IMA Educational Case Journal
Volume 1, Issue 2
Frosty Footwear, Inc.: Business Valuations
Hugh Grove, Tom Cook, Lisa Victoravich
The purpose of the case is to determine whether Frosty Footwear Inc. should be sold now or continue to be operated for a later sale at a potentially enhanced business value. Eighty percent of a typical private business owner’s net worth is tied up in his or her business. As a result, an accurate determination of the firm’s value is essential to ensure proper returns for years of hard work and personal investment. This firm’s value is computed using the three major business value approaches—income, market, and asset—with related methods for each approach. Thus, this case is designed to raise the issues of how private companies can be valued. The Frosty Footwear owners had hired a merger and acquisition (M&A) consultant to apply various business value approaches to help assess the key decision on whether to sell now or continue to operate the business.
Keywords: business valuation, income approach, market approach, asset approach.
Financial Services Corporation: Implementing an HR Balanced Scorecard
Laurie Burney, Ph.D., Amy Paul
Strategic performance measurement systems, such as the Balanced Scorecard (BSC), are the focus of a growing stream of accounting research. While the concept has recently been the focus of several academic studies, only a few cases have explored its application in real corporations. Our case adds to the current cases by providing a rich set of details related to the implementation of the BSC within an HR division. Specifically, the case should help students gain an understanding of BSC implementations and the issues faced by HR in demonstrating its value to an organization.
Keywords: balanced scorecard, implementation, human resources.
Procomp Informatics: Stepping on Ethical Landmines in Asia
Amy H. Lau, Claudia Huey-Ling Woo
In 2004, the collapse of Procomp Informatics Ltd., a major Taiwanese chip maker in the high-tech world, was regarded by Taiwan’s market watchdogs as similar to the scandal of the giant US energy company Enron in 2001. Procomp defaulted on a bond payment and structured for bankruptcy despite a huge cash balance recorded in its books. It was discovered that the company’s chairwoman together with its executives and overseas sales agents had colluded in overstating sales revenue, manipulating stock prices, illegally leveraging assets and arranging bonds through fictitious companies. This incident left thousands of company shareholders with massive financial losses. The case has raised further concerns about corporate governance and risk management of public companies in Taiwan. It has spotlighted the credibility of the financial reporting process, companies’ internal controls, and corporate ethics in the Asian context.
Keywords: ethics, financial reporting, fraud, corporate governance, culture, risk management.
Forest Hill Paper Company
Thomas L. Albright
The Forest Hill Paper Company case is based on the author’s experience with cost system design at various paper manufacturing plants. The case provides a background discussion of the industry, competitive environment, and manufacturing process. Thus, students have a realistic context in which to study the principles of activity-based costing. The case requires students to develop product cost calculations using the company’s traditional system. Next, students design a simple two-stage allocation system having three cost pools. The case asks students to compare the activity-based cost calculations with the cost calculations from the traditional system. Finally, students make recommendations to management based on their knowledge obtained from the improved cost system.
Keywords: overhead, cost drivers, costs of complexity, activity based costing.
Calzados Pezutti Sociedad Anónima (CalPe SA)
Marcela Porporato, Nelson Waweru
Calzados Pezutti Sociedad Anonima (CalPe SA) was founded in 1946 in the city of Córdoba, Argentina. Its primary business is the design, manufacture, and sale of shoes, mostly for women. During its 60 years of existence CalPe SA has survived several economic crises and has seen a general deterioration of the purchasing power of the middle class, its primary customers. The objective of this case is to show that while a management control tool such as the Balanced Scorecard (BSC) can be an excellent guide towards achieving performance objectives, it has to be carefully adapted when used for a second function such as compensation, because it can generate undesirable side effects.
Keywords: balanced scorecard, Argentina, strategy, compensation, incentive plans.