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Unformatted text preview: CHAPTER THREE 3 Chapter Introduction: Measuring and Evaluating Financial Performance Measuring and Evaluating Financial Performance 3.1 NEL Clarence Lee, a successful physician who has been investing in the stock market for several years, has become more and more conscious of how well (or badly) companies perform in making a profit. From an economics course he took in university, he remembered that many years ago, the famous economist John Maynard Keynes had said, The engine which drives enterprise is not thrift, but profit. 1 Clarence clipped out several articles as he thought about profit (also commonly called income or earnings)here are five quotes from his collection: T yco profit doubles: Manufacturing conglomerate Tyco International Ltd. said Wednesday it plans to close more than a dozen factories and possibly split up its wide-ranging businesses in efforts to boost the value of its stock. The company also reported fiscal fourth-quarter net income doubled because of a tax-rate adjustment and one-time gains. 2 Royal Bank profit vaults 32%: Royal Bank of Canada posted a 32% profit increase in the third quarter, despite an Enron-related charge and flat returns from its U.S. and international operations. 3 Hollinger Intl reports loss: Hollinger International Inc., the newspaper publisher once controlled by Conrad Black, said Wednesday that it lost $18.5 million (U.S.) in the first quarter and it intends to file second-and third-quarter results by the end of this month. 4 Hollingers financial statements have been behind schedule since 2003, when a special committee of inde-pendent directors began investigating certain fees and deals at the company. 5 Increased costs hit Sobeys quarterly profit: Canadas second-largest supermarket chain saw its second-quarter profit slip almost 3 per cent as costs related to changes aimed at the cutthroat Ontario market offset an increase in sales revenue. Enbridge profit tumbles: Oil pipeline and natural gas giant Enbridge Inc. raised its dividend Thursday while reporting a sharp drop in net profits, mainly from a one-time gain last year. 6 It is good to see companies such as Tyco and the Royal Bank doing well. But determining earnings seems to have major chal-lenges or companies like Hollinger would be able to report on a For information on this topic, please visit the online tutorial at www.gibbins6e.nelson.com timely basis without needing special investigations into their own financial dealings. It is a concern, thought Clarence, that current earnings can be greatly affected by events of the past as in the case of the Royal Bank now recognizing losses related to dealings with Enron in prior years....
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This note was uploaded on 10/22/2009 for the course ACCOUNTING 30516 taught by Professor Whoever during the Spring '09 term at American Academy of Art.
- Spring '09