PowerPoint Presentation
Presentation OutlineIntroductionRatio Analysis on
LennarComparison of Lennars Performance with IndustryOverview on
Joint Venture & LennarThe Impact of Fraud on
LennarConclusionINTRODUCTION Video
Lennars Daily Class A Stock Returns around Minkows
AllegationReturn on S&P 500 & Lennar From 2006-2008 Lennar
& Industry Financial PerformanceLiquidity RatioAsset
ManagementAsset TurnoverFinancial leverageInterest Coverage
RatioProfitability RatioIndustry Comparison Quick RatioCurrent
Ratio
Day Receivable Day Inventory Day PayableAsset TurnoverLong Term
Debt to Total AssetLong Term Debt to Total EquityGross Profit
Margin RatioReturn on Sales (ROS)Return on AssetsReturn on
EquityWhat is a joint venture?A joint venture (JV) is a business
agreement in which the parties agree to develop, for a limited
time, a new entity and new assets by contributing equity. They
exercise control over the enterprise and consequently share
revenues, expenses and assets.
Equity Method: It is an accounting method that enables investors
in a joint venture to reflect the underlying nature of their
investments in the joint venture financial statement. In this
method, the investor records the initial investment in the stock at
cost and then value is periodically adjusted to reflect the changes
in value according to investors share in the companys earnings or
loss.
It is used when one investor has significant influence over the
other parties which enable him to influence the operating or
financial decisions on the jointventure. In such a case, and
according to GAAP, influence tends to be more effective as the
investors percent of ownership increases. (Controlling
interest).What happened?The company was evaluating its investments
in the unconsolidated entities for impairment during each reporting
period in accordance with APB opinion No. 18. Since a series of
operating losses from the unconsolidated entities occurred which
maximized the investment risk. The company projected the future
cash inflows using 20% discount rate.The company depended on the
current market condition
Financial evidences of the fraudThe company considered
cumulative distributions (dividends) as return on capital under the
operating and investing activities in the consolidated cash flow
statement as cash inflows.
The company adjusted the receivables account in its own balance
sheet to justify for the cash inflow.
The company deferred the reflection of the earnings from the
land sale of the unconsolidated entities by not including it in its
equity. Instead, it accounted for those earnings as a reduction of
the cost of purchasing the land from the unconsolidated entities to
increase its credit facility.
Adjustments on the Consolidated Cash flow statementCash Inflows
from operating activities Distribution of earnings from
unconsolidated entities $21,069,000
Cash Inflows from investing activities Distributions of capital
from unconsolidated entities $87,802.000Lennar financial
statement
The Impact of The Fraud on Lennar Current ratioThe Impact of The
Fraud on Lennar Quick ratio The Impact of Fraud on Lennar Cash
FlowConclusionWe conclude that the strategic purposes of Lennar
join venture was to sell specific assets during a limited period of
time to leverage himself in order to get access to potential future
home sites through limiting the amount of his capital invested in
land.
Cash Flow from Investing & Financing Activities
