FINANCIAL ACCOUNTING

Financial Accounting

Financial Accounting

Analysis of Financial Performance of the News Corporation

The News Corporation grew till the eighties by buying lots of announcing companies. One of the characteristics of the expansion was to take over companies, which had difficulties surviving in the market. In order to overcome the problems, they changed the company into a more successful one. During the eighties not only publishing companies were being acquired, but also film companies and broadcasting companies. These acquisitions resulted in high debts, which caused TNC to negotiate with banks to decrease the debt. A restructuring plan had been developed and this resulted in a healthy financial situation at the beginning of the nineties. Rupert Murdoch decided in 1992 refinance all borrowing, the short term debt decreased from 80% till less then 10%. The profits out of the published media were halfway the nineties the most significant source of profits. From this point on till now the movie and especially the television division of TNC became the largest providers of the profits.

The financing of the variety of acquisitions can be done by equity or loans. The question arises, which option is the most profitable. If we look at the history of TNC, we will see that the short term loans, and of course the high percentage of interest had been quite high. During the past TNC used both the loans and equity to fund its expansion activities. Though for the long term it is important to use a profitable way of financing in order to reassure the financial basis of TNC in order to establish growth and thus be able to expand.

How to organise the financial business? TNC is a large company, with high revenues, high costs, but it is a profitable company with shareholders. These shareholders have invested capital into the company in order to receive dividend, therefore it is important to have a funding strategy that deals with the expectations of the stakeholders. Managing for value is quite important for an organisation. According to Johnson and Scholes we can distinguish three main issues, which are funds from operations, investment in (or disposal of) assets and financing costs (Johnson and Scholes, Exploring corporate strategy, p 502-503) Funds from operations; these are major contributors to value creation (Johnson and Scholes, Exploring corporate strategy, p 503)

-         Sales revenue; the turn over of TNC has increased from 1985 till 2000 from $2,447 million till $22,443 million, which is an increase of more than 800%

-         Production and selling costs; are not mentioned in the appendix

-         Overhead or indirect costs; are not mentioned in the appendix

The total profits, which are attributable to shareholders has increased from $147 million in 1985 till $1,921 million, which is an increase of more than 1200%. Investment in assets; the value creation can be influenced by

-         Costs of capital investment, or the disposal of redundant assets.

The management of the elements of working capital such as stock, debtors and creditors will increase or decrease shareholder value as indicated (Johnson and Scholes, ...