Xerox Corp, Case 4.5
1. Comparing HP’s products to Xerox’s, one can observe that HP offered a wide variety and range of products whereas Xerox provided more depth with regards to print and copy merchandise. While comparing financial ratios of the two companies for the year 2000, the following ratios clearly stood out: HP had a return on equity of 0.23, while Xerox’s return on equity was -.09. A negative return on equity would be extremely alarming. HP’s profit margin was .08 while Xerox’s was -.02; another alarming figure. Although the books made it seem like Xerox had more financial leverage and a better current ratio, the case explained why that was not the case after all, considering the flaw in Xerox’s financials. Another important factor to consider is that HP was reporting positive cash flow, while Xerox was not. The difference in reported earnings versus cash flow should have also raised a major red flag as far as Xerox’s financials.
3. Incentives: * Maintain high stock price. * The business environment was changing faster than Xerox could keep up. They needed to make it seem like they were keeping up just fine. * Overseas competition was getting stiffer and Xerox again was unable to keep up.
Opportunities:
* Leases may be a rather complex subject and may also be subject to differing estimates. This presented a loophole for Xerox. * Even though KPMG may have been uncomfortable with Xerox’s doings, Xerox was able to pressure KPMG to allow them to continue what they had been doing.
Attitudes:
* Xerox’s management viewed their doings as legal and justified them as opportunities. * What Xerox was doing was keeping the company alive and they had gotten away with it, so why not continue?
4a) Sales type leases- Accounts affected: sales revenue for bundled leases, cost of goods sold for leased equipment (residual values). The