Miniscribe Company Case Study Answers

The profit margin is a ratio measures how much earnings the company is made from every dollar sales. The bigger ratio indicates that the company has a stronger ability to manage expenses to generate earnings. In 1986 and 1987, the company’s performance was at the top 25% of its peer competitors, while in 1988, this indicator dropped to 0.04 which fell in the top 75% group. The ratio shows that MiniScribe managed its revenue and costs well in the first two years, as the reason of increased market acceptance of company’s new product in 1986, the surviving of the microcomputer industry, the innovative method to produce 5 ¼ -inch and 3 ½ -inch Winchester disk drives, etc. Besides, the dramatic decline in 1988 was attributed to the fierce price

In 1986 and 1987, MiniScribe ranked top 25%, then declined slightly to the median in 1988. The reason for the decrease in 1988 can be the drop of the net income or the increased competition in the market. The results may be acceptance at first glance, but if we take our analysis in the profit margin to this ratio, it can be found that MiniScribe’s return on stockholders’ equity was actually lower than the number they provided. The Company had a history of using various kinds of methods to “make the number” instead of creating the maximum value of shareholders’ equity. From the long-term point of view, this will harm the shareholders’

From 1986 to 1988, MiniScribe’s inventory turnover has remained fairly constant - at least top 50%. The reason why the rank for MiniScribe increased to top 25% is because the offer of a full product line of the 5 ¼ inch and 3 ½ inch Winchester disk drives which increase the sales a lot. But given various methods it employed to varnish its financial statements, we cannot take these beautiful numbers for granted. For example, in 1986, inventory value was inflated by at least $1 million through changing quantities on auditor’s working papers. In 1987, under the assistance of senior management personnel, MiniScribe concealed the shortfall of inventory again. In-transit packaging bricks were regarded as inventory. In 1988, the accumulated scrap should be written off, but MiniScribe still recorded full value under the account