Search icone
Search and publish your papers

Oracle Systems Corporation

Or download with : a doc exchange

About the author

Level
Advanced

About the document

Published date
Language
documents in English
Format
Word
Type
presentations
Pages
4 pages
Level
Advanced
Accessed
78 times
Validated by
Committee Oboolo.com
1 Comment
Rate this document
  1. Assumptions that underlie Oracle's recognition of revenue for license fees?
  2. Estimate Oracle 1990 sales if revenue is recognized at delivery rather than when the contract is signed.
  3. The firm's 1990 cost of sales to sales ratio and average tax rate.
  4. The 1990 cost of sales to sales ratio and the average tax rate to estimate the size of the opening retained earnings write-off required.
  5. How would a change in revenue recognition affect the firm's lending contracts and management compensation?
  6. Investor rections if if Oracle decides to recognize revenue at delivery rather than when the contract is signed?
  7. Do you recommend that Oracle make the accounting change? Why?
  8. Bibliography.

In 1990, the CEO of Oracle Systems Corporation is facing increasing pressure from analysts about the aggressive revenue-recognition policy. As a result, the stock price is plumbed and the CEO is worried about the cost of new equity capital to finance future growth and the firm may become a takeover candidate. We answer to several questions in order to understand the revenue-recognition method and the consequences of change. Oracle underlies aggressive revenue-recognition policy for licence fees: the firm recognizes revenue when the contract has been signed and not when the shipment of the product has been occurred. The accounting treatment for the revenue recognition of a product should be at the delivery and not at the agreement. Moreover, the collectibility of licence fees is questionable because the day's receivable substantially exceeds the average of the sector (160 days against 62 days). The reasonable amount of day's receivables should be at or slightly over the industry's average because a lower day's receivable decreases the default payment of customer, reduces the working capital but improves the company's financing cost and increases the value of operating cash flow.

[...] How do you expect investors to respond if Oracle decides to recognize revenue at delivery rather than when the contract is signed? If Oracle decides to recognize revenue at delivery rather than when the contract is signed, we can expect that the investors will respond negatively. Indeed, a change to the more conservative method engenders the decrease of the net income and consequently of the earning per share and of the stock price. As a result, the change in revenue recognition affects the financial credibility of Oracle. [...]


[...] Using the 1990 cost of sales ratio and the average tax rate, the size of the retained earnings write-off required if Oracle adopts the new revenue recognition method retroactively is (82 + 43 65 25) = 35. Method At agreement At shipment revenues) EBT) Licences at shipment FY89 = licences at agreement FY 89 * + licences at agreement FY 88 licences at shipment FY 88 How would a change in revenue recognition affect the firm's lending contracts and management compensation? [...]

Similar documents you may be interested in reading.

Management information system

 Business & market   |  Management   |  Term papers   |  04/23/2009   |   .doc   |   12 pages

A brief overview of the Human Resources Information System with special references to India

 Business & market   |  Human resources   |  Indian project   |  06/15/2009   |   .doc   |   31 pages

Top sold for business strategy

Megacorp's Crane Manufacturing company (CMC) operations analysis

 Business & market   |  Business strategy   |  Presentation   |  08/05/2017   |   .doc   |   7 pages

Catalytic Solutions, Inc

 Business & market   |  Business strategy   |  Presentation   |  01/19/2012   |   .doc   |   7 pages