4 Sisters Construction Co.: Instant Insights for Estimating Economic Profit
8 Pages Posted: 31 Aug 2020
This short, fictional case chronicles the story of Susan Hughes, the CFO for 4 Sisters Construction Co. (4SCC), who introduces the economic profit (EP) construct to her fellow executives (and sisters) as a viable means for signaling to owners the value the company created for them that year. As such, she has also created a one-step reference table that converts their more familiar earnings before interest and taxes (EBIT) financial measure to an EP measure. The case explains the use of the reference table, and poses several scenarios for students to use it, explain it, and anticipate the effects of rising or falling income tax rates.
Apr. 27, 2020
4 Sisters Construction Co.:
Instant Insights for Estimating Economic Profit
Susan Hughes gave her cousin Sara Hughes a hug goodbye. Of all the cousins, they were the closest due to being the same age, having attended the same university, loving the mountains, and having a knack for financial analysis. Sara was the CFO at Sports Equipment, Inc. (SEI), and Susan had just become CFO of the growing 4 Sisters Construction Company (4SCC), a commercial developer/builder located in the United States' booming south.
During the past few days, while at a family reunion, Susan had posed a seemingly endless array of questions to Sara about being an effective CFO. What were the information technology must have's, the problematic reporting requirements, the unanticipated surprises, the thorny communications issues, and the helpful aids? Sara had been eager to answer as best as she could, knowing there was no need for Susan to have to "reinvent the wheel" on some things, and knowing that other things just simply had to be experienced.
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Keywords: accounting, EBIT, financial analysis, economic profit, income tax
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