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Volume 8 Issue 1

IMA Educational Case Journal
ISSN 1940-204X

Articles

David E. Stout, Youngstown State University
Raymond J. Shaffer, Youngstown State University
Jeremy T. Schwartz, Youngstown State University

THIS FICTIONAL U.S.-BASED CASE REQUIRES STUDENTS TO evaluate an asset-replacement decision in relation to whether a company should keep an asset it purchased and put into operation two years ago or whether it should replace that asset with a newer, more efficient model. Increasingly, accountants are being called upon to be “value integrators,” that is, to integrate knowledge and skills from across a variety of disciplines. To complete the XYZ case successfully, students will need to draw upon and integrate concepts from accounting (determining relevant cash flows), finance (modeling-related issues associated with the analysis of a capital budgeting decision), and tax (various real-world considerations). In addition, students are asked to complement their financial analysis with strategic and/or qualitative considerations associated with the capital investment proposal under consideration. Extensive use of Microsoft Excel is required to complete the case, including the use of Excel to deal with the issue of uncertainty. A final requirement of the case is to prepare an effective document (or table) that summarizes the various analyses students conduct in conjunction with the present case analysis.
Keywords: capital budgeting, curricular integration, discounted cash-flow (DCF) analysis, tax, decision making, qualitative/strategic considerations.
Suzanne Maloney, University of Southern Queensland
FORGE GROUP LTD, AN ENGINEERING AND CONSTRUCTION COMPANY in Australia, was a healthy company that acquired two major construction contracts in 2012 through the purchase of another company. The case presents details of a corporate collapse that occurred at the beginning of 2014. Twelve months prior to the Forge Group Ltd (FGL) collapsing, the company was viewed very favorably by the market and reached a peak share price. The financial statements illustrate the danger of acquisitions, risk, and debt, as well as the need for good internal reporting.
The value to students and educators is in illustrating the importance of good fundamental financial basics. The case can be taught at the basic level by having students read, extract, and comment on financial statement information. Or it could be widened at the intermediate level by asking students to combine information from all financial statements to appraise working capital requirements. For advanced-level courses, students would conduct financial statement analysis using common techniques and make judgments. This case also can be teamed with its sister case B to explore more advanced topics, including corporate governance, management ownership, compensation, risk, and ethics.
Keywords: financial statement analysis, working capital management.
Suzanne Maloney, University of Southern Queensland
THE DEMISE OF FORGE GROUP LTD (FGL) IS used to examine corporate governance, management compensation and ownership, risk, and ethics. Forge Group Ltd was a successful engineering company that collapsed within 12 months of a share price peak. The importance of good fundamental internal reporting is demonstrated by giving students the benefit of hindsight. The visceral feel of a corporate collapse with real investors losing money high­lights the relevance and value of accounting and basic financial management.
This case and companion case A analyze FGL’s collapse. Case A focuses on the “numbers” by examining the financial statements, working capital management, and growth. Case B focuses on directors’ duties, management compensation and ownership, risk, and ethics. Independently or together, the cases can form the basis for a discussion about the governance of corporations, including reporting, transparency, risk, compensation, and ethics.
Basic-level students would be expected to explain and discuss key corporate governance concepts such as director duties, management compensation and ownership, risk, and ethics. Intermediate-level students would be expected to apply concepts such as director duties, management compensation and ownership, risk, and ethics to a real-world scenario. And advanced-level students would be expected to critique and draw conclusions on the application of director duties, management compensation and ownership, risk, and ethics to a real-world scenario.
Keywords: financial statement analysis, take-overs, risk, corporate governance, ethics, management compensation