The Scandal: In 2002, the Securities and Exchange Commission filed charges against Adelphia Communications Corporation; "its founder John J. Rigas; his three sons, Timothy J. Rigas, Michael J. Rigas, and James P. Rigas; and two senior executives at Adelphia, James R. Brown, and Michael C. Mulcahey, in one of the most extensive financial frauds ever to take place at a public company (sec.gov)." The defendants were charged with fraudulently excluding billions of dollars in liabilities from its financial statements by hiding them on the books, falsified operations statistics and inflated earnings to meet Wall St. expectations, and concealing "rampant self-dealing by the Rigas Family, including the undisclosed use of corporate funds for Rigas Family stock purchases and the acquisition of luxury condominiums in New York and
The partners initially concluded that Stemberg was overestimating the market. “Look,” Stemberg told Romney, “your mistake is that the guys you called think they know what they spend, but they don’t.” Romney and Bain Capital went back to the businesses and tallied up invoices. Stemberg’s assessment that this was a hidden giant of a market seemed right after all. So Bain Capital invested $650,000 to help Staples open its first store in Brighton, Massachusetts, in May 1986. In all, it invested about $2.5 million in the company.
M/B= Market price per share/ Book value per share Market price per share = $75/ share Book value per share= Common equity/ shares outstanding = $6 billion/ 800 million shares = $6 billion/ .8 billion shares= 7.5 M/B = $75/ 7.5 = 10 (3-4) Price/Earnings Ratio: A company has an EPS of $1.50, a cash flow per share of $3.00, and a price/cash flow ratio of 8.0. What is its P/E ratio? P/E= Price per share/ Earnings per share Earnings per share = EPS= 1.50 Price per share = cash flow per share * price/ cash flow ration= $3 * 8 = $24 P/E = 24 / 1.50 P/E = 16 (3-5) ROE: Needham Pharmaceuticals has a profit margin of 3% and an equity multiplier of 2.0. Its sales are $100 million and it has total assets of $50 million. What is its ROE?
Barry Minkow is the founder of the company who established it. The accounting fraud started when ZZZZ Best had shortages in its cash flow because the company it was paying the investors for the restoration projects which are not existed. Earlier, the company fell because of the credit card fraud. Minkow did not pay to woman, so she told the people who was defrauded by Minkow which charged him $72,000 of credit cards fraud. Its stock price fall and Ernst & Whinney found that Minkow is writing checks for nonexistent contracts.
BERNARD MADOFF CASE STUDY What are the ethical issues involved in the Madoff case? The Bernard Madoff case is fraught with numerous ethical issues. This case has been classified as the largest swindle in our nation’s history. Madoff is a typical example of someone who had a lack of respect for his profession as well as a lack and pure disregard for the personal relationships that he built over the years. These same individuals trusted and respected Bernard Madoff and yet he showed less than the mutual respect a professional investor should show toward his clients.
In 2008, the parent company that owns University of Phoenix online, Apollo Group, was found guilty of securities fraud and ordered to pay $270 million to a group of investors. The unethical dilemma stemmed from a report that was very crucial of the enrolling practices of the school that the company refused to disclose. The company believed that the report was
The partners that Asper decided to bring in were not properly thought through. For example teaming up with Goldman Sachs for investment help. Goldman Sachs is one of the groups responsible for the 2007 subprime mortgage crisis. And because of the poor thought process of Leonard Asper many people started to have very low confidence in stocks causing them to fall. In the late 90’s Canwest was trading at
Valuation Questions Question 1 Union Pacific Railroad reported net income of $770 million in 1993, after interest expenses of $320 million. (The corporate tax rate was 36%.) It reported depreciation of $960 million in that year, and capital spending was $1.2 billion. The firm also had $4 billion in debt outstanding on the books, rated AA (carrying a yield to maturity of 8%), trading at par (up from $3.8 billion at the end of 1992). The beta of the stock is 1.05, and there were 200 million shares outstanding (trading at $60 per share), with a book value of $5 billion.
Koss Corporation Case Q1. From the Koss Corporation case, we can see that there are many aspects are not functioned properly in the accounting and internal control systems of Koss Corporation. First, the CEO’s supervision and regulation is weak, which means Michael has not fulfilled his responsibility of internal control. Sue initiate and authorize wire transfers of Koss Corp. funds to Sue’s personal creditors for over $16.3 million without requiring or obtaining Michael’s approval. And because Michael trusted Sue, Michael did not fully review the financials before approving them.
There can be a lot of factors as to why companies file for bankruptcy and closure. In the case of Enron, the first set of problems in the company manifested when traders reluctantly gambled with company assets in the oil market. They lost $90 million in a period of five days. Since then company reserves disappeared and auditors saved the company by reporting fake net worth and imprecise trading revenues resulting to accounting scandals in the company. Due to the company’s compound business model and unethical practices, they required that the balance sheet is to be modified accordingly to illustrate satisfactory