Chapter 5 Risk Analysis Case 5
Chapter 5 Risk Analysis Case 5.3: Fly-By-Night International Group: Can This Company Be Saved?
I. Objectives A. Illustrate the impact on the financial statements of a continually changing corporate strategy. B. C.
II. II. Assess the likelihood of survival of a firm experiencing severe profitability and cash flow problems. Address ethical questions about the dealings of a majority shareholder of a publicly held corporation who also is CEO (chief executive officer) and chair of the board of directors. Approach to Teaching the Case.
III. A. Begin by placing the segment data in Note 3 to the financial statements on an overhead transparency. Ask students to describe the likely rationale for FBNs involvement in the five businesses indicated by the segment data for Year 10. Each business is an integral part of acquiring, using, and disposing of aircraft. Aircraft and related support operations require investments of fixed capital. FBN can realize economies of scale by spreading the cost of this fixed capital over business, transport, and training operations and the servicing of the aircraft of other entities.
IV. B. Next, raise the question as to why FBN likely discontinued its Transport and Training segments. These operations were not very profitable in Year 10. Each would require management’s attention to return the operations to profitability, yet they relate only tangentially to FBNs main flight operations business. The customer base (businesses, medically ill individuals, and former military pilots) is more widespread than flight operations and requires a different kind of marketing effort than that required for government contract work.
V. C. Finally, ask why FBN likely sold its Aircraft Sales and leasing segment. FBN derived a substantial portion of its operating profit from this segment in Year 10 and Year 11. One possible explanation is that FBN had only a limited advantage in competing effectively in this segment. Its principal advantage was its knowledge
I. Objectives A. Illustrate the impact on the financial statements of a continually changing corporate strategy. B. C.
II. II. Assess the likelihood of survival of a firm experiencing severe profitability and cash flow problems. Address ethical questions about the dealings of a majority shareholder of a publicly held corporation who also is CEO (chief executive officer) and chair of the board of directors. Approach to Teaching the Case.
III. A. Begin by placing the segment data in Note 3 to the financial statements on an overhead transparency. Ask students to describe the likely rationale for FBNs involvement in the five businesses indicated by the segment data for Year 10. Each business is an integral part of acquiring, using, and disposing of aircraft. Aircraft and related support operations require investments of fixed capital. FBN can realize economies of scale by spreading the cost of this fixed capital over business, transport, and training operations and the servicing of the aircraft of other entities.
IV. B. Next, raise the question as to why FBN likely discontinued its Transport and Training segments. These operations were not very profitable in Year 10. Each would require management’s attention to return the operations to profitability, yet they relate only tangentially to FBNs main flight operations business. The customer base (businesses, medically ill individuals, and former military pilots) is more widespread than flight operations and requires a different kind of marketing effort than that required for government contract work.
V. C. Finally, ask why FBN likely sold its Aircraft Sales and leasing segment. FBN derived a substantial portion of its operating profit from this segment in Year 10 and Year 11. One possible explanation is that FBN had only a limited advantage in competing effectively in this segment. Its principal advantage was its knowledge