It’s noticeable how the company’s operations have been deteriorating as they are having a more difficult time translating sales into cash. Their AIR turnover is not where it needs to be, and in line with that, their liabilities are increasing as well. The company has also been inefficient with the use of their assets as their current activity ratios are not up to par with the industry standards. After analyzing Oracle’s historical data and financial statements as well as identifying key points for the company to consider, the group proposes the following recommendations in order to improve their current financial standing: 1 .
Currently, the collection period of Oracle is at 137 days which is higher than the industry average of 62 days. The company must reduce credit terms implementing tighter credit control activities in order to improve its current and quick ratio as well as increase overall company liquidity. 2. Because Oracle Systems Corporation sells software contracts on a trial basis, there eve been issues regarding the validity of financial results and bloated revenue values because of questionable revenue recognition standards. Because of this, the company must revise its financial management and accounting procedures and comply to accepted standards.
This is also relevant to the reporting of bad debts expense as there exists illogical/suspicious discrepancies in the relationship of bad debts to the level of accounts receivables. 3. The current sales quota system has been identified as one of the causes for Oracle’s rapid revenue growth. Although the revenue growth is considered as inefficient in the short-run, the long-term sustainability of the company is being compromised. The company must consider a reevaluation of its corporate strategies and its revenue/sales-based compensation system which it currently taking its toll on sustainable growth and employee welfare.
FINAL PROPOSAL Given the analysis gathered by the team and the recommendations it has given, we ultimately propose that Oracle should change some of its accounting standards especially in recognizing revenue and its account receivables standards. Due to Ellison’s desire to grow the company and make more profit, actions considered unethical or at least doubtful were applied to increase revenue such as recognizing sale transactions early like even if the transaction has not been completely finalized, and selling products not even made yet which further increases the A/R account and their Bad Debt Expense.
In the short run, this could easily increase the company’s net profit, however as what happened in reality, their failure to collect payment and deliver promised items meant that they had overstated their value and hurt the company in the long run. In order to avoid such incidents, Oracle should revise its revenue recognition tankards and make it more consistent with reality in order to not overstate or understate the company’s financial position.
Even if its growth will not be as impressive as before, at least the company will be able to have a sustainable or healthy growth rather than an exponential one then only to fail. Also, the company and make more actual profit. In order to achieve these, management must come up with more realistic targets based on better forecasts from historical data and comparing their performance to competitors in the industry. Not only will this improve on the company’s health, but also gain back the trust of their stockholders.
