Hot Topic Article
MEMORANDUM
TO:
FROM:
DATE: September 30, 2013
SUBJECT: Hot Topic Article
CC: ACC/561 Class
During Week 6, we discussed the importance of incremental analysis in decisions, such as make or buy or sell or process further, capital budgeting, cash payback, and the internal rate of return (IRR) (Kimmel, Weygandt, & Kieso, 2011). This Hot Topic Article assignment challenges us to apply these concepts to real-life examples in newspapers and other media sources. Rachel Sanderson wrote an article titled “Monte dei Paschi board approves €2.5bn capital” in the Financial Times about the “board of Italy’s Monte dei Paschi di Siena [agreeing to] a €2.5bn capital increase demanded by Brussels” (Sanderson, 2013, p. 1).
Incremental analysis is “the process used to identify the financial data that change under alternative courses of action (Kimmel, Weygant, & Kieso, 2011, p. 1189). Monte deiPaschi’s management and board should use incremental analysis when deciding on which of the 400 branches to close (Sanderson, 2013). It is important for the bank to focus on the relevant costs, which are the costs significant to management’s decision (Kimmel, Weygant, & Kieso, 2011). For instance, management should look at the revenues and costs if the branch were to continue and then the change if it were discontinued. Management will then be able to see the effect on the company’s net income. Furthermore, Monte deiPaschi’s management should consider the residual effects on closing the branches and eliminating jobs (Kimmel, Weygandt, & Kieso, 2011). A profitable branch may become unprofitable if their share of fixed costs increase. Incremental analysis may also help Monte deiPaschi’s management create the budgets for future operations.
Another important aspect of this article worth noting is the Fabrizio Viola’s, the chief executive officer, statement about the bank “targeting a €900m net profit in 2017” (Sanderson, 2013, p. 1). This indicates that the company
TO:
FROM:
DATE: September 30, 2013
SUBJECT: Hot Topic Article
CC: ACC/561 Class
During Week 6, we discussed the importance of incremental analysis in decisions, such as make or buy or sell or process further, capital budgeting, cash payback, and the internal rate of return (IRR) (Kimmel, Weygandt, & Kieso, 2011). This Hot Topic Article assignment challenges us to apply these concepts to real-life examples in newspapers and other media sources. Rachel Sanderson wrote an article titled “Monte dei Paschi board approves €2.5bn capital” in the Financial Times about the “board of Italy’s Monte dei Paschi di Siena [agreeing to] a €2.5bn capital increase demanded by Brussels” (Sanderson, 2013, p. 1).
Incremental analysis is “the process used to identify the financial data that change under alternative courses of action (Kimmel, Weygant, & Kieso, 2011, p. 1189). Monte deiPaschi’s management and board should use incremental analysis when deciding on which of the 400 branches to close (Sanderson, 2013). It is important for the bank to focus on the relevant costs, which are the costs significant to management’s decision (Kimmel, Weygant, & Kieso, 2011). For instance, management should look at the revenues and costs if the branch were to continue and then the change if it were discontinued. Management will then be able to see the effect on the company’s net income. Furthermore, Monte deiPaschi’s management should consider the residual effects on closing the branches and eliminating jobs (Kimmel, Weygandt, & Kieso, 2011). A profitable branch may become unprofitable if their share of fixed costs increase. Incremental analysis may also help Monte deiPaschi’s management create the budgets for future operations.
Another important aspect of this article worth noting is the Fabrizio Viola’s, the chief executive officer, statement about the bank “targeting a €900m net profit in 2017” (Sanderson, 2013, p. 1). This indicates that the company
References: Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2011). Accounting: Tools for business decision making (4th ed.). NJ: John Wiley & Sons Sanderson, R. (2013, October 7). Monte dei Paschi board approves €2.5bn capital increase. Financial Times. Retrieved from http://www.ft.com/intl/cms/s/0/83394f62-2f6e-11e3-8b7e- 00144feab7de.html?siteedition=intl#axzz2h4ydMPNN