Case Study Of Harnischfeger Corporation
In order to recover from losses, Harnischfeger made several changes starting in1983. He restructured the top management by creating the position of chief operating officer. To deal with the short-term liquidity problem, he decided to cut costs by reducing staff from 6900 to 3800, reducing bonus to staff, liquidating the excess inventory, prolonging payment to creditors and permanent shutting down of an equipment plant at Escanaba.
In 1984, there was a liquidation of last in first out (LIFO) inventory quantities at lower costs compared to the current costs of their acquisitions. The effect was to increase income by $2.4 million. The company focused on providing minimum pension for its employees under the Employee Retirement Income Security …show more content…
They mentioned that as the company was completing their 100th year in operation they would make positive results in 1984. Harnischfeger’s management made changes in the financial reporting policies as they wanted to show that the company was making profits in 1984. In turn shareholders will be convinced that the company is doing well and invest more in Harnischfeger corporation. As the firm made profits in 1984, the stock prices would go up and as a result it would convince the shareholders to take up more shares. This would rise the share capital of Harnischfeger Corporation.
The management also set up an executive incentive compensation program to ensure Harnischfeger Corporation made progress. According to this program, the senior executives would be given a 40% incentive if they reached a specific profit after tax objective. This motivated the senior officials to work constantly to improve the financial position of the firm. The officials would also be given another 40% increment if the profits exceeded the set …show more content…
Harnischfeger corporation is making a lot of changes in its policies and financial reporting with an expectation that this one time boost in liquidity and income in 1984 will make the future smooth for the company and help them carry on business successfully and expand into new markets. But this might not be the case. The company can face problems in the long run. They have just come up with a temporary solution to make the firm profitable.
There might be uncertain economic and environmental conditions where Harnischfeger corporation might find difficult to combat. There is also a decreasing interest rate in the market which means that Harnischfeger corporation will have to deal with high interest rate in the future. The change in the depreciation policies will improve the profitability of the firm now but in the long run there would be higher depreciation costs which lead to greater operating costs. As the plant and equipment age, there would be higher maintenance costs which would further cause higher operating
In 1984, there was a liquidation of last in first out (LIFO) inventory quantities at lower costs compared to the current costs of their acquisitions. The effect was to increase income by $2.4 million. The company focused on providing minimum pension for its employees under the Employee Retirement Income Security …show more content…
They mentioned that as the company was completing their 100th year in operation they would make positive results in 1984. Harnischfeger’s management made changes in the financial reporting policies as they wanted to show that the company was making profits in 1984. In turn shareholders will be convinced that the company is doing well and invest more in Harnischfeger corporation. As the firm made profits in 1984, the stock prices would go up and as a result it would convince the shareholders to take up more shares. This would rise the share capital of Harnischfeger Corporation.
The management also set up an executive incentive compensation program to ensure Harnischfeger Corporation made progress. According to this program, the senior executives would be given a 40% incentive if they reached a specific profit after tax objective. This motivated the senior officials to work constantly to improve the financial position of the firm. The officials would also be given another 40% increment if the profits exceeded the set …show more content…
Harnischfeger corporation is making a lot of changes in its policies and financial reporting with an expectation that this one time boost in liquidity and income in 1984 will make the future smooth for the company and help them carry on business successfully and expand into new markets. But this might not be the case. The company can face problems in the long run. They have just come up with a temporary solution to make the firm profitable.
There might be uncertain economic and environmental conditions where Harnischfeger corporation might find difficult to combat. There is also a decreasing interest rate in the market which means that Harnischfeger corporation will have to deal with high interest rate in the future. The change in the depreciation policies will improve the profitability of the firm now but in the long run there would be higher depreciation costs which lead to greater operating costs. As the plant and equipment age, there would be higher maintenance costs which would further cause higher operating