Interesting differences between Sunbeam’s 1997 and 1996 balance sheets

PART 1 – There are a number of interesting differences between Sunbeam’s 1997 and 1996 balance sheets (e.g., receivables increased by $82 million, inventories increased by $94 million, and pre-paid expenses decreased by $23 million, while long-term productive assets and liabilities remained relatively unchanged), and between its 1997 and 1996 income statements (e.g., during 1997 the company engaged in a number of “buy and hold” transactions, gross margin increased dramatically and SG&A declined).

a) (maximum 7 points out of 13) – Adjust Sunbeam’s 1997 Earnings before interest and taxes for one-time events and apparent (e.g., doubtful accounts, depreciation expense and, etc.) changes in accounting policy. You may want to compute some comparative ratios to facilitate your analysis. Be sure to provide the details of and clearly label any computations.

b) (maximum 4 points out of 13) – Utilizing your adjusted numbers from 1)a. (above) re-compute Sunbeam’s operating cash flows for 1997 (i.e., compute a new cash flows amount based on your adjustments to the original data). Clearly label the components of your computations.

c) (maximum 2 points out of 13) – Summarize your findings in 1)a. and 1)b. (above), paying particular attention to any evidence of fraud (be careful not to let 20-20 hindsight – i.e., information that you are aware of, but is not included in this case – influence your conclusions).

PART 2 – We discussed, the four factors that Michael Porter identifies as influencing and directing competitive strategy.

Required:

a) (maximum 1 out of 7 points) identify each of those specific factors.

b) (maximum 1 out of 7 points) provide specific examples of accounting information that might be useful for assessing each factor. Be sure to explain (briefly) how each example might be used.