Sunbeam Accounting Analysis
1. Analyze the changes that Al Dunlap had initiated at Sunbeam after being hired from a strategic perspective. Did the changes started by Dunlap allow him opportunities to manage earnings?
Following are the changes that Al Dunlap initiated after being hired by Sunbeam Inc and the probable opportunities that Dunlap used to manage earnings:
Fired the existing set of senior managers of Sunbeam and appointed his close friends and lieutenants in those positions.
Opportunity: Picked a close set of friends in the key positions like finance, purchasing and human resources. This provides an opportunity to gain control over the operational and financial aspect of the company, thereby eliminating whistle blowing chances and creating an easy control to manipulate numbers.
Announced a restructuring charge of 337.6 Million
Opportunity: Restructuring charges are of self-adjusting nature. Future expenses might be hidden in the restructuring charges recognized in the present day. These future expenses will not be recognized thereby boosting future income and credibility in improved performance. In this case, it is a ‘Big-Bath’ scenario, the company has done badly in the previous 3 quarters, and the opportunity to lower the earnings for this year and show increased performance for the upcoming year is higher.
Divested the non-core business activities, consolidated functions and reduced head count of the company
Opportunity: Consolidation and reduction of head count provides an opportunity to lower expenses and boost profits. Divesting business operations provides additional cash flow to the firm. This particular cash flow can be disguised as a part of income and the divestitures can be recognized as losses. Asset-write offs also means that business circumstances are unfavorable and save the company taxes.
Announced three year plan to improve revenues, operating margin and return on equity by growing geographically, introducing new products and reducing capex and
Following are the changes that Al Dunlap initiated after being hired by Sunbeam Inc and the probable opportunities that Dunlap used to manage earnings:
Fired the existing set of senior managers of Sunbeam and appointed his close friends and lieutenants in those positions.
Opportunity: Picked a close set of friends in the key positions like finance, purchasing and human resources. This provides an opportunity to gain control over the operational and financial aspect of the company, thereby eliminating whistle blowing chances and creating an easy control to manipulate numbers.
Announced a restructuring charge of 337.6 Million
Opportunity: Restructuring charges are of self-adjusting nature. Future expenses might be hidden in the restructuring charges recognized in the present day. These future expenses will not be recognized thereby boosting future income and credibility in improved performance. In this case, it is a ‘Big-Bath’ scenario, the company has done badly in the previous 3 quarters, and the opportunity to lower the earnings for this year and show increased performance for the upcoming year is higher.
Divested the non-core business activities, consolidated functions and reduced head count of the company
Opportunity: Consolidation and reduction of head count provides an opportunity to lower expenses and boost profits. Divesting business operations provides additional cash flow to the firm. This particular cash flow can be disguised as a part of income and the divestitures can be recognized as losses. Asset-write offs also means that business circumstances are unfavorable and save the company taxes.
Announced three year plan to improve revenues, operating margin and return on equity by growing geographically, introducing new products and reducing capex and