How operating profits are measured by bmw and gm

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Reference no: EM131411130

In January 2004, Munich-based automaker BMW switched how it classified certain expenses to match what it anticipates to be the format approved by International Financial Reporting Standards (IFRS). Previously, BMW classified these expenses as part of operating profit, and now it has decided to move them to the nonoperating section of the income statement in line with IFRS. As reported in the Wall Street Journal, a Goldman Sachs analyst commented that BMW's action would significantly boost its operating income, and "if GM took BMW's approach, it would boost operating income by over $7 billion."

REQUIRED:

a. How would the change made by BMW affect net income, that is, its "bottom line"?

b. Provide several reasons why BMW might be interested in making this change.

c. Why would an analyst from Goldman Sachs be concerned about how operating profits are measured by BMW and GM?

d. Would BMW be allowed to make this change if it wished to issue stock on the New York Stock Exchange? Discuss.

Reference no: EM131411130

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