Pit Stop Case Study

1232 words 5 pages
Auto World Inc. (AWI) is a leading automotive retail and service chain. They have many operating segments comprised of two different centers 10 miles apart from each other. Pit Stop Centers (PSC) offer service labor, installed merchandise, and tires while their Auto Boyz Centers (ABC) sells automotive merchandise. AWI has a plan to close their operating segment PSC to change their current operating structure to improve and efficiently deliver retail products and automotive services by providing their customers with a ‘one stop’ shopping for ‘do-it-yourself’ retail customers and ‘do-it-for-me’ customers” (PSC Case). AWI expects this change to enhance their ability to increase market share, improve sales, and company earnings. This …show more content…

Step three asks if the continuing cash flows are significant. Yes, the ongoing ABC estimates the continuing cash inflows will approximate 86 percent (see Appendix B) of that would have been generated by PSC’s absent the disposal transaction. AWI is expecting these actions to generate significant cash flow in 2007 and to increase free cash flow in 2008. AWI is also expecting to yield improvements in operating earnings of approximately $58 million in 2008 to be significant leading to the classification as a discontinued operation to be inappropriate (ASC 205-20-55-70). Since stakeholders rely on financial statements to base their decisions and to project future cash flows, current information presented must be accurate under GAAP Under the second requirement, one issue I have identified is the intentions of management’s decisions to improve their company’s net earnings. The professional literature I relied on are these two statements, “the actions we are announcing today will further enhance our ability to increase market share and improve sales and earnings at our company” and “in this regard, we remain committed to the automotive business and we expect to deliver significant additional profitable growth” were made by Mr. Bobby, chairman and chief executive officer. When considering the use and disclosure of restructuring charges, depending on the industry, there should not be re-occurring


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