Case Solutions on Company Disclosure Decisions and Indicators of Financial Health

Case Solutions on Company Disclosure Decisions and Indicators of Financial Health

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Case 1 Solution: Sharon Jacobs is CEO of Henderson Industries Inc, a public company:
The main issue in this case is the disclosure decision, that is whether to disclose about the deferred payments to the shareholders or not. Second issue deals with accounting for sales. It is essential for the company to understand about its performance under the new proposed plan. In this case, the company will be lending money to their customers for purchasing the equipment's. But at the same time, during tough times in construction industry, a large portion of new customers may end up in non-repayment of debt. During tough time in the industry, it will be difficult to get market for the repossesses machinery. This situation cleanly mentions that Henderson would have given its product for no value which will result in huge loss and even failure to the company.

If in case the company is transparently disclosing about the deferred payment plan to the shareholders, then the reaction will be negative (most probably) and will result in lower bidding of stock price. If in case, these deferred revenues are not disclosed it will be positive during initial time and once it is being discovered during default time this will lead to more challenges for the company. This will lead to outrage of the investors and will drastically affect the stock price of the company.

The more interesting part is regarding the accounting treatment program. If in case, appropriate instalment sales techniques are being used, then sales under these new program will be beneficial on the current year’s revenue and profitability, as only a portion of amount on sales will be paid and recognized. Thus, there will be no change in the investors’ attitude towards the company and th...

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...clearly indicate about prosperity. But conversely if in case these rate differences are higher, then it indicates about the recession.

From the above discussion about the spread as an economic indicator, it is clear that Charlie was correct in stating that the spread indicates about the prosperity in future. But the main concern in this case is that, both these rates are increasing and the spread is also increasing. This indicates that the economy may face recession in the near future.
It is actually critical in evaluating as the nature of the products are such that everyone does good during the good economic times but the result will dramatically decrease with the change in the economic conditions. There are cases were stable companies collapsed during recessions. This clearly indicates that it will be fatal to think about expansion during the economic recession.

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