Eastman Kodak

Financial Analysis Report Name: Course: Professor Name: (August 10, 2012) Evaluation The current quarterly report for Eastman Kodak is a reflection of the business activities that Kodak and her subsidiary companies are involved from January 1, 2011 to December 31, 2011. Previous reports have not been dealing on a worldwide performance data basis report unlike the recent report (Avery, 2012). However, even though at times this was not possible, there were no exceptions that were noticed in the previous reports for Kodak. A closer look at this report shows that the data for leased facilities were indicated but there was the exclusion of the data from the outsourced operations (Anderson, 2012). The cash burn has been a cause of concern for Kodak Company in the last couple of years as seen by the financial statements. The internal cash flows are negative indicating that this company has a financial problem. The internal cash flow includes the operating costs, the investing sources of the company and the way this company uses the cash (Arnold, 2012). The strategies that the company aimed at included the funding of various operations so that the licensing strategy of the IP would be successful. This would be possible through sale of the company’s assets. Thus in order to be successful in the IP portfolio strategy the company aimed at raising over $200million and have intellectual licensing transactions raising about $250 million and $350million (Anderson, 2012). Consequently, a closer look at the report it can be realized that the company focused on clearing their work on the goals of sustainability they had in place prior to the 2011 quarterly report. In order to compete in the business sector they had to come up with new programs would help in boosting its business in the regions where it operates. Thus after the quarterly report on 2011, Kodak was more sustainable and looked to take advantage of their customer’s preference of the economic, environmental and social performance in order to attain a profitable, sustainable and digital company. The figure below shows the economic condition of Eastman Kodak based on the last quarterly report released in December 2011 (Ben, 2012). Red flags Economic factors The economic condition of a company dictates the attraction of investors to an organization (see figure 1 below). It is because the economic earnings of an organization give an indication of its profits, and the shareholder value. Companies and the public willing to invest in Eastman Kodak shall be not be attracted because of the low profits that the company makes based on its last quarterly report and the previous three years that indicated its financial drop economically. Eastman Kodak has adjusted the financial statements making the economic status and the return on capital of the company not to be relied on (Bocat, 2012).
Source: Ben (2012) Reduced Cash flow Studies on cash flow have shown that the companies whose stocks with a free cash flow yield not less than 10 % is an indication that such a company performs well than the survivor bias-adjusted index (Arnold, 2012). Eastman Kodak’s strategy has failed since its cash flow is below par and this is likely to affect the attraction of investors into the company. The measure used by Kodak in their last financial report shows that their cash flow is reducing each year and this can be attributed to failure of the board on the fiduciary duties. The reduced cash flow statements show that this company cannot be relied on its income. Earning Problems This is an important red flag that has been seen in Eastman Kodak. There is the increased trend in the downward earnings of the company. The financial statements that have been released for the last three years show that there are low earnings for the company and this is due to the trend in operating income (Barron, 2011). Excessive Debt Eastman Kodak has experienced a lot of debts for the last few years. The management has borrowed a lot of funds knowing clearly that their source of income is not giving in any cash. Therefore investors and the general public cannot rely on such a company with debts for their investment. Improving Auditing Report In order to make sure that Kodak is not assessed as a high risk client I would modify the audit engagement procedure in that I would make sure that the auditors are allowed to in one way or the other comment on the quality of the financial controls, the valuation models used in the audit process and calculate the value of the financial instruments, or the assumptions that have been used to arrive at the decisions of the auditor. This will be important in minimizing the potential risk of the firm. Therefore having a scenario where the auditor has independence will improve on the risks that the company is ...