1. Intercorporate Entities, i.e., consolidations, equity investments, partnerships Chapter 7

2. Acquisitions Purchase (old and new) –Goodwill –mark-to-market analogy Pooling –Simply added BVs of assets and liabilities –No reflection of MVs at purchase –12 criteria (p. 467) –practice no longer allowed under GAAP

3. Equity Investments Majority => > 50% –control –consolidated (Vs. acquired) Minority Active => 20% to 50% –create an asset and adjust for share in NI and dividends –Equity method Minority Passive => < 20% –mark to market –Market value method

4. Comprehensive Income Stockholder Equity impact (SFAS 130) –as compared with I/S impact Arises from –hedging (foreign currency and other derivatives) (SFAS 133) –pension reporting –certain mark to market adjustments

5. Segment Reporting (SFAS 131) Reportable operating segments Geographic coverage Major customers Be able to identify unique risk in each

6. Segments, continued What is reported? Operating segments: –Sales –Profit / Loss –Assets Customers: (if  10%) –Have to report sales –Often named Geographic Segments: –Sales and fixed assets

7. Chapter 8 Profitability ROA and ROE expanded

8. ROA, as a function of: Operating Leverage –i.e., fixed costs (committed and discretionary) Business Cycle Product Life Cycle

9. Leverage Earn a higher return than the cost of the investment Operating Leverage –Reflects investment in fixed costs –Measure as fixed costs (expense) as a percent of total expenses

10. Strategic Management Life cycle of a firm –Introduction –Growth –Maturity –Decline

11. Industry-Specific ROA Problems High Tech Airlines / Travel and Transport Service firms Retailers

12. Expand to ROCE ROCE = ROA x CEL x CSL Reversion to the Mean