Accounting research and analysis

¶ … 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.

Accounting-Research Paper

Liquidity

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 was observable. The company will end up with assets that are little to their worth in further with no ability to replace them of dispose them off (Desai, Hogan and Wilkins 46).

Free cash Flow

The alternative cash flow that is can be used in gauging a company's normal flow of cash is known as free cash flow. Free cash flow calculations are not included in the cash flow since they include the funds available to the suppliers of capital, owners and creditors. (Duttweiler 46) defines free cash flow as the cash that is generated in a business available for distribution and share among the security holders, many investor consider free cash flow as the best measure to reflect a company's ability to generate cash. This observation is made since free cash flow is not normally put to use in the normal running of a business. Rather, free cash flow is pegged for paying dividends, reservation for future acquisition of capital, development of new products and expansion of business operation in regions (Duttweiler 48).

Consideration made by Mr. Breen to focus on free cash flow in the first years is to reduce the debt burden held by the company. This consideration complements the liquidity crises since the company had no other viable measure to meet its obligation. Considering the nature of its assets, Mr. Breen's evaluation directed him to appreciate that there were no immediate alternatives to come up with cash without undesirable loss in value.

The use of free cash flow is an ideal measure to alter future cash flow and earning within a company. As opposed to increasing its debts, through borrowing with interests charged, use of available cash flow is preferred. The company is also much better suited compromising the owners and security holder in the short-run to avert eminent need to file for bankruptcy. Free cash flow uses can open avenues to increase profitability and reinstate outside stakeholder confidence in the company. This measure will hedge the company towards more sustainable relation with potential business partners.

Company forecast reports

Mr. Breen observes that the desire for many to evaluate performance through the short run performance in misguided. It is possible to concentrate much on short sited gains and miss out on ideal long-term goals. The potential of a company to perform in the longer term is driven not only by its short-term performances but, also on the orientation focus on the future. Detailed concentration on posting meaning strides in the short-run can work to hinder the company from attaining growth and sustainability (Desai, Hogan and Wilkins 91).

Mr. Breen perspective on providing information on Wall Street analyst looks back to the way Kozlowski sought to entrench good will upon himself with the stakeholder. The hedging attained through Wall Street analysis based on creating the company's value to the shareholders. This measure is blind to the need for these shareholders to benefit from meaningful long-term growth. The measure is also blind to the corporations need entrench a value for customers and business through developments instituting productivity and efficiency (Desai, Hogan and Wilkins 93).