Arcelor Mittal Accounting System Analysis Ana Cervantes Yu Chen Anne Dubost Francesca De Girolamo...
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Transcript of Arcelor Mittal Accounting System Analysis Ana Cervantes Yu Chen Anne Dubost Francesca De Girolamo...
Arcelor MittalAccounting System Analysis
Ana CervantesYu Chen
Anne DubostFrancesca De Girolamo
Melvin Soh
Overview
Company
• World's number one steel company1
• Merger between Arcelor and Mittal Steel in 2006
• Strategy– Product diversity2
– Integrated business model– Geographic reach3
– Based on subsidiarity– Investments & Innovation
2
Iron & Steel Industry
• Growing demand4
• Risk of overcapacity and regional imbalances
• Oligopoly Market5
• Low Margin6
• Standard Product7
• Complicated Process8
Divisionalized Organization
3
• Six divisions based on geography and products1
• Under each division, there are subsidiary companies2
• Each subsidiary company is owned by ArcelorMittal in different percentages3
• Intercompany shipments and transactions
• Possible performance indicator: ROI4
• Other indicators: Profit, Net margin, Production, Shipment, Number of Employees
Costing system1
Process costing (rather than job costing)2
→ cost per unit of output (€/tons ?)
Target costing3
• Starting point: target selling price (fixed by the market)• Profit Margin determined by corporate decision• Target cost deducted from the calculation
→ : future actual cost < target cost
4
cost + profit = price
Step 1
Step 2
Step 3
Step 4Rolling
Continuous Casting
Steel Making
Iron Making
Responsibility centres
Cost Centres1
– Discretionary: HR, raw material purchasing– Standard: product lines, factories
• different levels of aggregation2
• Problem: unify criteria and centralised decisions and control3
Revenue centres: regional sales divisions4
Profit and Investment centres: highest levels of management5
5
Costs Allocation1
R&D activities expenditures• Materials, direct labour, allocated overheads2
• To income statement as incurred3
• To corresponding cost centres (divisions, factories) if:4
– Technical and commercial viability– Enough resources
• Cost drivers:5
– New or substantially improved product: volume6
– New or substantially improved process: machine-hours7
6
Volume decision• Oligopoly with no obvious dominant firm1
• Follows the Kinked Demand Curve Model2
• Different situation for different market segments (e.g. Automobile)
7
• Volume decision is easier for big players
– Influence in price setting
– Geographic and product diversity provides hedge against economic cycle and regional imbalance
– Long term contracts
– Inelastic demand in short term3
Investment Decisions
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The Arcelor Mittal Strategy is focused on its investments’ policy.
Investments’ aims:• Increase scale and synergies• Increase annual revenues• Low cost profile and high growth
prospects from developing markets• Leading position across a range of
key product segments• Ability to supply customers on a
global basis • Increase the dividends• Reduced volatility through geographic and product diversification• Security of long-term contracts through high value-added products• Reach the market leadership
Investments' composition
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Investment evaluation criteria • Strategic investments with high ROIC: return on invested capital1
The capacity of the investment for increasing the ROIC is evaluated through the NPV2.
• Each investment is evaluated on the base of its own profitability3.• Qualitative aspects are also fundamental4.
Conclusions• Why ArcelorMittal1
– Big multinational company (merger)– Cost cutting programme going on
• Possible accounting features proposed– Divisionalized organization (intersectional sales)– Cost allocation: Process costing (factories)– Pricing strategy: Target costing – Different responsibility centres at different levels of the
organization– Volume decision based on external environment (steel
market price)– Investments seeking synergy
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