Suppressing volatility makes the world more dangerous

Volatility Makes the World More Dangerous

rEAD

Backflush Costing and Kaizen Costing

Backflush Costing and Kaizen Costing

Backflush accounting is a product costing approach, used in a Just-In-Time (JIT) operating environment, in which costing is delayed until goods are finished. Standard costs are then flushed backward through the system to assign costs to products. This eliminates the detailed tracking of costs throughout the production process, which is a feature of traditional costing systems.

Definition

Method of costing a product that works backwards: standard costs are allocated to finished products on the basis of the output of a repetitive manufacturing process. Used where inventory is kept at minimum (as in 'just in time' operations) this method obviates the need for detailed cost tracking required in absorption costing, and usually eliminates separate accounting for work-in-process. Also called backflush accounting.

Journal entries to inventory accounts may be delayed until the time of product completion or even the time of sale, and standard costs are used to assign costs to units when journal entries are made, that is, to flush costs backward to the points at which inventories remain.

It can be argued that backflush accounting simplifies costing since it ignores both labour variances and work-in-progress. Backflush accounting is employed where the overall business cycle time is relatively short and inventory levels are low.

BackFlush accounting is inappropriate when production process is long and this has been attributed as a major flaw in the design of the concept.

Back flush is used for materials which are requires for the product and have a fixed relationship with the product.

By eliminating work-in-process accounts, backflush costing simplifies the accounting process. However, this simplification and other deviations from traditional costing systems mean that backflush costing may not always conform to generally accepted accounting principles (GAAP). Another drawback of this system is the lack of a sequential audit trail.

Just-in-time(JIT) production systems take a“demand pull”approach in which goods are only manufactured to satisfy customer orders.

Read

Mezzanine Financing

 Definition

A hybrid of debt and equity financing that is typically used to finance the expansion of existing companies. Mezzanine financing is basically debt capital that gives the lender the rights to convert to an ownership or equity interest in the company if the loan is not paid back in time and in full. It is generally subordinated to debt provided by senior lenders such as banks and venture capital companies.

Since mezzanine financing is usually provided to the borrower very quickly with little due diligence on the part of the lender and little or no collateral on the part of the borrower, this type of financing is aggressively priced with the lender seeking a return in the 20-30% range.

Mezzanine financing is advantageous because it is treated like equity on a company's balance sheet and may make it easier to obtain standard bank financing. To attract mezzanine financing, a company usually must demonstrate a track record in the industry with an established reputation and product, a history of profitability and a viable expansion plan for the business (e.g. expansions, acquisitions, IPO).

Collateral

Properties or assets that are offered to secure a loan or other credit. Collateral becomes subject to seizure on default.

Equity Financing

The act of raising money for company activities by selling common or preferred stock to individual or institutional investors.

Due Diligence - DD

1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to a sale.

2. Generally, due diligence refers to the care a reasonable person should take before entering into an agreement or a transaction with another party.

1. Offers to purchase an asset are usually dependent on the results of due diligence analysis. This includes reviewing all financial records plus anything else deemed material to the sale. Sellers could also perform a due diligence analysis on the buyer. Items that may be considered are the buyer's ability to purchase, as well as other items that would affect the purchased entity or the seller after the sale has been completed.

2. Due diligence is a way of preventing unnecessary harm to either party involved in a transaction.

Mergers and Acquisitions

Mergers and Acquisitions
M&A

The Main Idea 

One plus one makes three: this equation is the special alchemy of a merger or an acquisition. 

Strong companies will act to buy other companies to create a more competitive, cost-efficient company. The companies will come together hoping to gain a greater market share or to achieve greater efficiency without creating a subsidiary, other child entity or using a joint venture. 




The distinction between a "merger" and an "acquisition" has become increasingly blurred in various respects (particularly in terms of the ultimate economic outcome), although it has not completely disappeared in all situations.

Wiki


Distinction between Mergers and Acquisitions
 
Although they are often uttered in the same breath and used as though they were synonymous, the terms merger and acquisition mean slightly different things.

When one company takes over another and clearly established itself as the new owner, the purchase is called an acquisition. From a legal point of view, the target company ceases to exist, the buyer "swallows" the business and the buyer's stock continues to be traded.

In the pure sense of the term, a merger happens when two firms, often of about the same size, agree to go forward as a single new company rather than remain separately owned and operated. This kind of action is more precisely referred to as a "merger of equals." Both companies' stocks are surrendered and new company stock is issued in its place. For example, both Daimler-Benz and Chrysler ceased to exist when the two firms merged, and a new company, DaimlerChrysler, was created.

In practice, however, actual mergers of equals don't happen very often. Usually, one company will buy another and, as part of the deal's terms, simply allow the acquired firm to proclaim that the action is a merger of equals, even if it's technically an acquisition. Being bought out often carries negative connotations, therefore, by describing the deal as a merger, deal makers and top managers try to make the takeover more palatable.

A purchase deal will also be called a merger when both CEOs agree that joining together is in the best interest of both of their companies. But when the deal is unfriendly - that is, when the target company does not want to be purchased - it is always regarded as an acquisition.

Whether a purchase is considered a merger or an acquisition really depends on whether the purchase is friendly or hostile and how it is announced. In other words, the real difference lies in how the purchase is communicated to and received by the target company's board of directors, employees and shareholders.

Read more: http://www.investopedia.com/university/mergers/mergers1.asp#ixzz1nCFioDGI

International Country Risk Guide (ICRG)

International Country Risk Guide 

(ICRG)

 

On a monthly basis since 1980, ICRG has produced political, economic, and financial risk ratings for countries important to international business. ICRG now monitors 140 countries. ICRG ratings form the basis of an early warning system for opportunities and pitfalls, country-by-country. This warning system now includes a graphic presentation, in the form of Global Maps of Political Risk. ICRG Risk Ratings have been independently acclaimed in such publications as Barron's, The Economist, The Wall Street Journal, and IMF white papers. Testing has proven ICRG's reliability and its uniqueness:

• Longest history of country risk data for analysis
• Easy to customize and merge with in-house systems
• Useful for multinational firms, banks, and equity and currency traders

Products based upon the ICRG methodology are as follows:

• International Country Risk Guide is published online, in print and on CD-ROM. Each monthly issue of this journal monitors 140 countries and includes more than 100 pages of financial, political and economic risk ratings. It offers analysis of events that affect the risk ratings in about 20-25 countries along with the economic and financial data underlying financial and economic risk ratings. The online and CD-ROM versions include the current issue and 12 months of previously published data. All subscribers to ICRG also receive a monthly edition of the Global Maps of Political Risk, pointing them to key changes in risk since the last issue.
• ICRG Data, including current data published in the journal and historical data (risk ratings and economic statistics) back to 1984, are available separately in digital formats.
• International Country Risk Guide Annual is a seven-volume set published annually, designed for university libraries, to provide cost effective access to ICRG's coverage of 140 countries over the previous twelve months. For more information on this and related publications for academia, please go to Academic Titles.

ICRG Website
 

Book: Management Accounting (Kaplan) ACCA F2

Book: ACCA F2 (Kaplan)

Management Accounting
(Essential Text)

Read