(i) Briefly summarize Zoom’s strategy for driving new customer acquisitions. [4 points]
(ii) List one key success factor and one significant risk associated with Zoom’s strategy for
driving new customer acquisitions. [6 points]
1. Key success factor
2. Significant risk
Problem 2. Accounting Analysis
(i) Summarize how Zoom recognizes revenue associated with subscription agreements. [3
points]
(ii) Assume that instead of using its current accounting policies for subscription revenue,
Zoom instead recognized revenue when it has the right to invoice under a subscription
agreement. Estimate the Revenue that Zoom would have reported for the fiscal year
ended January 31, 2021. [6 points]
(iii) Summarize how Zoom accounts for ‘sales and marketing’ costs. [3 points]
(iv) Assume that instead of using its current accounting policy for ‘sales and marketing’ costs, Zoom instead took the portion these costs that are expensed as incurred and capitalized these costs in the fiscal year incurred and then amortized these costs on a straight-line basis over the subsequent two fiscal years. Estimate the Income from operations that
Zoom would have reported for fiscal year ended January 31, 2021. [6 points]
(v) If you were a CFO with no business ethics and wanted to manage earnings up to beat a
quarterly estimate, what are two ways you could do that. Explain why an unscrupulous
manager would choose to use your two methods. What are the journal entries involved in
your earnings management or manipulations? [6 points]
(vi) Which of the above two accounting methods for sales and marketing costs do you think better reflects their underlying economics? Briefly explain your answer. [3 points]
Problem 3. Financial Analysis
(i) Estimate the average number of days that elapses between the right to invoice customers
and the recognition of the associated revenue for sales by Zoom and RingCentral in their
most recent fiscal year. [8 points]
Average Number of Days for Zoom =
Average Number of Days for RingCentral =
(ii) On average, does Zoom receive cash from its customers before or after it recognizes the
associated revenue? Briefly explain your answer. [3 points]
(iii) Compute the gross margin ratios for Zoom and RingCentral in their most recent fiscal
years. [4 points]
Gross margin Ratio for Zoom =
Gross margin Ratio for RingCentral =
(iv) Provide one likely explanation for the difference between the two ratios that you
computed above. [4 points]
(v) For the past three years, Zoom has consistently reported cash from operating activities
that is over twice as large as net income. List two of the primary reasons for this
difference. [6 points]
