Overview
To think of accounting as an exercise in “juggling numbers” is to miss the point. The primary purpose of accounting is to provide information that is useful for decision-making purposes. In today’s highly competitive business environment, prudent decision-makers, both internal to the firm and external to it, make informed decisions based on as much “hard” financial information as is available. Accounting provides the metrics by which we can gauge the strength of a business in terms of its profitability, its liquidity its solvency, etc. Accounting is, indeed, the “language of business”.
The primary goal of the project is to provide an opportunity to relate the course content to what is reported in the “real world” via press release. Secondary goals include utilization of the Internet to perform basic accounting-related research and enhancement of written communication skills.
What’s a Press Release?
Generally, companies that are publicly owned publish financial results each quarter in the form of a news release sometimes referred to as an “earnings release”. Typically, the release contains a few pages of text describing financial results of business operations during the quarter and financial statements are attached.
You Need an Earnings Release
Companies will issue press releases for a variety of purposes, including announcement of a new product, a new location, a newly hired executive, or monthly sales reports. While all of these are press releases, none of them is an earnings release. You need to find the earnings release, the title of which may refer to earnings, profits, results of operations or financial results. If you are in doubt as to whether you have located an appropriate release, print it and show it to me.
Probably the easiest way to find the earnings release is to do a Google search on the name of the company followed by the words “investor relations”. There may be a number of different types of press release in investor relations. Remember, you want the one that reports the quarters’ financial results. Some companies call it a release about results of operations. Some call it an earnings release. Again, you may need to hunt a bit – patience and persistence may be necessary. The key is to be sure the press release you use concerns itself with reporting the company’s recent earnings (which may also be called profit or net income) results. I will demonstrate the search for an earnings release in class, using a company other than one of those listed below.
Not Every Company’s Release Will Work!
Three companies are listed below. For purposes of this project, please select one of these companies – these companies were chosen for a reason – do not substitute your own choice of a company!!!! All 3 companies issued an earnings release in May 2017 and you should use that release – not earlier and not later. Web sites can change frequently and I have reviewed those releases to ensure they will enable you to answer the questions that you need to answer. Here are the three companies.
The Final Product:
Michael Kors Ralph Lauren Tiffany
The final product will have several components:
1. 1) A Word document in which you have answered the questions posed at the end of this handout. With respect to the paper, please note the following.
1. a) Express yourself clearly and concisely in complete sentences. A portion of the credit for
the paper will be assigned to spelling, grammar, clarity of expression and documentation. The paper should be double spaced (APA guideline). Use the spell/grammar check features of Word, proof and edit your paper. Include in-text APA- style citations where appropriate. The Writing Center can help you with this aspect of the paper. I have posted some APA related resources to Coursework.
2. b) I am more interested in the quality than the quantity of your report. From a qualitative perspective, think of your project as something you would be willing to submit to an important client or to a senior executive of your company.
3. c) Please number your answers to correspond with the related question rather than forging your answers into a continuous essay. If you do otherwise, you will not earn full credit.
4. d) Include a title page and a references page.
2. 2) A copy of your press release, including any attached financial statements must be submitted or your paper cannot be graded. It can be the same press release that you used to work on or write on through the project.
3. 3) Assemble your package as follows: APA cover page, Word document with Excel sheets incorporated into the writing if utilized, APA reference page, and the press release.
4. 4) A good idea might be to save your project either on your LIM desktop (use Citrix while working on the project) or on the hard drive of your PC AND to back up your work on a flash drive. It takes seconds to do that and ensures that you have two copies of your report. “My computer crashed at the last minute” is not a reason to submit late!
Due Date:
The foregoing will be submitted on the due date stated on the syllabus. You will submit the project in class at the beginning of the class period on the due date. If the project is submitted after the beginning of the class period, then it will be considered a late submission. Again, back- up your work, as technological malfunctions will not be accepted as justification for a late submission. Late papers will be penalized 5 points for each calendar day they are late. If the complete project is not submitted by the next class meeting date, then your grade will result in a zero grade for the project.
The Questions to be answered based on your press release…
Here are the questions that you need to address in your paper. Be sure to use the press release released at the time I specified above and answer based on quarterly (not year to date) data. Use your text and other resources as needed with regard to definitions, etc. Remember to document where necessary, using APA style. Please number your answers to correspond with the related question rather than forging your answers into a continuous essay. If you do otherwise, you will not earn full credit.
1. 1) Start with a very brief (sentence or two) description of the company’s line of business – what does it do for a living? Then, the address the main part of this question: remembering that accounting provides data that is used to gauge the degree of success for a business, in a paragraph or two and based on information contained in the press release, in your own words, how successful was the company for the quarter? Your goal is to pick out the most important information that points toward the success of the company. In so doing, remember the basic purpose of a company. Think about the discussion we have had in class, and, if it is helpful to you, the text includes a brief discussion of the objective of a business firm at the beginning of chapter 1. Support your comments with data from the release (both dollar amounts and percent changes will be useful). Often, there are comments by the CEO that may be insightful. A few paragraphs should do it (but it will like take a few paragraphs – I am looking for some commentary here). (10 points)
2. 2) At the outset of the course, we spoke about stakeholders. The text also lists some stakeholders in Chapter 1, and if you go online, you should have no problem finding a list of stakeholders in a business. Whether you get your list of stakeholders from the text, from your notes, or from a web site, do the following:
1. a) Choose one category of stakeholders, e.g. lenders, and tell me which category you have chosen. (2 points)
2. b) Find a piece of information in the press release that would be of interest specifically to that stakeholder. The better your match, the more credit you will receive. (2 points)
3. c) Briefly, why would that stakeholder be interested in the piece of information you chose? (5 points)
3. 3) We have spoken about financial statements and each of the press releases that I reviewed had financial statements attached to them.
1. a) Concerning your company’s balance sheet: (5 points)
i) Is there a balance sheet attached to the press release?
ii) If so, do the words “balance sheet” appear in the title of the balance sheet? If not,
what does the company call it?
iii) Ifyouranswertoiiaboveis“no”,howwereyouabletorecognizethebalancesheet?
If your answer to ii is “yes”, you do not need to answer this part iii.
2. b) Concerning your company’s income statement: (10 points)
i) Is there an income statement attached to the press release?
ii) If so, do the words “income statement” appear in the title of the income statement? If
not, what does the company call it?
iii) Ifyouranswertoiiaboveis“no”,howwereyouabletorecognizetheincome
statement? If your answer to ii is “yes”, you do not need to answer this part iii.
3. c) Are the financial statements for your company precise to the dollar? Comment briefly. Hint: begin at the top of the income statement (which is the name of the company) and begin reading down and you will find the answer. Students frequently answer this question incorrectly. Follow my hint and look carefully. This should be an easy one. (5 points)
4. 4) Answer the following for the company you have chosen.
1. a) What amount of resources owned by the company is reported in its financial statements? How can you tell? This was covered within the first few classes in the course and the text’s discussion of stakeholders and its first discussion of the accounting equation may be useful in answering this part. I need both a number and an indication as to where you found it. (10 points)
2. b) What is the amount of the total claim of shareholders against the assets of the company you have selected? How can you tell? This was covered within the first few classes in the course and the text’s discussion of stakeholders and its first discussion of the accounting equation may be useful in answering this part. I need both a number and an indication as to where you found it. (10 points)
3. c) What is the amount of the total claim of creditors against the assets of the company you have chosen? How can you tell? This was covered within the first few classes in the course and the text’s discussion of stakeholders and its first discussion of the accounting equation may be useful in answering this part. I need both a number and an indication as to where you found it. (10 points)
5. 5) Does the company you selected sell to its customers on credit? How can you tell? Be sure your answer is based on the press release and not on anecdotal information. An answer like “I shop there and I know they accept credit cards…” will not work. (5 points)
6. 6) We hear much about changes to the retail environment due to technology and other factors. What do you see in your company’s press release, in data and/or in statements, which show how the company is impacted by the changing face of retail? (10 points)
7. 7) Typically, a press release both reports recent past results and provides some sense of the future of the company. The press release also includes cautionary statements about its predictions of future results and cites a number of risks that could cause future results to differ from what is said in the press release. Be sure to answer both parts of this question.
1. a) What are some of the risks that are identified in the press release for the company you selected? Search carefully through the text of the release to ensure that you find the correct information – the company will specifically identify the risks they face in a part of the release called “Forward Looking Statements”. List several (let’s say about 3) of these risks. (5 points)
2. b) Select one of those risks and explain how it applies to the company, given what they do for a living – specifically, why is this a risk for this particular company? I am looking for you to relate the risk cited by the company to its line of business. For example, if one of the company was a wine maker, it may say the risk related to fluctuation in the price of grapes and you could tell me that if grape prices rise, the company may lose customers if it charges higher prices, or it may lose profit if the cost of grapes rises but prices do not. (5 points)
8. 8) Writing (includes spelling, grammar, clarity of expression, APA style, etc.) (6 points). Total points, including writing = 100.
