Business Analysis and Valuation企业分析和估价-sensormatic.docVIP

Sensormatic Electronics Corporation – 1995 Teaching Note Introduction The Sensormatic case deals with an accounting controversy and the resulting management communication challenges faced by the company. Students are asked to analyze the merits of the arguments made by the company’s critics, evaluate the company’s response, and to make recommendations on future course of action. The case can be used in a course on financial statement analysis to deal with investor communication, and financial reporting strategy issues. Assignment Questions Customer financing is a key element of Sensormatic’s business strategy. What are the risks associated with this strategy? How are these risks reflected in the company’s financial statements? Do you consider Sensormatic’s accounting estimates for potential customer defaults appropriate? Evaluate the relative merits of Barron’s concerns about the company’s default estimates, and the company’s rebuttal of Barron’s arguments. How do you interpret the raising level of short interest in the company’s stock? What should the management do to respond to this? Reading “Management Communications”, Chapter 17, Business Analysis and Valuation Using Financial Statements, K. Palepu, P. Healy, V. Bernard, South-Western College Publishing (Second Edition), 2000. Case Analysis and Class Discussion Question 1 Sensormatic uses vendor financing as a competitive tool in selling its products to its customers. Most of Sensormatic’s customers are retailers who rely on vendor financing extensively, so this strategy makes good business sense. Sensormatic uses four types of financing schemes: Installment sales primarily offered to the company’s U.S. customers. Under this scheme, the customer pays the purchase price in equal installments over a period of one to five years. Deferred payment sales, also offered to the company’s U.S. customers where the payment date is delayed for a specific period, usually between 90 to 365 days after the sh