Accounting for Customer Acquisition at ADT Corporation Harvard Case Solution & Analysis

A financial analyst from Southern Cross Capital LLC, Anna Amphlett, was gathering information about the ADT Corporation, because her company was considering to acquire ADT shares for its Business Services portfolio. Amphlett did an internship with the Southern Cross in the summer, specializing in the service industry before joining the company, she was graduated with an MBA in accounting and finance and spent the early days in her new job in the evaluation of a company.

ADT became a publicly traded company listed on the New York Stock Exchange on September 28, 2012, after Tyco (TYC) splits itself into three independent companies. The source of income for the ADT was the monthly subscription fees for commercial and home security services.

Amphlett had to examine in detail the company’s accounting methods, as emphasized by the Southern Cross’s portfolio manager. She needed to evaluate the ADT’s policy of capitalizing and amortizing cash outlays on sales commissions, rather than expensing them immediately. Southern Cross became vigilant form the companies, including PolyMedica, Excel Communications, and Pre-Paid Legal Services, who faced the decline in their stock price when some popular press articles described their policy of increasing revenues by capitalizing and amortizing indirect costs.

Eventually, after coming under investigation by the U.S. Securities & Exchange Commission (SEC), their stock price again encountered with a significant decline.............................

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