At the time of its initial public offering (initial sale of stock). Groupon, an
ID: 2780313 • Letter: A
Question
At the time of its initial public offering (initial sale of stock). Groupon, an Internet company that provides discount coupons, used unusual measures of its business performance. One such measure used by Groupon was ACSOI (pronounced "ack-soy" or, alternatively. "ack-swa) for "adjusted consolidated segment operating income. Source: (de la Merced, Michael, J., "Abracadabra! Magic Trumps Math at Web Start-Ups," dealbook.nytimes.com, June 17, 2011). ACSOl is operating profit before subtracting the year's online marketing and acquisition expenses. The firm's profit was negative, but its ACSOl was positive. Groupon argued that ACSOl marketing and acquisition expenses were an investment that would build future business and whose cost should therefore be amorized (spread out over time). If shareholders care only about the profit of the company in the current period, then ACso O A. is not an appropriate measure because marketing and aoquisition expenses reduce profit for the current period O B. is not an appropriate measure because marketing and acquisition expenses are sunk costs. O C. 0 D. is an appropriate measure because marketing and acquition expenses are fixed costs. is an appropriate measure because marketing and acquition expenses have no opportunity cost. is not an appropriate measure because marketing and acquisition expenses are unavoidable costs. O E-Explanation / Answer
If shareholders care only about the profit of the company in the current period, then ACSOI is not an appropriate measure because marketing and acquisition expenses reduce profit for the current period.
Therefore correct answer is option A. is not an appropriate measure because marketing and acquisition expenses reduce profit for the current period.
Adjusted consolidated segment operating income (ACSOI) is the operating income of the company before deducting marketing and acquisition expenses but marketing and acquisition expenses are marginal costs and reduce the profit for the current period. For the shareholders interested in current year’s profit it is not an appropriate measure as they do not have long term view about the company so not concerned much about investments for future benefit.
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