Accounting and Management: Creative Accounting, Vertical Assessment, and Financial Analysis

Accounting and management

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
Creative account meaning with example.....................................................................................3
TASK 2............................................................................................................................................4
a. Vertical assessment of an income statement ...........................................................................4
b. Financial analysis of an enterprise by using the ratio analysis tool ........................................6
TASK 3..........................................................................................................................................11
a. As per retained earnings ........................................................................................................12
b. As per scenario where 100 Mio of the Debt and 40 Mio of an Equity .................................12
Advising the company towards making an acquisition in Italy.................................................14
Suggesting the capital structure that facilitates a better result of NPV and the maximum cost of
capital that could be afford by HB.............................................................................................14
CONCLUSION..............................................................................................................................15
REFERENCES................................................................................................................................1

INTRODUCTION
Accounting of the management relates to the measurement, communication and the
processing of the financial and the non-financial information in relation to an economic entities
like business corporations. Accounting helps the management in conveying its financial
performance and position within an industry and also helps in making comparison of the firm
with its competitors is that it could gain a competitive advantage within the business. The present
study is based on Hugo Boss, a leading multinational company deals in the premium segment of
an apparel market. The company along with its larger employees around 14700, sells and
develops high quality accessories in both women and men segment under its brand called as
HUGO brands. Further, the study includes concept of the creative accounting, vertical analysis of
an income statement. Moreover, it also involves financial analysis of the company's final reports
and application of investment appraisal technique in knowing the feasibility of the project.
TASK 1
Creative account meaning with example
Creative accounting refers to the accounting practices that follows a required regulations
and the laws but deviates from about those standards are intended to accomplish. It capitalizes on
the loopholes within the accounting standards for falsely portraying a better brand image of the
company. It means when an organization presents or organizes its accounts in a manner that they
would be gaining the money for their own or in giving the false impression regarding their
profits. It is been characterized by an excessive complication and a use of the novel ways in
order to characterize the assets, income and the liabilities. It includes framing of the final reports
with an intention to misleading the readers relating to those statements which is seen as primary
form of lying to the stakeholders. It is also known as aggressive accounting which means
manipulation of the financial figures mainly within one letter of law and an accounting standards
but is very much against its spirits and particularly not facilitating true and fair picture of an
entity's accounts.
Examples of creative accounting -
Enron was seen as the world's leading energy trader who uses an internet for buying and
selling the natural gas and supply of electric power for the utilities and an users of industrial
power. This has been done for helping them in hedging against the fluctuations in the power
prices. However, Enron was been undone by the shaky accounting, where too much of the

borrowed funds and an unwillingness in providing an information to the investors who had been
grew for doubting their financial reports. In order to fuel an enterprise growth, Enron had shifted
billions of the dollars in the debt off in its balance sheet statement and also into an array of the
complex partnerships. SEC began the investigation and an Enron restated the 5 years of an
earnings, wiped out nearly $ 600 million in the profits.
Microsoft was been investigated for the creative accounting by SEC in respect of its
misconduct in determining or recognising the revenue (Annual report of Hugo Boss, 2018). It is
been a centre of an investigation in relation to its use of more and more financial reserves for the
purpose of shoring up its earnings.
WorldCom Inc has also founded as using a creative accounting in 2002 by way of
making the use of reserves in boosting their earnings. Largest amount of the reserves are been
misused in a same manner as provisions were increased for the projected expenses and used it for
increasing the amount of earnings. It had filed for a largest bankruptcy case in US as the
company had hid $ 3.9 billion in the expenses since the year 2001. CEO and the CFO of the
company were been arrested with the criminal charges that is filed for a fraud in the year 2002.
Dell was also been accused in the year 2010 with a fraudulently reporting of its financial
earnings in giving an impression that it exceeded the earnings projections or estimations made by
analyst. Using a creative accounting, Dell had made use of an undisclosed payments from an
Intel to smoothing out a volatility from the poor earnings. Dell had paid an amount valuing as
$100 million as the penalty due to its misconduct.
TBW corporation executives were been sentenced to imprisonment for several year for
playing their roles in nearly $ 3 billion of the fraud that took down a big lender and a major bank.
The fraud had ran for more than the 7 years till the August 2009 when a TBW had collapsed
after a US market has imploded. Bank officials and the company were been accused for trying to
covering up an enormous or large amount of losses by moving the money between an accounts at
the Colonial Bank and in selling the mortgage loans that do not present and are worthless or has
been sold already.
TASK 2
a. Vertical assessment of an income statement
Income statement of Hugo Boss