Biovail Corporation Essay

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Biovail Corporation: Revenue Timing and Earnings Based on Analysts’ Stock Ratings and Recommendations Chuck Kenlan Concordia University MBA 502 Case Study Assignment I November 24, 2012 Abstract On October 1, 2003, a truck carrying a shipment of Wellbutrin XL from Manitoba, Canada to a distributor in North Carolina crashed near Chicago, Illinois. The Wellbutrin had been produced by Biovail Corporation, one of Canada’s largest publically traded pharmaceutical companies. The truck left Biovail’s manufacturing facility on September 30; a date which coincided with the end of the 3rd quarter. A few days after the accident, Biovail released guidance for the 3rd quarter, indicating that revenues and earnings would be below the previously released guidance. The company stated that the loss ($10 - $20 million) was associated with the accident. (Chapman, 2009) Using facts from the Harvard Business School case study Biovail Corporation: Revenue Recognition and FOB Sales Accounting and other sources, I will discuss the concepts of revenue and expense recognition. I will do this while answering the following questions: 1) How many truckloads of product (Wellbutrin) are actually required to carry $10 million of product? (used to validate Biovail’s claim of value) 2) How should the company recognize revenue based upon the two possible FOB contract structures in the case? Why? 3) How does the accident affect the stated revenues under the different FOB contract structures? And, 4) Are you concerned about the company’s treatment of analysts who cover the stock? Would you want to be an analyst covering this company? How many truckloads of product are required to carry $10 million of product? Analysts from J.P. Morgan Securities covering Biovail give us some data concerning the value of the product, the size of the product and the volume of the truck:

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