Use the 2002 Financial Statement data to replicate the Meyer\'s report calculati
ID: 2700127 • Letter: U
Question
Use the 2002 Financial Statement data to replicate the Meyer's report calculations that illustrate the following conclusion based on the 2001 data reached in the report: eBay has never been profitable. Why? Why not?
Do you agree with Meyer's report concept of "unfettered" cash flow? Why? Why not? <?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />
What other conclusions can you reach about the company from the case study?
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Explanation / Answer
1) yes the ebay has never been profitable.Initially ebay in it's profit loss statement (PAGE 9) has shown it's net income to be positive but in the company and summary of significant accounting policies(page 11) they have shown that their net income is negative because they have not shown the value of option grants at fair value as an operating expense i.e , they have not recognized the expense their so they have a net income positive there but when they disclouse that in financial foot notes then their net income becomes negative
2) yes i agree with the meyer's report concept of unfettered cash flow because company didn't produce any free cash flow.But instead in the report the conventional free cash flow measurement overestimates the company's unfettered free cash flow and as such was a misleading measurement of economic realism.So meyer's report i correct about the unfettered cash flow and to calculate unfettered cash flow the report deducted from the conventional cash flow amount the cash flow needed to acquire stock in the open market for the purpose of issuing stock to satisfy the stock options put to the company.
Main conclusion is that ebay is presenting the reports all according to the rule of GAAP but they are manupulating the rules according to their benefit which in turn is not showing the true picture to the customers and shareholders.
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