Chapter 15, Problem 1CTQ

Summary Introduction

Case summary:

Company G is a multinational conglomerate company of Country A. It operates on various sectors like Power, healthcare, renewable energy, lighting, venture capital financing and oil and gas.

During the great depression, the stock price of the company drops nearly in half in a year when the majority of stocks grew like over fertilized weeds. Analysts points out the two major problems for this collapse they are culture and the capital.

For many years, Company G considered as one of the best efficient company with plain-spoken culture and it Company G Power unit had a ’very positive’ profit outlook but in reality there exists a credibility gap between what they reveal and the reality.

Capital is another major problem for Company G. It has acquired companies at higher prices that they proved to be drags on its earnings. Later on, it mainly focuses on three business segments they are aviation, power and health care by taking necessary steps to improve cash flow and by decrease the leverage.

To discuss: Whether it is reasonable for Company G to calculate Earnings Per Share to highlight the performance of its business units.

Explanation of Solution

Company focuses on three business segments in its restricting plan. They are aviation, power and health care. Aviation and health care units are in good shape. Person X believes that, it is reasonable to highlight the performance of the three business segments by calculating Earnings per share.

Because it is one of the best indicator to know the performance of the company. Investors can easily identify the performance through earnings per share and they have to decide whether to invest or not in these business segments.