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Whirlybird, Inc. offers helicopter tours and transportation in major cities around the world. The company is...

Whirlybird, Inc. offers helicopter tours and transportation in major cities around the world. The company is considering a stock repurchase in the upcoming quarter. As the Chief Financial Officer (CFO), you understand there are several methods to reduce quarterly earnings, which could reduce stock price prior to the announcement of the proposed stock repurchase.

A. What course of action do you recommend to the Chief Executive Officer (CEO) of Whirlybird?

B. If the CEO approached you recommending a reduction in current quarter earnings, how would you respond?

Solutions

Expert Solution

As CFO of the company i think it is my responsibility to ensure that company's earnings increase on regular basis and nor decrease. However, if situation like the one mentioned in question arises, then its time to play defensive for the greater realization of long term goals. My focus should be to decrease earnings in such manner that overall earnings do not get much affected and stock price also decreases before actual repurchase. Therefore,

A. I would recommend CEO to find out the current market expectation of quarterly growth rate in earnings. If actual growth in next quarter, turns out to be much lower than market expectation then stock price will fall.

B. A reduction in quarterly earnings needs to be backed up by correct market expectation analysis. For the stock price to fall, the earnings should decrease by more than the expected percentage of the market. To decrease earnings, Whirlybird will have to stop its operations in selected areas citing difficulties in operation which will convince the shareholders regarding decreasing profit enabling a fall in share prices.

jeff jeffy answered 1 year ago
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