Martha Stewart Living Omnimedia
Martha Steward Living Omnimedia Inc.
Case Discussion Questions
1. Provide a concise company profile. (I.e., what does your client do to stay in business? What industry is your client in?)
Martha Stewart Living Omnimedia, Inc. creates original how-to content and related products for homemakers and other consumers. The Company markets its brand name across a broad range of media and retail outlets. Martha Stewart provides information on a variety of subjects including home, cooking and entertaining, gardening, crafts, holidays, household maintenance, and weddings (Bloomberg.com, 9/28/11). Martha Stewart Omnimedia utilizes the television to communicate its products, which include a variety of shows, for example a living show and a cooking …show more content…
show. The Company’s business segments are publishing, broadcasting and merchandising. Also, the company merchandises some of its brand logo to be sold in retailers around the world. The company operates in the Multimedia industry.
2. Identify the risks that face your client.
From an income statement perspective, the company faces a consistently reducing top line revenue number from years 2008 to 2010. This reduction in revenue has required the company to reduce some of its expenses, which are critical to running an efficient, operational business. Also, the company faces an accumulated deficit number that continues to grow larger as the company continues to run net losses year on year. Accounts receivable continues to grow larger as the company’s revenue decreases indicating the customers of the company are postponing their payments of the invoices for as long as possible, this could create a cash shortage problem.
3. From a businessperson’s perspective, what trends are apparent based on an analysis of the financial statements?
As a businessperson, some trends that are apparent are the continued decrease in top line revenue, which has encouraged management to cut costs to keep the net losses at a reasonable amount. Also, the company faces a trend of liquidating short-term investments, which could indicate the company is thriving for cash or is in doubt on the return from it’s investments. Another trend is that the company has announced its plan to report a “new” publishing segment, which leverages its core content across its print and digital platforms more efficiently. In my opinion, this seems to be a marketing strategy employed by the company to prove to stakeholders they are working creatively, thoughtfully and exploring every opportunity.
4.
What recommendations would you make to your client as a business advisor to assist your client in reducing its risks?
I would recommend the company identify all different segments of its business model to identify the segments which are the most profitable, and the segments which are continuing to suffer losses every year. Once this analysis is done, the company can devote more time and resources to the segments which have a brighter future for the company. The company faces continued pressure from economic events drilling down to tightening margins, I would recommend the company continue to seek and search for the next profitable business opportunity while reducing its capital expenditures and operational expenditures as necessary. Also,
5. Audit risk (at account level); List two accounts that you would devote extra audit time to. Why?
As an auditor I would devote time to these two accounts:
1. Gross Revenue- The company enacted (“FASB”) Update (“ASU”) 09-13 to account for certain arrangements containing multiple deliverables on January 1st, 2010. Since this is a new adoption for the year, as an auditor I would want to ensure the adoption of such new standard was done effectively without any material error in the accounting
statements.
2. Investments in Other Non-Current Assets- The company utilizes an Amendment to FASB Interpretation No. 46(R) (“SFAS 167”), the company now must report any involvement in a VIE(variable interest entiry) as consolidated under two criteria. As an auditor it would be to my best interest to ensure the company is following this standard to its full effect as it could have the potential to become a material mistake.
Case Discussion Questions
1. Provide a concise company profile. (I.e., what does your client do to stay in business? What industry is your client in?)
Martha Stewart Living Omnimedia, Inc. creates original how-to content and related products for homemakers and other consumers. The Company markets its brand name across a broad range of media and retail outlets. Martha Stewart provides information on a variety of subjects including home, cooking and entertaining, gardening, crafts, holidays, household maintenance, and weddings (Bloomberg.com, 9/28/11). Martha Stewart Omnimedia utilizes the television to communicate its products, which include a variety of shows, for example a living show and a cooking …show more content…
show. The Company’s business segments are publishing, broadcasting and merchandising. Also, the company merchandises some of its brand logo to be sold in retailers around the world. The company operates in the Multimedia industry.
2. Identify the risks that face your client.
From an income statement perspective, the company faces a consistently reducing top line revenue number from years 2008 to 2010. This reduction in revenue has required the company to reduce some of its expenses, which are critical to running an efficient, operational business. Also, the company faces an accumulated deficit number that continues to grow larger as the company continues to run net losses year on year. Accounts receivable continues to grow larger as the company’s revenue decreases indicating the customers of the company are postponing their payments of the invoices for as long as possible, this could create a cash shortage problem.
3. From a businessperson’s perspective, what trends are apparent based on an analysis of the financial statements?
As a businessperson, some trends that are apparent are the continued decrease in top line revenue, which has encouraged management to cut costs to keep the net losses at a reasonable amount. Also, the company faces a trend of liquidating short-term investments, which could indicate the company is thriving for cash or is in doubt on the return from it’s investments. Another trend is that the company has announced its plan to report a “new” publishing segment, which leverages its core content across its print and digital platforms more efficiently. In my opinion, this seems to be a marketing strategy employed by the company to prove to stakeholders they are working creatively, thoughtfully and exploring every opportunity.
4.
What recommendations would you make to your client as a business advisor to assist your client in reducing its risks?
I would recommend the company identify all different segments of its business model to identify the segments which are the most profitable, and the segments which are continuing to suffer losses every year. Once this analysis is done, the company can devote more time and resources to the segments which have a brighter future for the company. The company faces continued pressure from economic events drilling down to tightening margins, I would recommend the company continue to seek and search for the next profitable business opportunity while reducing its capital expenditures and operational expenditures as necessary. Also,
5. Audit risk (at account level); List two accounts that you would devote extra audit time to. Why?
As an auditor I would devote time to these two accounts:
1. Gross Revenue- The company enacted (“FASB”) Update (“ASU”) 09-13 to account for certain arrangements containing multiple deliverables on January 1st, 2010. Since this is a new adoption for the year, as an auditor I would want to ensure the adoption of such new standard was done effectively without any material error in the accounting
statements.
2. Investments in Other Non-Current Assets- The company utilizes an Amendment to FASB Interpretation No. 46(R) (“SFAS 167”), the company now must report any involvement in a VIE(variable interest entiry) as consolidated under two criteria. As an auditor it would be to my best interest to ensure the company is following this standard to its full effect as it could have the potential to become a material mistake.