Anna Amphlett, financial analyst in the Southern Cross Capital LLC, consumed the first days of her new job accumulating information about the ADT Corporation, a company whose shares Southern Cross was thinking of procuring for its Business Services portfolio.Amphlett graduated with an MBA in accounting and finance, and had spent a summer as an intern with Southern Cross specializing in the service sector before joining the company.
ADT produced sales by charging customers monthly subscription fees for home security and commercial services. Southern Cross's portfolio manager had requested Amphlett to pay careful attention to the company's accounting methods, and especially to its policy of capitalizing and amortizing cash outlays on sales fees, instead of expensing them immediately. Southern Cross had become wary of firms such as Pre-Paid Legal Services, PolyMedica, and Excel Communications, after popular press articles discussed their policy of boosting earnings by capitalizing and amortizing indirect costs which experienced significant stock price declines. Such businesses also experienced significant stock price declines when it was divulged they were under investigation by the U.S. Securities & Exchange Commission (SEC).
PUBLICATION DATE: October 08, 2014 PRODUCT #: TB0381-PDF-ENG
This is just an excerpt. This case is about FINANCE & ACCOUNTING
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