The computations for completing comparisons between the three industries can be performed by managers at any time to determine how the company he or she manages measures in comparison to other companies. All data was taken from the income statements ending 2009 and balance statements from the end of 2009 and 2008. Using these financial statements a manager can quickly compute these valuable pieces of data for use in decision making or presentations.
|Gross profit margin||10.51%||11.37%||38.75%||34.25%||59.03%||59.77%|
|Return on assets||0.21%||0.33%||11.86%||8.57%||4.66%||4.84%|
|Net profit margin||0.41%||0.62%||8.23%||6.07%||10.19%||10.37%|
|Debt to equity ratio||4.1194||3.9862||4.0456||10.3230||1.6374||1.7530|
|DuPont ratio (ROE)||1.05%||1.63%||60.52%||97.86%||12.30%||13.35%|
|Cost of goods sold||45,356||47,148||3,245,531||3,375,050||50,405,000||49,895,000|
|Net profit / income||210||330||435,994||311,405||12,535,000||12,867,000|
|Sales / Revenue||50,681||53,197||5,298,668||5,132,768||123,018,000||124,028,000|
|in million €||in thousands $||in thousands $|
The companies under review that are BMW, Hershey’s and AT&T have strong financials reported for the year 2009. Hershey’s and AT&T prepare their financial statements and other accounting records in accordance to the US GAAP; while on the other hand, BMW is using IFRS for its financial statements. All these companies prepare their financial statements on a consolidated basis and therefore, the following discussion is keeping in view the overall position of the groups.
Examination of the liquidity position of the companies under review suggest that AT&T could face financial difficulties as its both current and quick ratios have value less than one. This implies that the company could have problems meeting its current obligations from its current assets. Although BMW and Hershey’s current ratio values are above one in 2009 however, the quick ratio that excludes inventory in the calculation is less than one, which suggests that these companies could have liquidity issues if not managed well. All these companies have strong assets value in the year 2009, however, higher assets value of BMW and AT&T in comparison to Hershey’s clearly suggest that these companies are more capital intensive. This is reflected from the values of ROA for these companies as Hershey’s as the highest return on its assets. Since, the automobile industry is one of the most affected due to the recent economic crisis we could observe that BMW is operating at very low gross profit and net profit margins. This situation is not supportive of the R&D being carried by the company to introduce new and energy efficient car models. Although, AT&T and Hershey’s have high operating margins but they are incurring high operational expenses which has shrunk their net profit margins to a low level. Both BMW and Hershey’s have low inventory turnover that suggests that both companies are holding their inventories for a longer period before converting them into sales. Both companies need to reassess their inventory management and attempt to simplify their value chains and bring betterment in their strategic alliances. BMW has experienced an increase in its borrowing which is €82,038mn in 2009 as compared to €90,813mn in 2008 that has resulted in higher debt to equity value for this year. On the other hand, Hershey’s and AT&T have managed to cut back on their external borrowing and reduce their business liabilities that resulted in improvement in their ratios. However, it can still be indicated that these companies have high values of debt and they must take necessary actions to reduce their dependency on external funding.
Du Pont equation that provides a measure of ROE is another important indicator that has been used for analysis of these companies. It is clear that BMW is not able to generate sufficient return for its equity holders and therefore, could further face diminishing returns and loss of interest by shareholders if it is not able to steer up demand for its new vehicles. Hershey’s is the strongest having ROE of 60.52% as compared to 12.30% of AT&T and only 1.05% of BMW.
Overall, it could be suggested that BMW is facing serious financial problems as suggested by the financial ratio analysis. Although other two companies have relatively stronger position they should be concerned regarding their over indebtedness and they must undertake certain restructuring steps to reduce their current liabilities, improve inventory turnovers, and curb their operational expenses.
Differences in the industries
Different IASB and FASB measurement conventions (how they affect financial presentation)
Cash basis accounting vs Accrual basis accounting ( Angie)
Currently controversy exists in accounting in relation to the technique of calculation used for the computation of a financial statement. The accrual accounting uses the accrual concept resulting in revenue recognition at the point of sale and expense recognition as expenses occur even if the payment for expenses and sales is at another time or in another accounting period. This provides for matching of revenue and expenses because most transactions involve purchase at one point and cash payment at some other point (Marshall, McManus, & Viele, 2004).
Accrual accounting therefore allows the measurements of noncash resources and obligations with direct effects on income on the financial statement. Accrual accountants believe that revenue minus expenses is a better measurement of the growth within a company then cash received less cash paid. When comparing the two methods, accrual accounting is the more optimistic method of accounting (Horngren, Sundem, Stratton, Burgstahler, & Schatzberg, 2008).
Revenue and expenses are recognized when the cash is paid out with the cash basis of accounting. Comparable economic performances are created month to month for the organization using a cash basis of accounting. Cash basis accounting however, fails to match expenses and revenue in a manner that properly measures financial position or economic performance. Details are left from the balance sheet; key assets are omitted such as accounts receivable and key liabilities are omitted such as accounts payable (Horngren, et.al. 2008).
Financial Accounting Standards Board. (2010). Financial Accounting Standards Board. Web.
Horngren,C., Sundem,G., Stratton, W., Burgstahler, D., & Schatzberg, J.,. (2008). Introduction to Management Accounting (14th ed.). New Jersey: Pearson-Prentice Hall.
IFRS. (2010). Welcome to the IFRS Foundation. Web.
Marshall, D. H., McManus, W. W., & Viele, D. F. (2004). Accounting: What the numbers mean (6th ed.). New York, NY: McGraw Hil.