responsibility to maintain fairness in the market.
Reflection
I was first surprised that Ernst and Young, one of the biggest accounting firms in the world, was accused of using false documents in their auditing. Later I realize that it is not impossible for such big firm to conduct such unethical act. Money is the biggest motivator for people, even professional ones, to commit a crime. The false use of documents might lead to bankruptcy of thousand investors. It is extremely selfish to consider only one’s benefit but ignore others’. Auditor isn’t just a job; it is a protection that protects investors’ benefit. If this protection is penetrated because of money, investors will less likely to invest any of their money in the market. As a result, the economy shrinks. If each of us has less greed for wealth or fame, will the world be a better place?
Sept. 16- A Hong Kong Accounting firm Ernst & Young has been charged to be using "false documents" in Akai Holding Ltd's audit works. Mark Hapgood, the representative of Ernst & Young denied the charge and claimed "it breached its obligations as an auditor" for Akai. However, the Lawyer representing the liquidator of Akai Holding Ltd, Leslie Kosmin, questioned the accounting firm's reliability by indicating alterations of financial documents after they have been dated. Hapgood refused to admit any of the charges and claimed all their report have been reviewed and proven by experts. Judge William stone “said he was surprise by the allegation of fraud”.
Connection
Under the principle of GAAP, financial statements prepared by public-traded businesses must be verified by independent auditors to ensure investors are receiving accurate and correct information about the company. Auditors from Ernst & Young were accused they had failed to verify the fraud in the financial statement of Akai Holding Ltd. For example, Kosmin indicated the lack of proof that Akai’s ownership of lands in Germany and Japan. Land is part of asset and the asset value will significantly increase because lands are usually valuable. This false reflection of asset might mislead investors. Auditors hold a strong responsibility to maintain fairness in the market.
Reflection
I was first surprised that Ernst and Young, one of the biggest accounting firms in the world, was accused of using false documents in their auditing. Later I realize that it is not impossible for such big firm to conduct such unethical act. Money is the biggest motivator for people, even professional ones, to commit a crime. The false use of documents might lead to bankruptcy of thousand investors. It is extremely selfish to consider only one’s benefit but ignore others’. Auditor isn’t just a job; it is a protection that protects investors’ benefit. If this protection is penetrated because of money, investors will less likely to invest any of their money in the market. As a result, the economy shrinks. If each of us has less greed for wealth or fame, will the world be a better place?
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