General
FEI Research Foundation Products:
Audits
The results of a 1999 audit fee survey to which 31 members of FEI's Committee on Corporate Reporting responded, are as follows:
On average, audit fees were .03% of sales for United States Businesses and .05% for International Businesses, as compared to .03% and .04%, respectively, during 1997.
For companies that submitted audit hours, fees averaged $177 per hour for United States Businesses (11 companies) and $150 per hour for International Businesses (8 companies). Average fees in 1997 were $121 per hour for United States Businesses (10 companies) and $89 per hour for International Businesses (7 companies). The difference in results between years is driven by both a lower number of audit hours associated with fixed fee rate structures and a different mix of companies providing audit hour information.
A majority of companies negotiate an annual fixed fee for United States and International Businesses.
For companies that submitted a rating for their level of satisfaction with service provided, companies rated their auditors a "4", on average, for United States and International Businesses, with "5" being the highest level of satisfaction. The same results were reflected in 1997.
Only one company changed auditors within the last five years due to weakness in the International arena.
Accounting Standards
FEI Research Foundation Products available for this topic are:
A basic definition of fixed assets is provided in the textbook "Accounting" Horngren, Harrison, Bamber, 4th Edition, as follows:
Plant assets, or fixed assets, are long-lived assets that are tangible-for instance, land, buildings and equipment...The cost principle directs a business to carry an asset on the balance sheet at the amount paid for the asset.
A basic definition of a capital improvement or betterment, which is capitalizable, is provided by Cooper and Ijiri (Handbook of Modern Accounting, Third Edition, Davidson and Weil) as follows "an expenditure having the effect of extending the useful life of an existing fixed asset, increasing its normal rate of output, lowering its operating cost, increasing rather than merely maintaining efficiency or otherwise adding worth to the benefits it can yield."
Cooper and Ijiri also provide a definition of maintenance as "keeping the property at a standard of operating condition" and repair as "the restoration of a capital asset to its full productive capacity after damage, accident, or prolonged use, without increase in the previously estimated service life or capacity."
For specific information regarding tax depreciation, here is a link to Instructions for Form 4562-Depreciation and Amortization .
For information on the practice of allocating administrative expenses, refer to the Sixth Edition of "Cost Accounting: A Managerial Emphasis" by Chuck Horngren and George Foster available. There are several chapters dedicated to cost allocation. In particular, look for two methods for allocating common costs to individual users: the incremental common cost allocation method and the stand-alone common cost allocation method.
Capital Structures
PIPE stands for "Private Investment in Public Equity." Investopedia provides a brief description: "This is when a private investment or mutual fund buys common stock for a company at a discount to the current market value per share. It can take up to 3 months for the transaction to be final since a registration statement needs to be filed with the SEC. PIPEs are generally not looked upon favorably by investors because these transactions usually involve hedge funds, which are seeking a quick buck and are likely to sell the PIPE shares in the market causing the share price to drop."
According to VFinance.com, PIPE, "in its simplest form, is a non-public investment by an accredited investor into a public company. The investment is usually at favorable terms (a discount or floating discount to the market) and has registration rights.
These financings can be Equity Line transactions, Bridge loans, Convertible Securities, or a straight common stock placement."
TheDeal.com provides an article, "PIPE Dreams".
FEI Research Foundation Products available for this topic are:
Discounting
FEI Research Foundation Products available for this topic are:
Distressed Debt
An article from the FEI Research Foundation's Web site on Distressed Debt.
The Bankruptcy Data Source is a detailed reference source that follows all publicly traded companies with total assets of over $50 million that are in bankruptcy proceedings.
A related site is BankruptcyData.com.
Guy Butler is a specialist broker concentrating on researching and selling high yield illiquid bonds and distressed bank debt.
Dividend Policy
Investopedia.com provides a Web portal with links to online textbook chapters on dividend policy, dividend policy theories, dividend reinvestment plans, stock repurchases, and stock splits.
Dr. Sharon H. Garrison has developed a simple, self-paced overview on dividend policy for StudyFinance.com.
Investor Relations
FEI Research Foundation Products available for this topic: New Realities for Management-Stockholder Relations, January 1994.
Mergers and Acquisitions
Knowledge @ Wharton & GE Capital provides a Web portal with links and articles on Mergers & Acquisitions and how they are financed.
FEI Research Foundation Products available for this topic are: M&A in the Post SFAS 141 & 142 Environment: Practitioners Speak Out, October 2001.
Optimizing the Balance Sheet for Growth
Knowledge @ Wharton & GE Capital provides an article on Optimizing Your Balance Sheet for Sustainable Growth.
FEI Research Foundation Products available for this topic are: Cash Flow and Performance Measurement: Managing for Value, October 1996
Pre-IPO Capital Structures
An article from the FEI Research Foundation's Web site on Pre-IPO Capital Structures.
Sale-Leasebacks
Knowledge @ Wharton & GE Capital provides an article on Sale-Leasebacks.
Share Repurchases (Stock Buybacks)
The FEI Research Foundation provides a simple model designed to analyze share repurchase strategy. This MS Excel workbook is available as a download. The model was developed by Bruce Valentine, CFO of McStain Enterprises, Inc. (Rocky Mountain Chapter).
Also, a research study, "The Share Repurchase Decision" by Dr. Nikhil Varaiya (San Diego Chapter) is available as a pdf file. Frequently Asked Questions are answered here.
Special Purpose Entities
FEI Research Foundation Products available for this topic are:
Spin-Offs
FEI Research Foundation Products available for this topic are: Spin-Offs and Equity Carve-Outs: Achieving Faster Growth and Better Performance, February 1999
Strategic Alliances
PricewaterhouseCoopers LLP recently published the results of a survey on the benefits of partnerships. An interesting quote: "On average, "Trendsetter" CEOs attribute nearly a quarter of current revenue (22.7 percent) to products or services developed in partnership with others."
FEI Research Foundation Products available for this topic: Joint Ventures and Other Alliances, April 1990
Synthetic Debt
"Can Synthetic Debt Give Authentic Savings?" by Barclay T. Leib, an article from the September 2001 issue of Financial Executive magazine.
Tax & Balance Sheet Management
Knowledge @ Wharton & GE Capital provides a Web portal with links and articles on Tax and Balance Sheet Management.
FEI Research Foundation Products available for this topic are:
Theory of Constraints
According to an April 1999 article in The CPA Journal titled, "An Application of the Theory of Constraints" , "the Theory of Constraints (TOC) is a systems approach based on the assumption that every organization has at least one factor that inhibits the organization's ability to meet its objectives. The normal objective for a business is to maximize profit. TOC emphasizes the maximization of profit by assuring that the factor that limits production is used most efficiently.
Under TOC, the objective is to maximize throughput (the rate at which a system generates money through sales after reduction for material costs, commissions, and distribution cost) while minimizing operating expenses for labor, sales, and administration and simultaneously minimizing investment outlays for inventory, plant, and equipment. The first step in applying TOC is to identify the constraining factor. For manufacturing concerns, the constraining factor is often but not always the time available on a certain machine or process. For companies that employ skilled workers, and for many service organizations, the constraint is often the time of one or a few key employees.
Once the constraining factor has been identified, the next step is to determine the throughput per unit of the constraining factor. This is done by dividing the throughput per unit of product by units of the constraining factor required to produce each unit of product. The key to maximizing profit is to concentrate on selling and producing products that provide the highest throughput per unit of constraining factor.
Implementation of TOC is often difficult because it may require a complete change in the way the company operates."
The article then provides a case study of Daufel Enterprises, a small business that produces hand-tied fishing flies.
Rogo Management provides a complete Web portal titled "Crazy About Constraints".
A book called "Theory of Constraints and It Implications for Management Accounting" It is available from Amazon.com for $17.50. According to the book description, "This book demonstrates how throughput accounting rather than traditional cost accounting is the measurement tool required for business demonstrations. This information is presented as an in-depth and impartial evaluation of the implementation of the Theory of Constraints at over 20 companies." Amazon provides 10 sample pages from the book. Visit the website here.
A related book available on Amazon is "The Theory of Constraints and Throughput Accounting".
Turnarounds
FEI Research Foundation Products available for this topic are: Financial Turnarounds: Preserving Value, May 2001