research_project.A483

research_project.A483 - International Accounting Accounting...

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International Accounting Accounting 483 Spring 2007 Research Project PURPOSE The purpose of this project is give you an opportunity to apply what you have learned from the course, in particular, the chapter on international financial statement analysis. Your goal will be to arrive at an informed opinion concerning the apparent profitability and investment prospects of a publicly traded stock of a firm domiciled in a country other than the USA and Canada. BACKGROUND The company we will be studying is Rhodia, a specialty chemicals firm domiciled in France. France, as you know, is a part of the EU and has a long tradition as a code law country. It is the world’s leading advocate of national uniform accounting. Like all EU countries, France, in 2005, adopted IFRS, which replaced French GAAP, a system codified within the French Commercial Code (The Plan Compatable General). This plan has been revised several times, in particular, and prior to 2005, to comply with the fourth and seventh directives of the EU. France was also one of the European nations that early on recognized the need for two-tiered reporting, i.e., different accounting for non-consolidated and consolidated groups (those firms that competed internationally for customers, resources and funds). Rhodia is a large and diversified company that produces specialty chemicals for use in a variety of products, including cosmetics, detergents, agrochemicals, industrial “formulations”, lubricants, emulsions, water treatments, and so forth. Its production facilities are primarily located in Europe, but significant sites also exist in North America and Asia. The chemicals Rhodia produces are distributed to customers located around the world. Rhodia, being diversified, has many competitors and these vary across product lines. For purposes of investment comparison, we will focus on only one of these, Hercules Co., a firm with a long history here in Delaware. Like Rhodia, Hercules is involved in the production of specialty chemicals. The company’s principle products are those used in the paper industry. Primary markets include pulp and paper, construction, paints and adhesives, pharmaceutical and personal care, industrial specialties, and so forth. The specialty chemical industry has been under extensive pressure in recent years and these two firms are no exception. Both Rhodia and Hercules reported very weak results in 2005. For example, Hercules, 2005 operating profit declined by almost half, relative to 2004. In similar fashion, Rhodia also reported poor 2005 results, as evidenced by a large loss in bottom line earnings. Of course, operating profit for Rhodia in 2005, year over year, did increase and become positive. Analysts may not have been impressed with this seemingly good news, however. The change seems trivial when one-time only charges
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This note was uploaded on 10/07/2011 for the course ACCOUNTING 4220 taught by Professor Brown during the Spring '11 term at UMBC.

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research_project.A483 - International Accounting Accounting...

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