This paper reviews and demonstrates the application of ROI and ROE decomposition. The insights gained from analyzing financial components of a business serve to identify weaknesses, opportunities for improvement, and irregularities that may signal serious internal problems.
This paper addresses the Enron financial statement fraud case and specifically with the advantage of hindsight, answers the question: “As a fraud investigator, how would you go about finding the existence of these liabilities and partnerships?” (Albrecht et al., 2012, p. 481) The paper concludes with analysis of the final Enron Annual Report of 2000 highlighting areas in the report most indicative of financial irregularities.
This paper examines the dimensions and “forces” found in common-size financial statements in both the vertical and horizontal forms. The analysis looks at the financial metrics, trends, and insights that can be gained from comparing statements in the vertical and horizontal directions. The paper concludes with a discussion of Melse (2008) and addresses the research question and conclusions made in the article titled, “Accounting in three dimensions: A case for momentum revisited.”
This paper defines, describes, and illustrates financial leverage related to ROE and ROI using numerical illustrations. A similar comparison of the effects and relationship of financial leverage is made with EBIT and Net Income using numerical illustrations. Lastly a review of the article Lord (1998) is made evaluating the key elements of how time-series estimates impact the degree of leverage measures.
Financial fraud is a subset of fraud focused on schemes of monetary and asset categories. “Fraud involves all deceptive ways in which one individual obtains an advantage over another by false representations. Fraud always involves confidence and trickery. Fraud is different than robbery where force is used” (Albrecht et al., 2012, p. 9).
The commitment of traders measured on the S&P 500 using COT data from the SEC is a useful sentiment indicator to warn when big money is leaving the market. The following chart shows a strong cross in Commercial Hedgers declining COT with a strong rise in Small Traders commitment.
An analysis of approximately 30 technical indicators using a back testing market performance analysis shows in studies that five indicators in particular out-perform the rest of the pack. Analyzing the crossover points of each of the top five indicators identifies fairly reliable signals for stock price uptrend and downtrend changes.
Instinctively, something that causes disproportionate difficulty or advantage relative to others, contributes to a sense of unfairness. A survey exclusively of increased burdens on smaller organizations may reveal such areas for concern.
We have often heard it said, “Something too good to be true probably is.” And so it applies to the way loans were issued in the years leading up to the subprime lending crisis. Political forces identified a need for low-income home-ownership and impressed on capital institutions the importance of more engagement with a high-risk market. Some simply blame the loan crisis on banks and greed. “The greater the profitable opportunities, the greater the coercive force. Ethics be damned” (Watkins, 2011, pp. 365).
In the aftermath of the US financial crisis of 2007-2009 an “estimated $8 trillion of wealth in the US stock market was lost on top of the $6 trillion loss in the market value of homes. The total wealth loss of $14 trillion by US households in 2009 was equal to the entire 2008 US GDP” (Liu, 2013, para. 1).
When the banks first revealed that they had taken on at least $2 trillion of toxic assets that were beyond their capacity to withstand financially, the government stepped in.