Harnischfeger Corporation - Case Analysis Essay Example
Introduction As a result of a worldwide recession in the 1980’s the machinery industry suffered a decrease in demand. This was caused mainly by the cost reduction strategies that most of their major consumers were assuming at the time. Harnischfeger Corporation (HC), one of the oldest manufactures in the machinery industry was among the several companies that had to restructure their strategy in order to survive the economic downturn.
After suffering a $77 million loss in 1982, HC decided to restructure their strategy for the upcoming years. Some of the major changes that the HC considered were: changes in top management, cost reductions to lower the break-even point, reorientation of the company’s business and debt restructuring and recapitalization. Although these changes had a great impact on HC 1984 profits, it is clear in the case that the changes in accounting policies had an even greater effect on HC profitability during the fiscal year of 1984
Step 1: Identify Principal Accounting Policies First, it is important to point out some key accounting policies noted in the financial statements of Harnischfeger Corporation for later analysis. The company uses a straight line depreciation method on its capital assets, but just began using this method in 2004; this will be the subject of later analysis to discuss the impact of the change on the company’s financial status. Harnischfeger Corporation funds its pension accounts at the minimum funding required by ERISA (Employee Retirement Income Security Act of 1974).
Step 2: Assess Accounting Flexibility The next section of this analysis is to assess the accounting flexibility within the business model of Harnischfeger Corporation and assess the extent to which management utilizes this flexibility. The company has elected to, for bookkeeping purposes, use the LIFO inventory cost method for its US inventory costs and FIFO for the inventory cost of its foreign subsidiaries. As previously
After suffering a $77 million loss in 1982, HC decided to restructure their strategy for the upcoming years. Some of the major changes that the HC considered were: changes in top management, cost reductions to lower the break-even point, reorientation of the company’s business and debt restructuring and recapitalization. Although these changes had a great impact on HC 1984 profits, it is clear in the case that the changes in accounting policies had an even greater effect on HC profitability during the fiscal year of 1984
Step 1: Identify Principal Accounting Policies First, it is important to point out some key accounting policies noted in the financial statements of Harnischfeger Corporation for later analysis. The company uses a straight line depreciation method on its capital assets, but just began using this method in 2004; this will be the subject of later analysis to discuss the impact of the change on the company’s financial status. Harnischfeger Corporation funds its pension accounts at the minimum funding required by ERISA (Employee Retirement Income Security Act of 1974).
Step 2: Assess Accounting Flexibility The next section of this analysis is to assess the accounting flexibility within the business model of Harnischfeger Corporation and assess the extent to which management utilizes this flexibility. The company has elected to, for bookkeeping purposes, use the LIFO inventory cost method for its US inventory costs and FIFO for the inventory cost of its foreign subsidiaries. As previously