Financial Strategies Mine/aggressive/speculative Build/conservative/
A. Accounting Policies-- Time income and expenses Account for income and
Management of income, expense to sustain a level of increase expenses as they occur
& cash streams & minimize fluctuations
1. Capitalizing expenditures Capitalize expenditures as Write off as expenses
capital investments that expenditures that can be
could be expensed capitalized
(e.g.) R & D
2. Recognizing contingent Delay charging expenses Charge off as expenses
liability (e.g., contingent until payments must be 100% potential liabilities
warranties, funding, made and fund contingencies
pensions, pending)
3. Bunching downsizing Rolling future costs into Record costs as they occur
costs current period
4. Recognizing contingent Treat contingent income Delay reporting until
income as current income actually realized
5. Valuation of assets: inflation Original costs Replacement
a. Valuation of fixed assets Conservative Aggressive
-- Base Used Historical Market
-- Depreciation Method Straight line Accelerated
b. Valuation of current assets FIFO AC LIFO
c. Ownership of physical Extensive Limited
facilities (marketing &
production facilities)
Financial Strategies Mine/aggressive Build/conservative
B.. Hurdle rate Low (below projected High (above projected
cost of capital) cost of capital)
Financial Strategies Mine/aggressive Build/conservative
C. Change in capital Increase Debt (high Increase Equity (low
structure debt/low equity) debt/high equity)
1. Leverage Increase Decrease
a. Amount of debt Increase debt/equity Reduce debt/equity ratio
ratio
b. Lease/ownership of fixed Increase leases/reduce Reduce leases/increase
assets ownership ownership
c. Liquidity Reduce CA/CL ratio) Increase CA/CL ratio
d. Terms of acquisitions Debt or Cash Stock
Financial Strategies Mine/aggressive Build/conservative
2. Structure of Credit Increase short-term Reduce short-term
Instruments
a. Change in terms of Increase ratio of Reduce ratio of short
debt short to long term to long term debt
debt
b. Change in lease Increase length of Reduce length of
terms leases leases
Financial Strategies Mine/aggressive Build/conservative
C. Dividend policies /percentage of 100% or more 0%
payout of earnings