Case- XYZ ltd an IT company is not an MNC based in the USA.
ABC ltd an IT company is an MNC based in Germany.
The Germany company wants takeover the USA company.When the
ABC ltd scans XYZ ltd company's financial statements it
shows profit (no fraud or infringement was made in accounts
of XYZ ltd).But the finance department of ABC ltd says the
XYZ ltd financial statements show various losses.
Question- Cite four reasons why XYZ ltd shows loss, while it
has made profit?
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I got the answer close may not exact. The above answer had a
little ambiguity.
Answers are -
1. Interest rate- The interest rate of the USA may differ
that of the interest rate of Germany.
2. Conversion of currency - The fluctuation of currency.
While converting the USD to Germany currency that would show
loss. As USD value is less than Germany currency.
3. Cash flow impact :- While the investing row of cash flow
statement may differ both the organization.
4. Accounting standards- The application of accounting
standards might differ country to country.
I believe due to these things the XYZ ltd shows loss.
| Is This Answer Correct ? | 42 Yes | 0 No |
Answer / navit thareja
Loses can be on account of
A) Interest Rate Risk on their Investments.
B) Exchange Rate Risk when Converting Targets Currency to
Acquirers Currency.
C) Contingent Liabilities.
D) Loses found out by the Acquirer of any SPV of Target
company.
E) Most important Reason, Converting US GAAP to IFRS.
Can be on account of the Inventory Policies.
Policies on Investments.
| Is This Answer Correct ? | 6 Yes | 0 No |
Answer / rahul
reasons can be
1. company is paying hight interest
2. large intermidiate costs
3. no tax shield(less debt composition) and heavy taxes in
country.
4. mis-management of funds
5. high gross profit margin and less net profit margin.
| Is This Answer Correct ? | 1 Yes | 0 No |
Answer / abhishek chauhan
the 1 reason which i found for this that the flacuation of
the currecy rates,which are highly agressive .
| Is This Answer Correct ? | 0 Yes | 0 No |
Answer / bharath
The only thing i could cover in that qestion the GAAP rats
are diffrenet from US and Germany.
| Is This Answer Correct ? | 1 Yes | 1 No |
Answer / prashant
Equity Debt ratio could be very less or may be Debt of XYZ
company could be higher then eq.
Company can show profit in the books of account in this
case. bt this case it is not good to invest. this may be the
reason.
| Is This Answer Correct ? | 1 Yes | 6 No |
Answer / abhishek dutta
I feel it can be Due to :
1. Improper Market Condition in US
2. Poor Technology in use which needs to be replaced by
Modern and Updated TEchnology and incurring huge
expenditure on installation and training the Present
Employees.
3. Employee attitude towards the organisation and work
environment .
| Is This Answer Correct ? | 2 Yes | 7 No |
Answer / prashant
ROI (Return on Investment) may be very less.
Regards,
Prashant
prashant_garala@hotmail.com
| Is This Answer Correct ? | 2 Yes | 8 No |
Answer / nirakar
1st thing is XYZ Ltd company employees are not supportive
ya their communication both verbal or non-verbal are not
good while communication is most important for business.
(loss)
2nd thing is XYZ Ltd company management is not strong even
finance position.(loss)
3rd is XYZ Ltd company either it can hire from MNC. (profit)
last one is XYZ Ltd company may be profit if it should be
include in MNC or strong management.(profit)
| Is This Answer Correct ? | 4 Yes | 17 No |
Answer / rajendra
above stated reasons, i dnt believe they are right according
to me. one reason for XYZ ltd to make losses can be because
of loss on sale of machinery.
| Is This Answer Correct ? | 1 Yes | 16 No |
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