Carrefour case assignment To make historical analysis and peer comparison more p
ID: 2343389 • Letter: C
Question
Carrefour case assignment To make historical analysis and peer comparison more pertinent, Chrystelle Moreau, the analyst of Leblanc Investissements, made certain accounting adjustments to Carrefour financial statements. List accounting adjustments you will consider making. Explain the impact of one of them on key financial ratios Carrefour case assignment To make historical analysis and peer comparison more pertinent, Chrystelle Moreau, the analyst of Leblanc Investissements, made certain accounting adjustments to Carrefour financial statements. List accounting adjustments you will consider making. Explain the impact of one of them on key financial ratios Carrefour case assignmentExplanation / Answer
Answer:
List of accounting adjustments to be made:
Some adjustments which an analyst should make to create a current cost balance sheet are:
Adjusting for Operating Leases: Until new lease accounting rules are implemented, operating leases will not appear on the balance sheet. However, operating leases generally represent a contractual obligation and investors should recognize the liability on the balance sheet. Investors can use footnote disclosures to make the necessary calculations.
Adjusting for LIFO Inventory: Firms using LIFO accounting are may have inventory carrying costs below replacement value. Firms using LIFO are required to provide a disclosure showing the difference between inventory valued under FIFO and inventory valued under LIFO. This disclosure is the LIFO reserve. An investor can calculate approximate inventory replacement cost by adding the LIFO reserve to the inventory balance sheet amount.
Adjusting for Long-term Assets: The general rule is that highly specialized assets should be kept at book value, while more generalized property, such as office buildings or warehouse space can be adjusted to market values. The details of the company’s property are provided in footnote disclosures. Investors can estimate market values of property in several ways. The most reliable way is to utilize commercial real estate data-sources such as LoopNet™. Investors can use such sources to search for comparable sales data on each property listed in the footnote. For investors who do not have access to such services, the property appraiser in the jurisdiction of each property can provide useful information. Also, the company itself may have recently sold property comparable to its other properties, and the details of such transactions can be used to estimate fair values. Regardless of the approach used, the investor should always be conservative in her estimates.
Adjustment related to Goodwill: Analysts should generally remove goodwill when creating a current cost balance sheet. However, investors should not ignore goodwill all together. A company with significant and recurring goodwill write-offs indicates that management has an undisciplined acquisition strategy.
Adjusting the cash flow statement involves several steps:
(1) reclassifying certain items from or into CFO,
(2) identifying non-sustainable sources of operating cash flow,
(3) separating CFO into sustainable and unsustainable components,
(4) calculating and presenting free cash flow, defined as the sustainable portion of CFO minus capital expenditures.
Impact of one:
The impact of NORMALIZING OPERATING INCOME wil make the income of the company different from the before adjusted income and that will affect the Key financial ratios like Return on Equity, Return on assets, Net profit margins etc.