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Tyco international Ltd. after Kozlowski resignation and Breen came in to reinstate the company's performance. The sections in the paper are: liquidity, accounting practices, free cash flow, forecast reports for companies and finally opinions revealed in the interview by Wall Street Journal with Mr., Breen.
The first section on liquidity defines the term liquidity and gives a situational analysis of the condition observed at Tyco Ltd. The discussion links the definition on liquidity explaining that the company was not in a position to meet its cash needs thus the existence of crises.
In the second section, the aggressive accounting is seen to have a disastrous effect on the company's operations by pleasing the shareholder and compromising the company's future. The practice is not illegal but, it worth in the long-run existence of the company is not ideal.
The concept of free cash flow is discussed in the section indicating that the company has different cash flows. Free cash flow is seen as one that assists the company to come up with means of yield operational cash flow. Its importance in heightened by the company's ability to orient the company in profitable ventures.
The distribution of analytical information to wall street journal is discussed in the fourth section. The shortsightedness observed in the short-term target is seen to be ideal bring a company to a halt. The need to consider future gains rather than short-ran gains is discussed.
Corporations operate in a dynamic environment and they will be expected to change with these changes. Reforms are also bound to take place in spite of the chosen president. This is presented in section five.
According to (Duttweiler 3), liquidity refers to the capacity to fulfill obligations in payments in full when they fall due and in the required currency. Liquidity is determined by means of payment that in most cases is by cash. The inability to meet this obligation breads the condition of illiquidity. The mention of liquidity is thus a measure of the degree of ease in releasing a security or an asset through a market process without affecting its price (Harrison Jr., Horngren and William 16) pg. An asset or security is liquid if it can be converted with ease into cash (Duttweiler 3).
The two definitions provide above denote a two-fold connotation of liquidity that one can use to understand better liquidity, the first one relates to the ability to realize the flow and meet obligation. The second one relates the flow that is not obscured (Harrison Jr., Horngren and William 20). The first one relates more to the Tyco's situation. The company is said to have a liquidity crises because, it was observed it had a problem in settling its debts amounting to $30 billion.
The inability of a company to meet its financial obligation in making payments is what (Duttweiler 3) refers to as illiquidity. The company had no liquid money in the bank and the price of the company stock was considered not to have a stock currency. (Duttweiler 4) notes that to consider a company as liquid the ability to meet payment and in the required currency is paramount. Mr. Breen reckons the company needed to generate free cash flow for purposes of meeting its debt obligation thereby highlighting the liquidity issues.
Accounting practices and mess realized
The accounting mess uncovered under the leadership of Kozlowski cleaned up in a period of 1 year after Breen took over as CEO. The inquiry to the accounting mess under Kozlowski leadership showed no additional fraud but, indicated the accounting practice used inflated the reported earnings of the company. This measure was intended to strengthen shareholders support for Kozlowski's leadership an aspect that would not occur using conservative accounting practice.
The use of aggressive accounting practices as opposed to conservative practices brings in a sense of company profitability. In the aggressive practice of accounting, company accounts on expenses may be reduced, little disclosures on acquisitions, operating cost may be treated as operating cost and investment income recorded as revenues. This practice can also entail including premature record of revenue. The practice works well to bring out a company's profitability with little consideration on its future (Desai, Hogan and Wilkins 42). This practice contributed to the inability of the company to meet it debt obligation despite that fact that profitability…[continue]
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