Deck 16: Financial Management and Securities Markets

Question 1

Print out the Apple iTunes terms and conditions, and you will find they are 32 pages long. This is at least partly the result of a continuing congressional trend toward requiring companies to disclose information-from the number of calories in packaged food, to the interest rates and term details of mortgage agreements, to accounting practices and financial metrics in corporate financial reports. The idea is that disclosure of important information will allow the public to make more informed decisions, reduce questionable business practices, and improve marketplace efficiency.
However, some analysts are arguing that required disclosure has gone overboard to the point of being counterproductive. Rather than inform the public, the ballooning length and amount of documents to read and sign means fewer people read them at all. Not only that, but companies are able to bury inflammatory or negative information deep within pages of legalese and unimportant data.
This is a problem in quarterly and yearly corporate financial reports as well. For large companies, these documents can reach 200 pages, making it difficult for even dedicated investors to fully understand a firm's financial position-and easy for firms to hide negative information. Enron, in fact, did exactly that; after its collapse, investors realized the footnotes to its financial reports were filled with warning signs. The issue has even given rise to a new business model-so-called bear-raid firms, who make money by deeply analyzing these reports in the hopes of uncovering fraudulent practices. Instead of requiring further disclosure of company actions, concerned analysts argue Congress could better protect consumers by focusing on closer regulation of those company actions themselves.5
What advantages are there for company disclosure of financial information?

Answer 1

Case Summary:
The case discuss about the attention given to the financial statements by the firm to the investors. The interest of the peoples involved in purchasing the shares of a firm and their keenness to the content provided by the firm. Many people do not spend their time in reading the long document before signing the agreement.
They do not get an overview about the firm financial position before making their investments decisions. Companies create long documents consisting of 200 pages or more to hide their negative points.
This has paved way for the rise of bear-raid firms and many fraudulent practices. There is a need to create strict guidelines to safeguard the importance and concerns of the customers.
Advantages of disclosing financial information:
The companies will have an advantage of attracting more investors than other companies, when they disclose their information. The information, when made accessible to outside people, will aid in distributing evidence to public.
The events happening in the firm when exposed openly to other people will help in creating a good reputation in the public. It helps to know the credentials and ways to handle them. It helps them to handle any legal issues that arise in the business transactions.
Conclusion:
Disclosing the information by a firm will assist to appeal depositors to take part in the trade. It will reduce the effort made to develop the good image. When a firm functions in a gainful way, its information will create positive impact among the public.

Question 2

Can sustainability improve a firm's bottom line? American chemical company DuPont proves the answer is yes. At DuPont, sustainability is seen as more than just helping the environment. It is a market-driven process that enhances the bottom line and creates stakeholder value. Sustainability assists in the effective management of assets, liabilities, and owners' equity. DuPont's quest for sustainability began two decades ago when the firm began to analyze how its plants were impacting the environment. It next turned its attention to energy and found that adopting more energy-efficient processes decreased energy costs. Since then, sustainability has morphed from merely an environmental initiative into a strategic tool. DuPont has reduced its global greenhouse gas emissions by 25 percent and its water usage by 12 percent since 2004. It is also working on reducing waste in the product life cycle, resulting in significant cost savings for the firm. DuPont recognizes that it can use sustainability not only to reduce costs but also to increase profits through new-product offerings. The company periodically creates what it terms market-facing goals for new customer products that reduce environmental impact. Since 2011 DuPont has generated $2 billion in revenue from products that reduce greenhouse gas emissions. Its offerings range from biofuels for automobile manufacturers to green building products. Finally, DuPont believes it can share what it has learned from best practices in sustainability with other companies. Its DuPont Sustainable Solutions (DSS) business helps organizations adopt a triple-bottom-line (people, planet, profits) approach. This approach goes beyond the bottom line to incorporate human and environmental concerns. The company shares many of these practices with its suppliers to increase the sustainability of the supply chain. DuPont is an example of a successful company that has turned sustainability into a competitive advantage. 1
Why is it important for DuPont to develop market-driven sustainability goals?

Answer 2

Case Summary:
The case speaks about how Company D used sustainability in a different way that effected in improving the revenues of the company. Company D has handled sustainability in a different outlook and used it to their advantage.
Company D has focused on it energy usage and started using energy in more conservative way that is profitable to the firm. Since 2004, Company D has minimized its greenhouse gas discharge by 25% and water usage by 12%.
Company D has reduced its cost by reducing the waste from its product development lifecycle. Company D has generated $2 billion by reduction in its greenhouse gas emission. Finally Company D has started to share its practice with other companies. This technique will persuade the bottom line of other companies. It will help to increase their profit.
Importance to develop market driven sustainability goals:
The business operates in a society that utilizes the facilities from the society. Therefore, in turn the business has to return something to the society in which it operates. The business has to be sustainable contributing to its development and society's development.
Many business processes use lots of money in societal activities in which the returns are fewer when compared to the expenses. This will have a direct impact in the profit of the business.
Company D adopted the practice of using such activities to its advantage that will have direct impact on the profit of the firm. Therefore, they embraced such practices as a market driven strategy, which would benefit both sides.
Conclusion:
The strategy, which will benefit mutually for the organization and the society, will have a major impact on profit in the forthcoming years. Such strategy will have a greater influence on devising other key strategies of the organization.
This move will provide Company D an advantage over their opponents. In future, it will help Company D to be a decision maker in bringing major variations in the market.

Question 3

Print out the Apple iTunes terms and conditions, and you will find they are 32 pages long. This is at least partly the result of a continuing congressional trend toward requiring companies to disclose information-from the number of calories in packaged food, to the interest rates and term details of mortgage agreements, to accounting practices and financial metrics in corporate financial reports. The idea is that disclosure of important information will allow the public to make more informed decisions, reduce questionable business practices, and improve marketplace efficiency.
However, some analysts are arguing that required disclosure has gone overboard to the point of being counterproductive. Rather than inform the public, the ballooning length and amount of documents to read and sign means fewer people read them at all. Not only that, but companies are able to bury inflammatory or negative information deep within pages of legalese and unimportant data.
This is a problem in quarterly and yearly corporate financial reports as well. For large companies, these documents can reach 200 pages, making it difficult for even dedicated investors to fully understand a firm's financial position-and easy for firms to hide negative information. Enron, in fact, did exactly that; after its collapse, investors realized the footnotes to its financial reports were filled with warning signs. The issue has even given rise to a new business model-so-called bear-raid firms, who make money by deeply analyzing these reports in the hopes of uncovering fraudulent practices. Instead of requiring further disclosure of company actions, concerned analysts argue Congress could better protect consumers by focusing on closer regulation of those company actions themselves.5
Have financial disclosure requirements gone too far and become counterproductive?

Answer 3

Case Summary:
The case discuss about the attention given to the financial statements by the firm to the investors. The interest of the peoples involved in purchasing the shares of a firm and their keenness to the content provided by the firm. Many people do not spend their time in reading the long document before signing the agreement.
They do not get an overview about the firm financial position before making their investments decisions. Companies create long documents consisting of 200 pages or more to hide their negative points.
This has paved way for the rise of bear-raid firms and many fraudulent practices. There is a need to create strict guidelines to safeguard the importance and concerns of the customers.
Mr. X view on whether disclosure information have gone too far and become counterproductive:
Mr. X feels that the investors, who are going to invest in a firm, must be aware of the performance of the firm. If they are aware, only then they can make decision regarding their investments and future progress.
An investor can gather particulars from reports of the firm. Therefore, it is essential for a firm to disclose all its evidence linked with its financial facts to the public. Hence, Mr. X feels that the disclosure of information have not gone too far and become counterproductive.
Conclusion:
To make investments decisions, the investors should have knowledge about the firm progress and its monetary situation. The evidence investors are looking for; should be available to them to decide on the investment. Therefore, providing this information becomes necessary.

Question 4

Can sustainability improve a firm's bottom line? American chemical company DuPont proves the answer is yes. At DuPont, sustainability is seen as more than just helping the environment. It is a market-driven process that enhances the bottom line and creates stakeholder value. Sustainability assists in the effective management of assets, liabilities, and owners' equity. DuPont's quest for sustainability began two decades ago when the firm began to analyze how its plants were impacting the environment. It next turned its attention to energy and found that adopting more energy-efficient processes decreased energy costs. Since then, sustainability has morphed from merely an environmental initiative into a strategic tool. DuPont has reduced its global greenhouse gas emissions by 25 percent and its water usage by 12 percent since 2004. It is also working on reducing waste in the product life cycle, resulting in significant cost savings for the firm. DuPont recognizes that it can use sustainability not only to reduce costs but also to increase profits through new-product offerings. The company periodically creates what it terms market-facing goals for new customer products that reduce environmental impact. Since 2011 DuPont has generated $2 billion in revenue from products that reduce greenhouse gas emissions. Its offerings range from biofuels for automobile manufacturers to green building products. Finally, DuPont believes it can share what it has learned from best practices in sustainability with other companies. Its DuPont Sustainable Solutions (DSS) business helps organizations adopt a triple-bottom-line (people, planet, profits) approach. This approach goes beyond the bottom line to incorporate human and environmental concerns. The company shares many of these practices with its suppliers to increase the sustainability of the supply chain. DuPont is an example of a successful company that has turned sustainability into a competitive advantage. 1
How can DuPont's sustainability initiatives improve financial management?

Question 5

Print out the Apple iTunes terms and conditions, and you will find they are 32 pages long. This is at least partly the result of a continuing congressional trend toward requiring companies to disclose information-from the number of calories in packaged food, to the interest rates and term details of mortgage agreements, to accounting practices and financial metrics in corporate financial reports. The idea is that disclosure of important information will allow the public to make more informed decisions, reduce questionable business practices, and improve marketplace efficiency.
However, some analysts are arguing that required disclosure has gone overboard to the point of being counterproductive. Rather than inform the public, the ballooning length and amount of documents to read and sign means fewer people read them at all. Not only that, but companies are able to bury inflammatory or negative information deep within pages of legalese and unimportant data.
This is a problem in quarterly and yearly corporate financial reports as well. For large companies, these documents can reach 200 pages, making it difficult for even dedicated investors to fully understand a firm's financial position-and easy for firms to hide negative information. Enron, in fact, did exactly that; after its collapse, investors realized the footnotes to its financial reports were filled with warning signs. The issue has even given rise to a new business model-so-called bear-raid firms, who make money by deeply analyzing these reports in the hopes of uncovering fraudulent practices. Instead of requiring further disclosure of company actions, concerned analysts argue Congress could better protect consumers by focusing on closer regulation of those company actions themselves.5
How could disclosure rules be changed to get useful information out to consumers without the information overload problem?

Question 6

Can sustainability improve a firm's bottom line? American chemical company DuPont proves the answer is yes. At DuPont, sustainability is seen as more than just helping the environment. It is a market-driven process that enhances the bottom line and creates stakeholder value. Sustainability assists in the effective management of assets, liabilities, and owners' equity. DuPont's quest for sustainability began two decades ago when the firm began to analyze how its plants were impacting the environment. It next turned its attention to energy and found that adopting more energy-efficient processes decreased energy costs. Since then, sustainability has morphed from merely an environmental initiative into a strategic tool. DuPont has reduced its global greenhouse gas emissions by 25 percent and its water usage by 12 percent since 2004. It is also working on reducing waste in the product life cycle, resulting in significant cost savings for the firm. DuPont recognizes that it can use sustainability not only to reduce costs but also to increase profits through new-product offerings. The company periodically creates what it terms market-facing goals for new customer products that reduce environmental impact. Since 2011 DuPont has generated $2 billion in revenue from products that reduce greenhouse gas emissions. Its offerings range from biofuels for automobile manufacturers to green building products. Finally, DuPont believes it can share what it has learned from best practices in sustainability with other companies. Its DuPont Sustainable Solutions (DSS) business helps organizations adopt a triple-bottom-line (people, planet, profits) approach. This approach goes beyond the bottom line to incorporate human and environmental concerns. The company shares many of these practices with its suppliers to increase the sustainability of the supply chain. DuPont is an example of a successful company that has turned sustainability into a competitive advantage.1
How is DuPont using sustainability as a competitive advantage?