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Entrepreneurs Finance

The document includes a Profit and Loss statement with missing figures and headings related to financial performance, along with a discussion on creative accounting practices and the Ahold financial scandal, likening it to Enron. It emphasizes the need for corporate governance reform in Europe and highlights the consequences of financial misrepresentation. Additionally, it poses questions regarding the ethics of falsifying accounts and includes exercises related to financial terminology.

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21 views5 pages

Entrepreneurs Finance

The document includes a Profit and Loss statement with missing figures and headings related to financial performance, along with a discussion on creative accounting practices and the Ahold financial scandal, likening it to Enron. It emphasizes the need for corporate governance reform in Europe and highlights the consequences of financial misrepresentation. Additionally, it poses questions regarding the ethics of falsifying accounts and includes exercises related to financial terminology.

Uploaded by

тамара
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Forecast Actual

1)___________ (sales revenue) 700 704

Other Earnings
Gains on fixed assets and operations 250 244

2)_______________ on investments 175 162

Costs of making goods


3)_____________ and all manufacturing expenses 100 a________
Salaries and personnel costs 200 b________
4)_____________________ 825 c________

Other costs and expenses


Indirect costs of overheads 25 22
5)_______________________ 50 d________
Loss of fixed assets 25 25
Loss on foreign operations 100 88
Marketing and distribution costs 100 e________

Trading/Operating Profit 525 f______

Profit for shareholders (6__________________) 95 g______

Retained Profit 430 h______

1) Study the incomplete P&L below. Complete the document with the following
headings.

R&D costs Gross profit Cost of materials Turnover

Dividend Interest receivable

2) Now listen to a presentation of the actual results and complete the missing
figures for gaps a-h.

3) If you were a potential shareholder would you feel confident in investing in this
company? Why? / Why not?
Creative accounting

Companies sometimes make the figures in financial documents more attractive


than they really are. They can do this by:
a inventing revenues from companies that don't exist
b not including debts of subsidiaries and acquisitions
c hiding debts on the books of subsidiaries
d overstating current profits by including possible future earnings

Listen to two investors talk about what happened to them when they invested in
two media companies. Which of the above methods were used to drive up share
prices in each case?

Can you think of any other famous financial scandals?

The Aholdfinancial scandal Ahold's now-departing


should shock Europe into Now, at least, Europeans boss, Cees van der
accounting and corporate should stop believing that Hoeven, won a huge
governance reform, just as corporate wrong-doing is a reputation from turning a
the Enron scandal did in US problem that cannot dull company into a
the USA. occur in the old continent. growth machine. Investors
Instead, they should fix applauded long after they
It may seem an their own corporate should have started asking
exaggeration to describe governance and accounting hard questions. When
the scandal overwhelming problems. eventually they did ask
Royal Ahold as "Europe's them, his anger and pride
Enron" - but in many ways On 24 February 2003 became quickly apparent
it is true enough. Certainly, Ahold announced the and he refused to answer.
the world's third-biggest resignation of its chief
food retailer, after Wal- executive and finance The 463m overstatement is
Mart and Carrefour, director after finding that it due primarily to hold's US
presents none of the had overstated its profits Foodservice unit, which
financial risks of Enron, by more than 463m supplies food to schools,
which was both deeply in ($500m. Its market value hospitals and restaurants,
debt and the world's largest plunged by 63 per cent that although there are also
electricity giant. That day, to 33bn. In late 2001, issues over its Disco
apart, the similarities it exceeded 30bn. Ahold is subsidiary in Argentina and
between the former Texan now under investigation by several other units. This
powerhouse and the Dutch various authorities, has led some observers to
retailer are striking, from including the Securities say that this is less a
the very bad corporate and Exchange Commission European problem than yet
governance, aggressive (SEC in the USA. another US accounting
earnings management and failure. Such a claim
accounting "irregularities" Rather like Kenneth Lay at absolves Ahold's bosses of
to auditors whose role Enron, and Dennis responsibility for their
must be called into Kozlowski at Tyco, another acquisitions and dishonesty
question. scan-dal-hit US firm, and ignores the persistent,
firm-wide tendency to test for. The accepted practice What of Ahold's auditor?
the limits of acceptable is to wait until the targets Although the problems
accounting. are met. Failing firms, such were uncovered, it should
as now-bankrupt Kmart, have done so much earlier,
Most firms that buy in bulk food distributor Fleming, says Lynn Turner, a former
- including such admired and now Ahold appear to chief accountant at the
retailers as Wal-Mart and have booked these rebate SEC.
Tesco - get discounts from payments before they were
suppliers if they meet sales earned.
targets. The issue is how
those rebates are accounted

Read the text again and answer the following questions.


1 What are the similarities between Enron and Ahold?
2 What should European companies do?
3 Why did the shareholders admire Cees van der Hoeven?
4 Which of Ahold's acquisitions is mentioned in the text?
5 What did Europeans believe about corporate wrong-doing in the past?
6 How did Foodservice overstate its sales?
Do you think CEOs who falsify accounts are criminals and should go to jail or
is it an acceptable risk to falsify accounts if it helps to safeguard the
company's future and jobs?

Choose the best word to fill each gap in the sentences below.

1)Sales are a good way for _______ to get rid of surplus stock
a)retailers b)sellers c)dealers d)wholesalers

2)The company was in fact seriously ______ even though they claimed to be making a
profit
a)at a loss b)in debt c)in the blackd)broken

3)Some companies ______ their earnings to drive up share prices


a)overdo b)overflow c)overstate d)oversee

4)The Financial Services Authority was set up in the UK to deal with ______ such as
fraud and insider training
a)issues b)ideas c)reasons d)purposes

5)When the CEO should have been cost cutting, he was spending huge sums on ______
that turned out to be unprofitable
a)increases b)investors c)growth d)acquisitions

6)When you buy in bulk you can obtain ______ or rebates


a)discounts b)sales c)decreases d)interest

7)Shareholders lost money when the company declared itself ______


a)redundant b)sold out c)broken down d)bankrupt

8)When they heard about our financial difficulties our ______ asked to be paid in
advance
a)service b)deliveries c)suppliers d)orders

9)They didn’t lie - they simply tried to______ the truth


a)conceal b)prevent c)reduce d)warn

Use the following expressions to describe the performance of the Enron share price 1991-
2001.

fluctuated mildly a sharp increase reached a peak rose steadily


dropped slightly a dramatic and sudden fall

Journalists use dramatic verbs that describe the direction, speed and degree of change. What
information do these verbs give?

direction speed large/small degree

plunge

dip

soar

plummet

slide

skyrocket

jump

nosedive
decline

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