Operating Expenses Essay Example Pdf

Globe Comm has two major divisions in their product offering, one require simple and easy integration and installation (usually short term) and other type require complex and fairly difficult integration (usually long term). For the first type of product, it has been mentioned that revenue is recognized once the system got shipped and but only 70% to 90% of the contract value gets recorded, rest 10% to 30% value will be retained by the customer (holdback) until installation gets completed but we know that this type of product requires fairly easy installation. If the holdback is less than installation fee, then they will defer the revenue recognition. And they put revenue as the deferred revenue until they ship the product for the contract which they receive an advance payment. For the second type of product, they use percentage-of-completion method of accounting. That means, based on the milestones clearly defined in the contract. As we know that, this type of product requires long term duration and entails significant engineering, tailored to the specific customer. They have mentioned that these types of contracts have significantly larger values and higher economic risks and the progress payments received in advance by customers are netted against the inventories balance. They will recognize revenue only after achieving product shipment and getting the final acceptance or any other type of contractual milestones.

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Revenue Recognition – Via Sat Similar to Globe Comm, Via Sat also uses the percentage-of-completion method of accounting to recognize revenue. They have mentioned that the substantial amount of revenue is derived for the long term contracts. Sales and earnings are recorded based on two terms, either total cost spend till date or using the units-of-delivery method. They have informed that the percentage-of-completion method requires management to consider total cost spent and estimate the future cost which requires management to make numerous assumptions. And they record the anticipated losses on the contracts only after the period in which the losses become quantifiable.

They also mentioned that since they make numerous assumptions to estimate the future cost, sometimes their profit margin can be unevenly distributed because of the changes in their assumptions. They also mentioned that they even get revenue from purchase orders in which the revenue is recoded on the basis of products or performance of service, compliant with the authoritative guidance for revenue recognition. Under this they recognize revenue only when the prices are fixed and determinable. Via Sat has mentioned that they record revenue under accrued liabilities for the deferred revenues and excess revenue collected from customer if it is within twelve month, after that they will post it under deferred revenue in the consolidated financial statements.

2-A, What costs are included in the companies’ product and service costs?

Globe Comm: Contract Cost: Globe comm has mentioned that the contract costs generally includes purchased material, direct labor, overhead and Other direct cost. Cost from Infrastructure solutions: Globe comm has informed that the infrastructure solution consists of Purchased Materials, Direct labor, Related overhead expenses Project-related travel, living cost and Subcontractor cost. Costs from services: Costs from services consist primarily of satellite space segment charges, voice termination costs, network operations expenses and Internet connectivity fees. Satellite space segment charges: Satellite space segment charges consist of the costs associated with obtaining satellite bandwidth (the measure of capacity) used in the transmission of services to and from the satellites leased from operators. Via Sat: satellite costs consist primarily of the costs of satellite construction and launch, including launch insurance and insurance during the period of in-orbit testing, the net present value of performance incentives expected to be payable to satellite manufacturers (dependent on the continued satisfactory performance of the satellites), costs directly associated with the monitoring and support of satellite construction, and interest costs incurred during the period of satellite construction Via Sat has informed that they construct gateway facilities, network operations systems and other assets to support their satellites, and those construction costs, including interest, are capitalized as incurred. Satellites and other property and equipment are recorded at cost or in the case of certain satellites and other property acquired, the fair value at the date of acquisition, net of accumulated depreciation

2-B, Compare operating expenses in the two companies.

Operating expense for the both Globe Comm and Viasat are presented below. Research and development Expense: Via Sat has invested nearly 24,109 in the R&D against Globe Comm which invested 4,304 as R&D expense. General and administrative Expense: Via Sat had nearly 119,227 for operating expense against Globe Comm which had an expense of 30,038 for the same purpose. Cost from services Expense: Via Sat had nearly 66,833 as cost from services against Globe Comm which had 131,329 Other than above the Via Sat had following expenses Cost of product revenues 384,858, Amortization of acquired intangible assets 3,569, Income (loss) from operations 22,529. Other than above the Globe Comm had following expenses Cost from infrastructure solution 70,423, Selling and marketing 18,015, Earn-out fair value adjustments 4,824.

3-A, Compare Revenue growth and explain why are Revenues increasing or decreasing?

Globe Comm: Revenues from Services: Revenues from service has been increased from the previous year, Globe Comm has stated that the increase in the revenues was due to an increase in their access product line of their managed network service line especially in the government marketplace, other than that, revenue from ComSource, C2C and Evocomm also has attributed the increase in the revenue. Revenues from Infrastructure Solutions: Revenues from infrastructure solution have decreased from the previous year. The company attributed decline in bookings of contract orders due to the economic recession, which resulted in government and commercial customers and prospects delaying or cancelling projects as primary reason for decrease in the revenue. Viasat: Revenues from Services: Revenue from service has increased comparing to the previous year and Via Sat says that the increase in their government system segments has attributed for this growth in the service sector. Revenue from Product: Revenue from product has also increased from the previous year. The primary reason for this increase has been attributed to the commercial networks segment


Sometime risk associated with project including complexity, meeting deadline, factors beyond the company’s control such as political and economic instability in certain places, local government restriction, tax, trade barriers etc. may result in the delay of achieving the revenue milestones. Sometimes this delay will have a severe impact on their operations expense. Other factors such as depreciation, COGS, capital losses and natural calamity can affect their expense and other type of risks are detailed as below, They often act as a subcontractor, particularly in the government marketplace and their results could be adversely affected by the prime contractor’s inability to obtain or renew its contracts with the ultimate customer. Their service revenue has increased as a percentage of total revenue and if their service revenue decreases or margins decrease, their results of operations will be harmed. Future acquisitions and strategic investments may divert their resources and management’s attention, results may fall short of expectations and, as a result, our operating results may be difficult to forecast and may be volatile.


We calculate revenue then subtracted the cost of goods sold to get gross profit. Once we calculated gross profit we then calculated all the operating costs, things like rent on the office space, CEO salaries, administrative assistants, marketing costs, research & development cost, bad debt expense and depreciation expense. Next we subtract our operating expenses from our gross profit and that gives us operating profit. That leaves us with other costs that we call “below the line”. Although these things are unusual and not part of the core operations, they will impact their financial performance of the company during that year. Some of the items that are listed “below the line” (below the operating profit) are things like capital gains and losses. Remember when companies adopt certain methods of accounting for their financial statements their choice is pretty much locked in. Although it is possible to make a change, companies must disclose the impact in a line called cumulative effect of accounting changes which would include the impact of a change like a change from straight-line method to an accelerated method. But we found no data regarding above parameter for the below the line, in the both financial statement of Globe Comm and Via Sat.

5-A, Do the companies retain all their earnings and what is their policy on this?

Yes both Globe Comm and Via Sat are retaining their earning, They haven’t issued any dividends in the past and not planning to issue any dividends in the future also. Any future payment of dividends will be depend upon the board of director’s decision and it depends on the future earnings and they have mentioned that the shareholders can’t expect us to pay them dividend and they can only derive benefit though the increase in the price of the stock, for which the management will work hard.

5-B, Why do you think they have this policy?

Both company has given the same reason for retaining their earnings, they said that they wanted to use their earnings for the future growth by investing it in the infrastructure, R&D, new market capitalization, foraying into new business etc. According to me, this decision is reasonable, since many companies don’t usually declare dividends and will invest their earning for the future growth which is good for every stakeholder. Better the company means better the stock price and the shareholders can see profit by selling their stocks at good price.

6, Look at the Cash Flows for each business activity in the current year (do not recalculate these). Interpret the meaning. You should evaluate this on a higher level like we.

Globe Comm cash flow: (Summarized) Operating activities. – $16,506 Investing activities – $(28,494) Financing activities – $16,891 As we can understand from the above data that the Globe Comm had positive cash flow from operations and infers us that the company is positive. Regarding investment: Acquisition of business, net of cash received: (19,070) As we can understand from the above table, that Globe Comm is investing lot in the acquisition, it amounts nearly 50% of their total investment. This can be understood from the CEO letter released in the annual report, he mentions that he wants to leverage the expertise generated by such acquisition. They believe that the “Technology disruption” enabled them to explore the new markets and penetrate the new markets by investing constantly in the research & development and acquisition. The CEO is happy with the recent acquisition of Comsource, since it made Globe Comm to capitalize the explosive growth of wireless marketplace and new technology such as 4G and LTE network and rapid proliferation of smart phones and tablets are the driving trends for lot of new business segment and the acquisition of Comsource enabled Globecomm to capitalized on it. Other than acquisition we can see that Globe Comm has invested also in the fixed assets. Via Sat cash flow: (Summarized) Operating activities – $141,449 Investing activities – $(229,022) Financing activities – $219,798.

As we can understand from the above data that the Globe Comm had positive cash flow from operations and this infers us that the company is positive even after paying their debts. Unlike Globe Comm, most of the cash flow from investing activities goes to the purchase of property, equipment and satellites, net. They invested nearll 204,973 in the property and satellites etc. Even though they had some acquisition, but not recently and the letter from CEO clearly states that the company wants to invest more on to strengthen their satellite division and provide the service much better.

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Operating Expenses Essay Example Pdf. (2017, Jun 26). Retrieved December 5, 2022 , from

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