in may 1991, Hanson, the United Kingdom’s
most notoriously acquisitive corporation, purchased a 2.8 percent stake in ICI,
the United Kingdom’s largest manufacturer and the world’s fourth-largest
chemical corporation. Amid speculation about the possibility of a takeover bid,
the comparative performance of the two companies was a significant issue
because of the claims of the respective management concerning their relative
efficiency and success.
From an accounting perspective, it is
possible to assess performance in terms of both U.S. and U.K. GAAP because
Hanson and ICI are listed in the United States and are required by the SEC,
under Form 20-F, to provid reconciliation data. The comparative data below show
net income and shareholder’s equity data for the period 1998-2002 in accordance
with both U.K. and U.S. GAAP, together with the data for long-term debt.
Calculate the “conservatism” index
and returns on equity for Hanson and ICI for the period 1998–2002 under both
U.K. and U.S. GAAP.
Does it appear that U.S. GAAP is more or less conservative than U.K. GAAP? What
could be the main reasons for this?
To what extent do the results affect your assessments of comparative corporate
performance?
Calculate the debt-equity (leverage or gearing) ratio for both corporations
under both U.K. and U.S. GAAPs.
To what extent are the results likely to affect your assessment of the
comparative riskiness of investing in Hanson and ICI?
