Professor Elam

Ford and GM, Better or Bankrupt

I mentioned an article during the grad class that laid out the real Ford balance sheet, the writer concluded that there was no value here.  And so here is another contrarian opinion suggesting that neither Ford nor GM is worth anything.  This writer mentions that a rumor has been floated that the Ford family might consider selling all its stock, incredibly the stock went up on this news.  If the Ford family is ready to bail, why wouldn't everyone?

This is a good analysis of valuing a company and a must read for accounting and finance students.  Jerry Flint at Forbes has suggested that bankruptcy would not do them any good as most union workers are older and own their homes.  While the showdown at Chrysler with unions remains, this writer points out that unions difficulties are only part of the problem as GM and Ford have gone ever deeper in debt to try to show a profit. 

On My Reading List

One of my profs in the PhD program frequently made a good point.  Next time you are with a group of people ask them what they are reading.  Interesting that several will not have an answer. So to make a few suggestions and hopefully hear what some of you are up to, here's my latest reads.

Did you know Bob Newhart actually started out as an accountant?  Yep, true story, but he soon found he would rather make people laugh.  In  I shouldn't Even Be Doing This  Bob chronicles his rise from obscure accoutant to obscure comic (all my friends were gettign married and I was still living with the folks) to standup (the button down mind of Bob Newhart) to major tv star. 

Peter Falk got a college degree but decided he didn't like working for the government.  He switched to stage acting and then did some movies and television roles.  But as he says, it was the Columbo character that made his career. In the process he became his own producer and as you will read, a pretty fair script writer himself.  I found this one enjoyable, particualry his thoughts on that great black comedy, The In Laws  IF you have not seen that movie and can find it at the video store, a 1979 release, go for it, Ok Lupe, so It is not a recent movie.

Today I got Iacoca's latest book on leadership, I will post a review later this weekend, so what are you reading, inside of course, too much rain to sit by the pool.  By the way, I checked all these out of the public library, that would be a big building full of books that you can check out and return for free, what a concept....

Everything Old is New Again

Has anyone ever really thought about a radical approach to cars, I mean something really different. Now that gasoline is $3 is it time to re think all that? As I have mentioned before, BMW brought out the Isetta at left in the 1950s. The radical styling and design would never be allowed today, the entire front of the vehicle opened to allow entry and exit.

But if one puts doors on an Isetta above then one has the Smart Car pictured at left.  It is coming to America courtesy of Roger Penske and we shall see how well it does.

Another popular small car now is the Mini, actually being produced by BMW who brought us the Isetta.  Look closely at the one on the left.  Notice anything?  This is not the current Mini but the original!  Notice how small it really is in comparison to the man standing next to it or the Jag XKJ behind it.  This is a 1950s design that was radical and innovative at the time. In fact, it was designed in Britain and established the baseline for what is the economy car today. Which is to say all the mechanicals are in the front, engine, transmission, driveline. The engine was turned sideways to save space and be parallel to the driven axle.  This leaves the rest of the vehcile for maximum space for passengers and gear. The wheels are pushed to the far four corners of the vehicle, again to maximize space.  And the wheels are small, these are only twelve inches in diameter, so they do not intrude on passenger space.  The result is an amazing amount of space in a tidy size. These were popular for racing and handling events known as auto crossing.  The roofs were painted white on the race cars so it was easier for the pit crews to spot their cars on the track. This proved popular and was copied for the passenger cars, and is still a feature of the modern mini.

The moral of the story?  First it is interesting that BMW, now a maker of luxury cars, was saved by producing an ultra economy car in the post war 1950s using motorcycle engines.  Now BMW purchased the rights to the British Mini and has popularized it again.  And now the Isetta is re born as the Smart Car, actually designed by Mercedes.  Funny how two luxury car makers ended up in the economy category.  There is a cycle at work here of going from economy to extravagance represented by 5,000 pound empty pickup trucks all over Dallas Texas.  Now we appear headed back, to the future or the past, goes around comes around as they say.

FASB Revision

On May 12 2007 I posted a link that suggests the FASB is considering radically revising the current content of financial statements.  I checked with both Thomson and McGraw Hill on that.  Neither is expecting that kind of change any time soon, and apparently are skeptical it will happen. I was assured however that if it does, they of course wil be on top of it, and have revised texts to reflect the changes. 

I suspect it would take another financial meltdown Worldcom or Enron style to prompt such radical change.

Accounting Certifications

ABV - Accredited in Business Valuation CGFO - Certified Government Finance Officer
AEP - Accredited Estate Planner ChFC - Chartered Financial Consultant
BVS - Business Valuation Specialist CIA - Certified Internal Auditor
CA - Chartered Accountant CISA - Certified Information Systems Auditor
CBA - Certified Business Appraiser CITP - Certified Information Tech Professional
CCM - Certified Cash Manager CLU - Chartered Life Underwriter
CCP - Certified Computer Professional CMA - Certified Management Accountant
CDP - Certified Divorce Fin Analyst CVA - Certified Valuation Analyst
CFA - Chartered Financial Analyst FLMI - Fellow, Life Management Institute
CFE - Certified Fraud Examiner LREB - Licensed Real Estate Broker
CFFA - Certified Forensic Fin Analyst MCSE - Microsoft Certified Systems Engineer
CFM - Certified in Financial Management PFS - Personal Financial Specialist
CFP - Certified Financial Planner

These are the certifications from which we can choose when updating our annual profile as CPAs, but hey, you can google. Accounting Certifications and there are others, like Certified Bookkeeper, as Larry the Cable Guy would say,

You believe that?

COMP USA to Close Half Its Stores

Looking back over the last couple of decades, it should be obvious that high tech has become the 'in thing' and surely most folks got rich investing there, right?  Well wrong, IT is a lot tougher than most folks think.  The latest example is COMP USA headquartered right here in Dallas.  This company has been taken private by its Mexican owners.  Now COMP is going to close half its stores.  Seems we need to focus on core customer concerns and not be everything to everyone.  Gee, Radio Shack just closed several hundred stores for about the same reason.  It is tough out there competing with Best Buy BBY and Circuit City CCY.

My point here is that we study a curriculum in business.  Getting it right is a combination of marketing and managerial accounting. As RSH and COMP work to find that just right product mix, there can be significant upheavals.  Consider that COMP is closing over one hundred stores. On the blog we continue to emphasize the rate of change of today's business world, swirl if you will.  One must be monitoring change or become part of it, just ask Gateway or Packard Bell or, gulp, Dell.

Whither the MBA?

I have been critical of the mass move to MBAs observing that one is literally on every corner offered in the day time, evening, weekend, and on line.  Now comes Brazen Careerist who suggests that unless it is really from a top school, it is probably of little value. Not only do I agree, I suspect that time and money would be better spent on obtaining a certification like CIA or CMA. Think about it, the CIA or CMA standard is the same coast to coast.  The same is certainly not true of the varying degrees and calibers of MBAs. And those exams are much easier and cheaper to take than pursuing an MBA.  A tip of the hat to Kelly Clark for spotting this interesting article. 

Lies Damned Lies and Statistics

Statistics out of context mean nothing, statistics only mean something in a contextual presentation or shown as a matter of change.  Here is what I mean.

While I can't find it on the net, there is a puff piece about Lancaster on the Home Center section of the May 20 DMN.  Routinely the paper spotlights a community and lately has done so with a picture of a couple by the article with their home, ususally re done, and a positive statement about the community.  And routinely the paper prints 'crime statistics.'  Here is the stat on Lancaster

2006 Crime one murder, eight rapes, 17 robberies, 141 aggravated assauts, 880 burglaries, 224 vehicle thefts and 505 thefts

To which my wife exclaimed, that's terrible, to which I said,. how do you know? My point is that citing this as a statistic is utterly meaningless.  Here is why

There is no baseline for reference.  What should be the average or above average stat for a bedroom community of 34,000 on the edge of a large metro area-five murders, 200 aggravated assaults, what?  Here we have no idea as the article does not reference any baseline that we can use, ie what is normal, what should we expect

Next, what is the trend?  This is my personal gripe about most statistics.  The Odessa Realtors in their monthly meeting used to cite the numbers of homes listed or sold or whatever for the month.  So what, that tells me nothing!  Is the trend rising, falling, flat, what?  This is why graphical presentations are so effective.  A bar or line graph tells one quickly in this case whether crime is up down or the same.

I asked my wife why she was alarmed.  Well she replied, the numbers were much better for San Marcos, Really, what were they I inquired?  She did not know but she felt they were lower.  YIKES this is exactly what real statistics are trying to filter out, get past the feelings and let's see the facts. 

My point to students is that stats are only meaningful in context.  Citing a stand alone statistic tells the reader or listener nothing about what is actually happening.  So, learn to use the graph function in excel and present your statistics in context!

Interested?  Learn more by reading Lies Damned Lies and Statistics.  I ran across this book while researching my dissert, and it really makes some good points about how someone wanting to emphasize his or her cause often skews or distorts the facts.

Affordable Fab

Just because class is over does not mean we aren't keeping an eye open for more links to class.  Frankly no one has her finger on the pulse of America better than Oprah Inc, and I am serious about that.  Today's show was on my favorite topic, DESIGN. 

Click on the photo at left and you will see Sarah Jessica Parker, star of Sex in the City, with her new clothing line-BITTEN!  Now you would probably think well here we go, just another high priced snob fashion line by a star for her snob friends, well no way.  Every piece, dresses, skirts, handbags, all priced at 20 bucks or less!  Steve & Barry's  are low priced clothing stores located in shopping malls.  Gee, stop and think, this is just the opposite of what the big box retailers are doing, while JCP and Sears are trying to flee the mall and join Target in stand alone stores, these guys leased another 3.5 M square feet last year.  Click to read about how they do it.  Would you believe a 70% compound ten year sales growth rate?  Malls who are losing tenants are glad to see these guys on show up. And Steve and Barry are able to negotiate build out rates as high as $80 paid for by the mall desperate for shoppers.

This is classic managerial accounting-figure out what folks want and get the price affordable.

Next on the lineup

Victoria Hagan is designing for Target-affordable interiors

Stephon Marbury decided to do something about $130 sneakers, his do the same thing and are $14.95. Again, opening at Steve & Barry's.  This is particularly aimed at stopping theft and violence involved with high priced sneakers among young people.

Isaac Mizrah is designing affordable wedding dresses at Target-try less than 200 bucks, many under $100.

Put it all together, and you can see why WMT has the blues. As we discussed this semester, TGT has grabbed the up market design trend from all the rest, Sears is adrift with Lands End, WMT can't get going, Mervyn's is on the rocks.  So TQM wins again, keeping your eye on the long term goal remains important.  Trying to shift in mid stream as WMT is doing, Prices are Going Down!  But Golly we are Trendy, at the same time just does not work. 

Bottom line, this is another triumph for my emphasis on the importance of Design.  We were not at Steve and Barry's today but at Dillard's at North Park Mall. I could not help but notice an entire Porsche Design Store!  On the TGT website I hyperlinked above, note the number and names of famous designers.  I would say TGT has firmly established itself as the affordable go to design center.   Sarah JP said she was hooked after the first time she walked into a  Steve and Barry's.

Clearly this is another triumph for the imnportance of DESIGN!

Homebuilders Still Gasping

B/W reports that homebuilders are still in a hole.   We have followed this story for you as well as every pundit who has mistakenly thought the worst was over. Well, it's not. Chapter 11s, high interest loans, off balance sheet debt, and now Moody's reports that several homebuilders will be in default of their loan covenants soon if things don't improve. Again, this is why we study accounting. Understanding that a lease or un stated obligation can worsen the real deb/equity ratio helps us understand why firms like this are in so much trouble.  The mastery of accounting can move you from bookkeeping to accounting to analysis, which after all, is what Warren Buffet does best!