INTERMEDIATE ACCOUNTING II CLASS
Paper #1 Instructions
Completion instructions
· Address all of the bullet points in the ‘Description and questions’ section below.
· Limit the report to 5 pages or fewer, excluding references and exhibits.
· Your submission must be a single Microsoft Word document (.doc or .docx).
· If you use sources other than those provided, cite them. Any conventional bibliography or footnote format is acceptable.
· All of the relevant materials are attached.
– Is required to use accounting terminology and explain on professional manner.
Description and questions
Automatic Data Processing, Inc. (ADP) and Bill.com Holdings, Inc. (Bill.com) provide back-office services to business. Although their product offerings and customer bases differ in some ways, the key drivers of their success are largely the same. The objective for this paper is to demonstrate how the companies’ financial statements reveal those key drivers.
Access ADP’s 2019 10-K and Bill.com’s initial public offering prospectus attached. You may use additional sources of information if you like.
1) Briefly describe the companies’ primary product offerings. Use the business description sections and management’s discussion and analysis sections, as well as the companies’ disclosures about segments.
2) Describe ADP’s dividends and share repurchases.
a) How much did ADP pay in dividends in fiscal 2019, in total and per share?
b) How much stock did ADP repurchase, in dollars, shares, and as a percentage of shares outstanding at the beginning of the year?
c) ADP was founded in 1949. Suppose ADP continues to operate for another 70 years and its discount rate is 3.5%. If ADP pays the same amount in dividends and repurchases to investors as it did in fiscal 2019 every year for the next 70 years, what is the present value of those payments? Compare this present value to the market value of the common stock stated on the title page of the 10-K.
3) Describe Bill.com’s initial public offering.
a) How much did stock did Bill.com issue in shares and dollars, in total and as compared to the amount of outstanding?
b) How does the company plan to use the proceeds from the sale of stock?
c) Based on the stock price at the initial public offering, the market value of Bill.com’s common stock was approximately $1.56 billion. Suppose Bill.com continues to operate for the next 70 years and its discount rate is 3.5%. If Bill.com pays the same amount in dividends and repurchases to investors every year for the next 70 years, how much must it pay investors each year to justify this valuation of the common stock?
4) ADP’s largest liability is its “Client funds obligations.”
a) What is this liability? To whom is the liability owed? How does the liability get created and how does the company pay off this liability?
b) How does having this liability benefit ADP?
c) What are the risks of having this liability and what does ADP do to reduce those risks?
5) Bill.com’s largest liability is its “Customer fund deposits.”
a) What is this liability? To whom is the liability owed? How does the liability get created and how does the company pay off this liability?
b) How does having this liability benefit Bill.com?
c) What are the risks of having this liability and what does Bill.com do to reduce those risks?
6) Based on your analyses of ADP’s “Client funds obligations” and Bill.com’s “Customer fund deposits”, what must these companies do successfully in order to remain in business for the next 70 years and pay steady dividends over that time?