MBA Management Accounting Student Assignment: Case study of Xerox Corporation

(a) According to ASIC (2008), a creditor refers to a person or entity whose money is owned by another person or entity. And as the information mentioned by the case, Xerox Corporation was seemed in a dilemma that its financial situation wasn’t optimistic, which was worse for its share price even dropped from $ 60 per share to $4 per share. As the creditor of this company, it was necessary to take some actions. Firstly, it was crucial to understand the real financial situation of Xerox Corporation such as its liability situation, profit situation and other financial related field. If necessary, an official meeting with Xerox Corporation is suggested to discuss about the detailed issues of debt paid back process, which was owed to us under the financial dilemma of Xerox Corporation. Secondly, evidences including contract of purchase and sale, order sheet, delivery note, receiving note, bill for clearing, telegram or facsimile and other related materials with Xerox Corporation should be collected and prepared to apply for the legal aid in case of the worse situation Xerox Corporation may come into. Thirdly, as the creditor, it is also essential for us to consult some professional organization about the claim issues of the debt from Xerox Corporation under the current situation. (ASIC 2008)

(b)As the investor of Xerox Corporation, when knowing the financial dilemma of this company, the first action should be taken is to have an overall understanding of the real financial situation of this corporation. And as the investor, we have the right to ask for the related financial materials such as its income statement, balance sheet or other important financial materials. And meanwhile, a proper and practical evaluation of the future development potential is necessary to be made out according to its current situation and comprehensive competitiveness under the market situation within the next 3 to 5 years. If the result of the evaluation was tended to be positive, the future investment activity towards this company is also suggested. If the evaluation result was negative, any future investment intention towards Xerox Corporation is then suggested to be pending and cautious. And any further action is suggested to be based on the current situation of the market environment and the company’s situation at that special period.

(c) As either the creditor or the stockholder, besides the cash flow situation shown in the case, there are some other aspects which are curial when evaluating Xerox Corporation. Firstly the SWOT analysis including organizational strength, weakness, opportunity as well as the threat may be applied. For instance, the skills, resources and the other advantages Xerox Corporation possesses compared with its competitors are important to form the distinctive competence of this firm, which is one of the filed for us to evaluate the overall competitiveness of Xerox Corporation. The weakness such as its deficiencies or shortcomings in skills, resources, or other factors which may hinder Xerox Corporation’s competitiveness may assist us to obtain a more comprehensive evaluation on this company.

In addition, the PEST analysis including the external macro-environment of Xerox Corporation such as the political environment, economic environment, social environment and technological environment is also necessary when making evaluation of this company. And with the PEST analysis, creditors or stockholders of Xerox Corporation may get a comprehensive understanding of the market growth or decline as well as the business position of this company. Meanwhile, with the combination of both the PEST and SWOT analysis, the evaluation towards Xerox Corporation can be carried out with the understanding of the macro as well as micro environment of Xerox Corporation, which will be more trustworthy and objective for the future investment or debt claim activities from these stakeholders of Xerox Corporation. (Griffin & Pustay 2010)

(d) The cash dividend is the pro rata distribution of cash to stockholders, which should take the amount and timing into consideration (Weygandt, Kimmel & Kieso 2010). The decision of the cash dividend is curial for Xerox Corporation, which may have influence on its capital structure and stock price. That’s why we should take care of the following factors.

Xerox Corporation is suggested to consider its stability of earnings, due to the facts that companies which have stable earnings may be easier to formulate a consistent dividend policy, which may assist Xerox Corporation to predict its future savings and earnings. The liquidity of funds is also necessary for Xerox Corporation to consider, for the healthy financial situation and cash availability are importance factors for the cash dividend decision. The weak situation or sound situation of the liquidity of Xerox Corporation may be affect largely by this firm’s investment and financial decisions. That is to say, if the cash position of Xerox Corporation is good, the cash dividend decision is recommended to be made. If the cash position is relatively weak, the decision of cash dividend should be cautious. (ASIC 2008)

Moreover, the needs for additional capital will also be analyzed by Xerox Corporation. Firms often have to retain a certain amount of earning from their profit to strengthen their financial position, which may play a significant role to help firms to meet the needs of working capital as well as future development. If Xerox Corporation has troubles in raising finance to meet the needs of working capital or future expansion, it is advised to distribute a relatively low rate of cash dividend to retain a larger amount of profit for its development. (ASIC 2008)

When making the cash dividend decision, Xerox Corporation had better consider the government policies as well due to its earning capacity is often impacted by the fiscal changes, labor changes, industrial changes and other policies changes from the government. Due to this factor, Xerox Corporation’s cash dividend decisions should be modified depending on the government policies. (ASIC 2008)

Meanwhile, when formulation the cash dividend plan, the past dividend rates should also be kept in mind. In another word, the dramatic changes of the dividend rates may arouse some doubt or resistance and the current rate is often suggested to be around the average past rate. (ASIC 2008)

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