Free Essay On Economic Trends And Internet
Problems in United States and other countries have an effect on the performance of business operations. These problems represent the general economic trends and factors that have an influence on businesses. General economic trends play a vital role in forecasting sales for businesses. The overall economic health, income levels and safety concern are critical factors that affect the extent of a business performance. These factors include inflation, efficient inventory control, interest rates, cooking the books, unemployment rates, consumer confidence intervals, shifting revenues and expenses and social political environment among others. Increased consumption levels and efficient inventory control systems asevidenced in the case of Wal-Mart leads to growth of retail business to an extent of being giant retailers. Wall-Mart has efficient organizational structure and business model with excellent working conditions in its global supply chain. As an attempt to meet sales targets, executives often engage in unethical practices such as abuse of revenue recognition principle, cooking of books and backdating of sales. Companies also violate financial reporting and ethic rules in order to influence stock prices. This can be addressed through increased utilization of internet reporting. Consequently, it changes the investment world and leads to growth in company’s consumer and internet businesses.
General economic trends and internet effects on company’s performance
Efficient Inventory control
Every business gets affected by general economic trends that affect retailers in general, and the internet has facilitated the expansion of the consumer base and company growth. These factors include inflation, efficient inventory control systems, interest rates, cooking the books, unemployment rates, and consumer confidence intervals, shifting revenues and expenses and social political environment among others (Hales, 2005). This analysis seeks to explore the effect of efficient inventory control, abuse of revenue recognition, shifting revenues and expenses and the effects of internet on the investment world. The general economic trend plays a vital role in forecasting sales for industries.
Increased consumption levels and efficient inventory control systems as evidenced in the case of Wal-Mart leads to growth of small retail business to an extent of being giant retailers. The growth of Wal-Mart, the billion dollar retail giant into America’s largest grocery retailer can be attributed to its remarkable system of inventory control and distribution. Wal-Mart has an efficient organizational structure and business model with excellent working conditions in its global supply chain. It possesses a well managed information system linked through six satellite channels. These allow the company computers access to 8.4 million updates per minute on items most consumed and their relationship to consumers. The company utilizes latest technologies and information systems in order to maximize profitability, and this information system has been crucial to Wal-mart’s success (Kimmel, 2011).
The company utilizes systems such as Wal-Mart information system, transaction processing systems and a Radio frequency identification which allows transmission of real time data to the networks (Wailgum, 2007). This facilitates communication of information to retailers and manufacturers which ensure proper control of inventory. Proper inventory control provides accurate information regarding tracking inventory that helps management to make informed decisions (Roberti, 2004).
Wal-Mart also utilizes a supply-chain management system that assist suppliers, distributors, purchasing firms and logistic companies share information regarding orders, production, inventory and delivery as a guide to respective processes (Laudon & Laudon, 2010). The RFID system manages inventory properly benefiting the entire supply chain. It is imperative to have an efficient inventory management system that ensures growth of a company’s profit base. Proper inventory control informs the management on the products which are selling and those that are taking up shelf and warehouse space. Both small and large enterprise should utilize inventory management systems in order to ensure customers always have what they want. It also helps to balance against the retailer’s financial need in order to maintain as little stock as possible (Hales, 2005). The retailer should avoid mismanagement of inventories as this leads to disappointed customers or tied up cash in warehouses.
Arguably, management information systems can be implemented to gain competitive advantage and the best management practices apply for large retailers. Wal-Mart concentrated on inventory control and managed to grow from a small retail business to one of the world’s largest retailers in six years (Gereffi and Christian, 2009). This success can only be achieved through innovative and carefully managed utilization of information systems. It also involved the use of systems that link the company to manufacturers, suppliers, distributors and logistic departments. In conclusion, efficient inventory management control helps small businesses grow into market leaders.
Cooking the Books
A company performance can be affected by the accounting principle that requires timely recognition of revenues. However, most business transactions affect more than one period and affect the expensing of costs. Therefore, determining the amount of revenue and cost to record can be difficult and requires the use of recognition of revenue and expenses principles. Revenue recognition principle requires revenue to be recognized in the accounting period earned. However, executives violate this principle when hard pressed to deliver on growth and resort to cooking of books. This involves manipulation of expenses and earnings in order to improve the company’s financial statement and improve earnings per share of stock. This creates an appearance of earning that does not exist that leads to sky rocketing prices and booming businesses. Many executives use this unethical conduct to ensure growth and improved performance. This behavior results as a result of an effort to meet the sales targets and bonuses based on sales volume.
Therefore, sales executives backdate their sales as was the case for computer associates international while others double their shipments to retailers as Krispy Kreme did so as to boost quarterly results (Kimmel, 2011). Therefore, efficient control measures should be undertaken to ensure revenues get recorded in the periods they get earned. This requires adjusting of entries to ensure revenue recognition gets followed through deferrals and accruals. Violation of revenue recognition principle may happen since some events such as wages earned cannot be recorded daily while others may be unrecorded such as utility bills (Kimmel, 2011). Arguably, each adjusting entry should include one income statement account as well as a balance sheet. Violation of this principle led to Sarbanes-Oxley Act of 2002 requiring U.S companies to enhance systems of internal control. The Act helps to reestablish confidence in the integrity of disclosure and financial reporting. These systems provide avenues for checks and balancing designed to detect and prevent fraud. Some struggling companies cook their books in order to stay afloat with the investor’s money until they can make a true profit. Investors get attracted to rising stock prices so managing finances can be used to boot investments.
Shifting revenues and expenses
Shifting revenues and expenses stands out as the most common ill of financial accounting or economic trend that impacts the performance of companies. This involves recording of revenues and expenses in the wrong year. Accuracy of reporting system is essential in analyzing the profitability of a business. Accuracy of financial reporting requires identification of the time revenues gets earned, when the earning process ends, and the time expenses get incurred. Companies have misreported billions of dollars in wrong periods thus need for strict regulations of financial disclosure. Xerox has admitted to reporting billions of dollars of lease revenue earlier while WorldCom admitted to boosting net income through delayed recognition of expenses (Kimmel, 2011). Companies violate these sound ethic and reporting rules following pressure to meet higher earnings expectations when share prices rise. Other executives adjust their numbers when their results fail to meet market expectations.
Manipulation of financial statements occurs since corporate executives in some companies get compensated according to performance. This provides an incentive to shift revenues and expenses to meet performance expectations. The GAAP standards also provide significant flexibility leaving room for manipulation. Corporate executives also collude with independent auditors. Executives can inflate current period earnings on the income statement or deflate expenses so as to meet set expectations. This unethical conduct can be achieved through recording of premature revenues, recording fictitious revenues, increasing revenues, shifting current expenses to earlier periods, improper documentation of expenses among others. This practice affects the quality and accuracy of data at the investor’s disposal leading poor investment decisions.
How the internet has changed the investment world
The internet has changed how information gets to investors and ways in which investors respond to that information. It has also reduced costs of producing financial services through the provision of online financial advice and financial information. Investors can download data from the internet regarding firms before they can place on line orders of goods and services. This offer low cost and more alternatives that benefit the investor since the investor can make his or her own investment decisions. The internet also provides avenues for companies to disclose their revenues and operation profits necessary for investors to evaluate the company’s growth. It also cleats direct trade thus investors have more control over the outcome of trade through online investment data (Barber and Odean, 2001).
Financial reporting is crucial to ensure a well functioning economy since disclosure of revenues and information on company financial health helps to restore confidence on corporate accounting (Kimmel, 2001). The Sarbanes –Oxley Act of 2002 got signed into law by president Gorge Bush as an effort to reduce unethical corporate behavior and guard against future corporate scandals. The internet has capability of connecting people which may affect the investor influence on corporate governance. In conclusion, the internet creates contact with people through chat rooms. It also allows one to buy and sell through the internet as well as make payments through wire transfers. It also makes business easy by saving time.
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