Intercorporate Entities, i.e., consolidations, equity investments, partnerships Chapter 7.
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Transcript of Intercorporate Entities, i.e., consolidations, equity investments, partnerships Chapter 7.
![Page 1: Intercorporate Entities, i.e., consolidations, equity investments, partnerships Chapter 7.](https://reader036.fdocuments.in/reader036/viewer/2022082505/56649f345503460f94c525e5/html5/thumbnails/1.jpg)
Intercorporate Entities, i.e., consolidations, equity investments, partnerships
Chapter 7
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Acquisitions• Purchase (old and new)
– Goodwill– mark-to-market analogy
• Pooling– Simply added BVs of assets and liabilities– No reflection of MVs at purchase– 12 criteria (p. 467)– practice no longer allowed under GAAP
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Equity Investments• Majority => > 50%
– control
– consolidated (Vs. acquired)
• Minority Active => 20% to 50%– create an asset and adjust for share in NI and dividends
– Equity method
• Minority Passive => < 20%– mark to market
– Market value method
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Comprehensive Income• Stockholder Equity impact (SFAS 130)
– as compared with I/S impact
• Arises from
– hedging (foreign currency and other derivatives) (SFAS 133)
– pension reporting
– certain mark to market adjustments
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Segment Reporting (SFAS 131)
• Reportable operating segments
• Geographic coverage
• Major customers
• Be able to identify unique risk in each
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Segments, continued• What is reported?• Operating segments:
– Sales– Profit / Loss– Assets
• Customers: (if 10%)– Have to report sales– Often named
• Geographic Segments:– Sales and fixed assets
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Chapter 8
Profitability
ROA and ROE expanded
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ROA, as a function of:
• Operating Leverage– i.e., fixed costs (committed and
discretionary)
• Business Cycle
• Product Life Cycle
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Leverage
• Earn a higher return than the cost of the investment
• Operating Leverage – Reflects investment in fixed costs
– Measure as fixed costs (expense) as a percent of total expenses
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Strategic Management
• Life cycle of a firm–Introduction
–Growth
–Maturity
–Decline
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Industry-Specific ROA Problems
• High Tech
• Airlines / Travel and Transport
• Service firms
• Retailers
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Expand to ROCE
• ROCE = ROA x CEL x CSL
• Reversion to the Mean