Case 4 5 Xerox

Management Control Systems

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Xerox Corporation: Evaluating Risk of Financial Statement Fraud Eric Borden, Jamie Fahnhorst, Liz Hoy, Heidi Miller and Tami Prochaska 1.) Financial information was provided for Xerox for the period 1997 through 2000. Go to the SEC web site ( www.sec.gov ) and obtain financial information for Hewlett Packard Company for the same reporting periods. How are Xerox’s and Hewlett Packard’s businesses similar and dissimilar? Using the financial information, perform some basic ratio analyses for the two companies. How do the two companies financial performance compare? Explain your answers. HP is a leading global provider of computing and imaging solutions and services for business and home, and is focused on the opportunities of the internet and the emergence of next-generation appliances, e- services, and infrastructure. HP’s major business segments include imaging and printing systems, computing systems, and IT services. Xerox is known as “the document company” and a leader in the global document market. It focuses on selling equipment providing document solutions including hardware, services, and software that enhances productivity and knowledge sharing. Xerox’s activities include developing, manufacturing, marketing, servicing, and financing a complete range of document processing products, solutions, and services designed to make organizations around the world more productive. The companies are similar in the fact that both provide services and equipment to businesses and home users to help store, manage, and share information. The companies are different first because HP is more focused on sharing the information electronically, while Xerox is more focused on paper documents and printing. Second, HP tends to market its products to households and small to medium sized businesses, while Xerox tends to market its products to larger companies. There are four types of ratios including short-term debt paying ability, liquidity activity, long-term debt paying ability, and profitability. Short-term debt paying ability ratios examine whether or not the company will be able to pay their debts when they come due. Current ratio is an example of this, and both companies have a relatively close current ratio. Liquidity activity ratios can be used to determine a company’s ability to generate less liquid assets into cash to meet debt requirements. Xerox and HP have similar days to collect receivables, but HP sells its inventory much faster than Xerox. This could mean that Xerox’s inventory is becoming obsolete. Debt to equity is a ratio that measures a company’s ability to meet long-term debt. If a debt to equity ratio is too high, it can indicate a company has used up its borrowing capacity and will not be able to take on additional debt. Profitability ratios measure a company’s ability to generate cash for payment of obligations, expansions, and dividends. Both companies’ profit margin ratios are similar, but Xerox has decreased a lot in 2000.
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Case 4 5 Xerox - Xerox Corporation: Evaluating Risk of...

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