Lecture 6 spring 10 - Managers accounting choices Debt...

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Debt covenants Management compensation Tax considerations Competitive considerations Stakeholder considerations Corporate control contests Capital market considerations Regulatory considerations Outcome - Report truthfully - Overstate performance - Build hidden reserves - Take a bath - Off B/S financing, etc. Spring 2010 NBA 5060 Lecture 6 – Accounting Analysis Conducting an accounting analysis: Step 1. Identifying key accounting policies Step 2.Identifying incentives to manage earnings Step 3.Identifying where managers have flexibility Step 4.Assessing the likelihood of earnings management Step 5.Adjusting financial statements Lecture 6 Page 1 of 15
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For 2/16: Read Harnischfeger Case (handed out today). Come to class prepared to discuss case questions. Lecture 6 Page 2 of 15
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Step 1. Identify Key Accounting Policies This step involves evaluating how well the financial statements reflect the effects of key business activities. ** Revenue recognition is always important. Beyond these, use what you learned about key business activities and business risks facing the company from your industry and strategy analysis to identify key accounting policies. Key accounting policies for SBUX: Key Activity Accounting Policy Adequate? Lecture 6 Page 3 of 15
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line , and make sure you understand the economic activities that affect those accounts. Step 2. Identify managers’ reporting incentives Yahoo Gets Pinched After Profits Miss by a Penny By Will Swarts April 18, 2007 The Company Yahoo (YHOO 1 ) Share price as of Tuesday's close: $32.09 Share price now: $28.31 Percent change: -11.8% Volume: 127.1 million shares, daily average 19.3 million The News A penny saved is a penny earned, but a penny short was bad news for Yahoo (YHOO 2 ). Shares of the Internet behemoth plunged 12% after quarterly per-share earnings fell one cent short of Wall Street's expectations. Lecture 6
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Lecture 6 spring 10 - Managers accounting choices Debt...

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