...2013 Strategy from the Outside In: Profiting from Customer Value Write-Up - Part II I. Introduction In Strategy from the Outside In: Profiting from Customer Value, George S. Day and Christine Moorman use research to determine business strategies that separate successful from unsuccessful firms. This write-up shall have a section, titled § II. Brief Summary, which outlines each chapter in Chapters 7 through 13, including the conclusion. This write-up shall also have a section, titled III. Application, which shall apply the material from § II. Brief Summary to a firm (hereinafter "Firm A") with which I worked as a business consultant. Firm A is a multi-national holding company that specializes in acquiring, supporting, and growing its subsidiary companies through accelerated organic growth as well as through acquisitions and/or strategic joint ventures and divestitures. II. Brief Summary Chapter 7. The Third Imperative: Capitalize on the Customer as an Asset For a firm, the profitability of the customer asset - the sum of the discounted long-term profits associated with the customer's purchases and referrals - is based on three principles. First, that a firm must distinguish between behavioral loyalty – the frequency of customer purchases from a firm when a need arises – and attitudinal loyalty – an attachment to the firm and/or its specific products or services. Second, that a firm must manage customers to engage in behaviors that directly result in increased...
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...1. This question addresses the effect of Microsoft’s software capitalization policy on its financial statements. Ignore any potential tax effects. Estimate the effect of capitalizing software costs on Microsoft’s fiscal 1997, 1998, and 1999 income statements and balance sheets. Assume that 1) 60% of Microsoft’s research and development expenses were incurred after technological feasibility was established, 2) the average product life was two years, 3) the company had always capitalized these costs; and 4) the company begins amortization capitalized software costs at the beginning of the following fiscal year. Briefly speculate as to why Microsoft chose to expense all software costs as incurred rather than capitalizing a portion of these costs. Answer: Microsoft chose to expense instead of capitalizing portion of all software costs incurred in spite of the fact that FASB guidelines require treatment of software development costs to be capitalized once technological feasibility was established. The reasoning could be the following: By the time the company determined the technological feasibility of their products may be so late in the development process that the amount of software costs eligible for capitalization are too small. The useful life of the product can be so short-lived that expensing costs as incurred can mostly be equivalent to capitalization 2. What impact did the company’s decision to adopt its new revenue recognition policy in 1996 have on the company’s...
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...case of Estée Lauder. There are numerous competitors among the market. Estée Lauder’s major competitors are Avon, L’Oreal, P&G, Shiseido, Max Factor, Revlon, etc. Some of these competitors, such as L’Oreal, P&G, have the similar size as Estée Lauder does, which makes the competition intenser. There are various brands under the company, so it is important to differentiate products and increase consumer switching costs. Bargaining power of buyers This is high because there are lots of other big brands in the market and many products in Estée Lauder have substitutes in other brands, so buyers can easily switch to other brands.However, Estée Lauder does not have to worry too much about this part because of brand loyalty of its customers. Bargaining power of suppliers The bargaining power of suppliers is low. Since Estée Lauder is a famous and huge brand, there must be a huge amount of suppliers who would like to supply it. There are various choices for buyers when they want to buy one kind of product and buyers can easily switch...
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...Client Understanding Pa Accounting Theory and Research/ ACC561 October 1st, 2015 Prof . Paul Vilaro Nelms Client Understanding Paper As part of the analysis carried out within the accounting entries will be explaining and analyzing the following issues for the customer. Adjusting lower cost of inventory on market valuation, interest Capitalizing on building construction, Recording gain or loss on asset disposal and finally the theme adjusting for goodwill impairment Adjusting lower cost in market inventory on valuation Inventories are necessary for companies because it is a fundamental part of the business operation. They seek to retain control of the articles of tangible property of a company. These items range from the material for the production process to be in-assembly and used as part of a sale, must be counted and recorded in the books. The valuation of inventories is of great importance for two reasons. First, generally they constitute an important part of current assets which means that this has a significant impact on working capital. Second, inventory valuation has a major impact as the amount is reported net profit for companies. There are various methods of conducting the inventory and turn the registration ledgers. Generally Accepted Accounting Principles (GAAP) teaches that when inventories decreased in value to future sales price should move in the same direction at the same time There are various methods for carrying the inventory. One is the perpetual...
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...PG&E CORPORATION | SELECTED CONSOLIDATED STATEMENTS OF OPERATIONS | (In millions, except per share amount) | | | | | | | | | | | Year Ended December 31, | | | | 2008 | | 2007 | | 2006 | | Operating Revenues | | | | | | | | Electric | $ | 10,738 | $ | 9,480 | $ | 8,752 | | Natural Gas | | 3,890 | | 3,757 | | 3,787 | | Total operating revenues | | 14,628 | | 13,237 | | 12,539 | | | | | | | | | | Operating Expenses | | | | | | | | Cost of Electricity | | 4,425 | | 3,437 | | 2,922 | | Cost of Natural Gas | | 2,090 | | 2,035 | | 2,097 | | Operating and maintenance | | 4,201 | | 3,881 | | 3,703 | | Depreciation, amortization, and | | | | | | | | decommissioning | | 1,651 | | 1,770 | | 1,709 | | Total operating expenses | | 12,367 | | 11,123 | | 10,431 | | Operating Income | | 2,261 | | 2,114 | | 2,108 | | Interest income | | 94 | | 164 | | 188 | | Interest expense | | (728) | | (762) | | (738) | | Other income (expense), net |...
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...Understanding Assets University of Phoenix Making sound business decisions and properly portraying a company to investors involves understanding working capital and assets. The lower of cost or market value can shape critical business decisions that need to be made. Understanding how to capitalize interest properly during a construction project can save money. When putting an asset to rest its important to portray accurately the loss or gain. When thinking about expanding by acquiring an existing business it is important to know how to adjust goodwill for impairment. Lower of Cost or Market Value A requirement of U.S. GAAP is that inventory is recorded at the lower of cost to produce it, repurchase it or the market value of the inventory (Investopedia, 2009). This principle affects the balance sheet and can affect the income statement. Here is an example of how this principle can play out. Assume it is December 2009 and retail store A has 20 basketballs in inventory. The basketballs were purchased from Spalding at a cost of $20 each and the plan is to sell them at a retail price of $70, a price that is in line with the competition. On December 31, Spalding announces a permanent price reduction – the basketballs can now be purchased for $5 instead of $20. Retail store A expects the competition to buy up the reduced basketballs and pass the savings on to customers, by advertising a price reduction. The competition plans to sell the basketballs for...
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...Client Understanding Paper Tanisha Wilson University Of Phoenix Accounting Theory and Research ACC/541 Bethany Bartlett August 19, 2013 Client Understanding Paper To our valued clients at Morton Sales Company, It is my pleasure to have the opportunity to assist your organization with your financial needs. As I was analyzing the working papers given, a request for some additional information needed was submitted. It has been conveyed to my attention that there is questions or concerns in regards to why the information was requested. The concerns include the reason for the adjusting lower cost of market inventory valuation, the capitalizing interest on building construction, the recording of gain or loss on asset disposal, and the adjusting goodwill for impairment. Please rest assured that we will do our best to answer your questions and settle your concerns with anticipation that your trust will be gained and our relationship will flourish tremendously. The Financial Accounting Standards Board (FASB) established clear guidelines that address all the items in question. A clear outline of the FASB generally accepted accounting standards (GAAP) will be given for each item stated above, and how these improvements to Morton Sales Company will help improve Morton Sales Company financial health. Lower Cost of Market The issuance of the ARB No. 43 by The American Institute of Certified Public Accountants (AICPA) and the Financial Standards Accounting Board (FASB) states...
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...Cost, Capitalization and Expense Susan Renkosik Monday, March 11, 2013 Tony Taylor CPMGT/303 When an owner or small business needs to decide whether to deduct an expense in full or capitalize and amortize it can be a difficult decision. The accounting action taken on a major purchase can make a difference on the year-end income statement, which will show a profit and the one that will show a loss. It is important to understand the different methods and how they can affect the income statement and to learn the rules that must follow to meet the requirements from the Internal Revenue Services will make the decision less of a task. Our organization is continuing to grow and has decided to start looking for a new building to purchase. This would allow for expansion in our warehouse as well as the office space. The current building is too small for us to add additional manufacturing lines to build our products. In order to purchase the building it is important for the organization to understand how to amortize the cost for the building. When making a purchase the first step is to record the total amount at the time the expense is encountered. When using the cash method the expense is recognized when the payment...
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...Client Understanding Paper Stephanie Simmons ACC/541 Professor Mark Taylor August 13, 2012 Client’s cleat understanding is a goal of ABC Company. The firms provide detailed explanations to address each customer’s need. ABC Company recognizes that your company has questions related to adjusting lower cost of market inventory on valuation, capitalizing interest on building construction, recording gain or loss on asset disposal, and adjusting goodwill for impairment. Inventories of companies are recorded at cost, except when the inventory declines in value below its original cost. When the cost declines below the original cost the company should write down the inventory to report this loss. “A company abandons the historical cost principle when the future utility of the asset drops below its original cost. Companies therefor report inventories at the lower-of-cost-or-market (LCM) at each reporting period” (Kieso, E., & Weygandt, 2010, p. 438). LCM uses a conservative approach to inventory valuation, meaning that when doubt exists about the value of an asset the company should use the lower value of an asset, which will reduce net income. This provides the company with a more conservative balance sheet and income statement valuations. To determine LCM, one must also consider net realizable value (NRV). This value represents the selling price of inventories minus the fees associated with completion of sales. Conclusion of market value also refers to an items current...
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...through the mail. In direct-response advertising, the effectiveness of the advertising is directly related to the amount of sales. Thus people who specialize in it are very knowledgeable about the correlation between positioning an advertisement in a publication and the resulting audience responses. Thus it focused on direct response customer right from 1996 to reach a larger portion of Medicare eligible patients to market their products. This specifically was a pretty successful campaign, as the company increased its Medicare eligible diabetes customer base from 17,000 to 545,000 in 2003. To qualify as capitalized expenditure as assets, the direct responses expenses had to prove that the specific advertisements generated sales. Leads normally did not qualify. It has to be narrowly targeted and the response needs to be tracked. The company ran various advertising commercials on the television with each commercial being given a separate toll free number. For each customer, the firm kept a track of prescription, doctor and insurance carrier. All customer names were maintained and separate coded order forms were kept track of. Calls made to the customers, insurance carriers and doctors were written off as administrative expenses which would generally fall.. An expense is normally incurred by a firm to generate sales, e.g. promotional expenses which are selling expenses which are directly related to the generation of sales. Most of the expenses...
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... With the FIFO method, the first items purchased would be the first items removed from the inventory. The LIFO method removes the most recently purchased inventory items first. Weighted average is a compromise between FIFO and LIFO. When weighted average is used the total cost of inventory available for sale is divided by the totally number of units available for sale. When weighted average is used the cost of goods sold is reflective of the total period’s operations but the inventory valuation is not representative of future cash flows. Weighted average is typically used in manufacturing where inventories are piled or mixed together. “Many accountants have advocated valuing inventories at market because they believe that current assets should reflect current values” (Schroeder, Clark, & Cathey, 2011). To do this, the lower of cost or market valuation (LCM) is sometimes used. Inventory valuation under LCM is recorded using either the historical cost (original amount paid) or the fair market value (today’s inventory worth),...
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...Corporate Finance 1) Finance – providing and utilizing the money 2) Business Finance – means rising, providing and managing of all money to be used in. 3) Financing – means rising of funds or collecting of funds with a minimum cost. 4) Goals of financial manager – 1) Profit maximization 2) Shareholders wealth maximization. 5) Financial system – is the collection of markets, individuals, institutions, laws, regulations and techniques through which bonds, stocks and other securities are traded. 6) Market—it is a location where buyers and sellers meet to exchange goods and services. 7) Types of market – 3 types – Factor, Product and Financial market. *) Factor market – is the market which allocate factor of production – land, labor, management skill, capital and distribute income. *) Product market – is the market where consuming units purchases goods and services for consuming and make payment for them. *) Financial market – is an institutional set up created by society to channel savings and other financial services to those individuals and institution willing to pay for them. 8) Savings—savings are what is left from current income after consumption, expenditure and tax payment. 9) Investment – means future of fund to raise capital to produce goods and services and future production to raise income. 10) Debt market – it is the market where debt instrument are traded (loan, debt, debenture). It represents creditor ship. 11) Equity market— it is the market where...
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...Microsoft’s market value of equity and its reported book value of equity? The most obvious reason for the difference between the market value of equity and the book value of equity is the inability to record certain intangible assets such as brand value, customer loyalty, and perhaps most importantly, human capital. These intangible assets are likely to provide tremendous earnings growth in the future which determines the company’s market value. Notice also that the company’s choice of conservative accounting policies has the effect of depressing the company’s book value of equity. 2. What effect did Microsoft’s software capitalization policy have on its financial statements? Ignore any potential tax effects. a. Assume that 60% of Microsoft’s research and development expenses were incurred after technological feasibility was established, that the average product life was two years, and that the company begins amortizing software costs at the beginning of the following year. Estimate the effect of capitalizing software costs on Microsoft’s fiscal 1997, 1998, and 1999 income statements and balance sheets. [pic] b. Why do you think Microsoft chose to expense all software costs as incurred rather than capitalizing a portion of these costs? Remember that the FASB provides explicit guidelines for the treatment of software development costs that required capitalization once technological feasibility was established. Microsoft’s determination...
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.... *Microsoft’s Financial Reporting Strategy 1. What are the factors that likely explain the difference between Microsoft’s market value of equity and its reported book value of equity? The most obvious reason for the difference between the market value of equity and the book value of equity is the inability to record certain intangible assets such as brand value, customer loyalty, and perhaps most importantly, human capital. These intangible assets are likely to provide tremendous earnings growth in the future which determines the company’s market value. Notice also that the company’s choice of conservative accounting policies has the effect of depressing the company’s book value of equity. 2. What effect did Microsoft’s software capitalization policy have on its financial statements? Ignore any potential tax effects. a. Assume that 60% of Microsoft’s research and development expenses were incurred after technological feasibility was established, that the average product life was two years, and that the company begins amortizing software costs at the beginning of the following year. Estimate the effect of capitalizing software costs on Microsoft’s fiscal 1997, 1998, and 1999 income statements and balance sheets. 1995 1996 1997 1998 1999 R&D recognized on the I/S 860 1,326 1,863 2,601 2,970 These are the adjustments to 516 258 0 capitalize 60% of the R&D expense 796 398 0 every year and to amortize it with 1,118 559 0 SL in 2 years 1,561 780 1,782 Capitalized Development Costs...
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...Dell’s Working Capital Question1 Understand that this was a paradigm shift in this industry. A customer who is used to walking into a store, buying, and walking out is looking for instant gratification. What did Dell offer which other players were not offering to counter this? Answer 1 The most important thing that Dell offered was a “customized systems” within a few days. This was something that other competitors were not able to offer as they had already built systems in inventory with them and at retailers’ / resellers’ store. Dell was also the first to offer toll free telephone lines that the customers could call to place the order and on-site technical support. -------------------------------------------------------------------------------------------------------- Question 3 How did keeping low finished goods inventory vs its competitors help Dell when Intel had to replace faulty Pentium chips? Answer 3 Low finished goods inventory helped Dell as it did not had to dismantle already assembled PCs to replace the faulty chip. It was able to quickly manufacture systems with the updated Pentium chip while others who had a considerable inventory of already built systems were still selling systems with the flawed chip or had to go through the costly processes of recalling and dismantling the systems to correct them. -------------------------------------------------------------------------------------------------------- Question 5 In 1995, how many days did it take...
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