The WorldCom Company is the second largest distance phone company that has been "caught" reporting costs incorrectly. The company is found to have improperly booked around $3.83 billion in expenses resulting to filing the Chapter 11 bankruptcy protections. The company crushed by the $41 billion debt load which is the largest world bankruptcy in the United States history. Notably, the impact was due to the misuse of the data and dissemination of the wrong reports by executives who pleaded guilty to fraud charges. Under chapter 11, the company was allowed to operate while it was bankrupt and they developed a reorganized plan, the WorldCom fortunes declined since 1999 when the business removed from utilizing the telecom equipment and services. The creditors are approximately 1000 according to the bankruptcy files, and the included top 50 are the Citibank, Morgan Chase, and the Goldman Sachs.
Works Cited
Hashi, Iraj. "The Economics of Bankruptcy, Reorganisation, and Liquidation: Lessons for East European Transitional Economies." SSRN Electronic Journal (n.d.): n. pag. Print.
DCL = %diference in EPS / %difference in Sales = DOL * DFL,
DOL=% change in income before taxes/ % change in sales
The Verizon Wireless has the operating income or the EBIT of $100 billion each financial year and the interest expense of $10 billion with the 100 billion shares which are outstanding. Then the EPS for the Verizon Company would be $0.90, and its DFL will be 1.11%. This means that the company has increased from 90 cents in the year one to the year two representing the 22.2%. The DCL is the leverage ratio that sums the combined impact of the DOL and DFL on the earning per share. It gives the best rate that is the leverage that is to be used in the Verizon Wireless. The company has to maintain the combined advantage of 0.54 to minimize the risks that are involved, here, it manages the risk and not increasing it from where it is. The DCL of the Verizon Companies gives them the better understanding of the company risks. The DOL of 0.87 and DCL of 0.69 indicate the increase in the company’s profitability for the 2010 financial year.
Works Cited
"Degree of Combined Leverage (DCL)." SpringerReference (n.d.): n. pag. Print.
"Degree of Financial Leverage (DFL)." Encyclopedia of Finance (n.d.): 85-86. Print.
Verizon Company is exposed to various types of the market risk in the ordinary course of the business of the interest rate changes, the foreign currency exchange rate fluctuations, investments fluctuations, and commodity and equity price changes in the corporate tax rates. The investment, product, and price risks are controllable when the risk management strategies are applied. The risk management strategies include the utilization of various strategies the cross currency swaps, prepaid forwards, and collars, foreign exchange, interest rates locks and the commodity swap agreement. Other risks like the currency exchange rate fluctuations and the international interest rate changes are not easily controllable since they are dependent most on the external factors. The risks are the main source of making the decision since they are the determinants of the profits of the company. The company needs to identify all the risks and make a decision that minimizes the exposure of the company to the same risk hence, maximizing the profits. The operating cash flow
Works Cited
Madden, Bartley J. "Market-derived discount rates and company-specific risk differentials." CFROI Valuation (1999): 82-104. Print.
The consolidated revenues grew by 1.9 % on the comparable basis of the year. The good performances can be attributed to the strong strategic business services, superior network technology. The operating cash flow is seen to increase by $3.5 billion every year implying that there is increasing profits in the company every year. To comply with the regulatory conditions which are related to the acquisitions, the Verizon local exchange business were spun off and after some time, the company recorded non-cash adjustments primary to adjust the wireless data revenues. To generate the revenue growth, the company needs to devote the resources to the higher markets like the broadband and wireless market. The market share gains are increasing as the demand for the wireless data services is increasing. Therefore, the customer and the operating trends continue to attract and maintain the customer loyalty of high quality. The consolidated revenues, operating cash flows from the continuing operations and the declared dividends per share are the recent items which are familiar to the Amazon company financial statements. Other recent items which are unfamiliar are the reported diluted earnings per share and the adjusted diluted earnings per share.
Works Cited
"Consolidated Revenues and Expenses." The Journal of Finance 51.3 (1996): 1079-1080. Print.
Risks associated with Verizon wireless company
Verizon Wireless is faced with various types of market risks in its normal operations. The risks include; interest rate changes, investment changes, foreign currency exchange, equity and commodity price fluctuations, and deviation in corporate tax rates. The company addresses this risks by employing various risk management strategies such as cross-currency swaps, enhancing measures such as interest rate swap agreements, initiating interest rate locks, commodity exchange and foreign currency and prepaid forwards and collars. The company has managed to counter most of their significant risks. Verizon does not eliminate the risks such that it removes the interest rates. Their general policy to initiate the strategies was necessary to attain the objectives of the company. Some risk such as credit losses due to nonperformance of counterparties. However, this risk is considered less challenging since they do not adversely affect their financial conditions.
Work cited
Verizon Communication Inc. "2014 Annual Report." 2123951000 (2015): 63-77. Web. 10 Mar. 2016.
The differences between activity, spending, and revenue variances
Activity variance occurs due to the difference between income in the static planning budget and the same revenue in the flexible budget. It refers to the level of activity that is presumed in the planning budget and the actual activity in the flexible budget. Spending variance refers to the difference between the cost of an activity charged and the actual amount of the cost. A favorable spending variance results when the cost is lower than the expected value at a given level of activity period. Revenue variance refers to the difference between the amount of income that should allocate to the activity to and the actual income for the stated period. It refers to the difference between the selling price and the budgeted price. A positive income is obtained since tax is higher than the expected value.
Work cited
Eden, Ronald, and Colin Lay. "Method and system of cost variance analysis." U.S. Patent Application No. 10/507,409.
Activity based costing
Activity based costing refers to tracking resource consumption and costing ultimate outputs. The resources are allocated activities, and the activities are then assigned cost items basing on consumption estimates. The idea was brought by Robert Kaplan and William Burns in late 1980s. The idea was first focused on manufacturing industries, due to reduced technological developments and productivity.
Activity based costing usually assigns costs basing on a single volume measure; this includes labor hours or machine hours. The approach does not meet the criteria for accurate cost allocation despite using a simplistic volume measure to assign overheads. Activity based accounting has been operational for 20 years, and the many companies have implemented the approach successfully.
Activity based accounting accumulates overheads for each organization activity; assign the costs of the activities to products or customers resulting the activity. The initial activity is challenging, unlike the superseding activities. The activity based systems are flexible to provide particular reported for management to make decisions on the design, selling and delivering of product and service. The approach minimizes distortions on product cost that might be incurred from an allocation of overhead expenses.
Works Cited
Monroy, Carlos R., Azadeh Nasiri, and Miguel Á. Peláez. "Activity Based Costing, Time-Driven Activity Based Costing and Lean Accounting: Differences Among Three Accounting Systems’ Approach to Manufacturing." Annals of Industrial Engineering 2012 (2013): 11-17. Print
Investing at Verizon Wireless
No, I would not invest at Verizon Wireless, since they have inadequate cash flow. Their annual revenues have been fluctuating for three years from 2012-2014. Future projections of the companies are unknown since the net income of the company keeps shifting; hence, I am not assured of good returns on my investment in the coming years. The figures in 2013 were higher then; there was the decrease in net income, the increase in liabilities and reduction in net income.
Work cited
Verizon Communication Inc. "2014 Annual Report." 2123951000 (2015): 63-77. Web. 10 Mar. 2016.
