America Online, Financial statement analysis Essays

791 Words Feb 26th, 2013 4 Pages
Financial statement analysis America Online, Inc. Case Study 1

1. Prior to 1995, why was America Online so successful in the commercial online industry relative to its competitors CompuServe and Prodigy?
AOL offered a broad range of features including real-time talk, electronic mail, e-magazines and newspapers, online classes, shopping, and internet access. They also had software for the internet such as for production and distribution of original content, interactive marketing and transactions capabilities, and networks to support the transmission of data. In other words, AOL was a platform that connected the person with the need to internet access with the person who had the internet content by charging membership fees.
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The unique offerings of these services and their market shares were declining as many of the same things were being offered on the World Wide Web. AOL now had to decide how to deal with the online sites that were cutting away from their profits; they had to look into what their role would be in the future. Should they continue to provide unique content to users or become just another internet access provider with their own look and browsers? 3. Was AOL’s policy to capitalize subscriber acquisition costs justified prior to 1995?
Yes it was. Since costs are generated from the life of the subscriber’s subscription period, these cost should be capitalized. Prior to 1995, by capitalizing these costs, it truly reflected the life of the actual costs that AOL would incur rather than expensing them right at the moment subscription occurs. This was in compliance with the GAAP accounting standard of matching the expenses with the revenues generated. 4. Given the changes in discussed in question 2, do you think AOL should change its accounting policy as of 1995? Is the company’s response consistent with your view?
Yes. With the significant changes in the industry that had an adverse impact on the business, AOL should change its accounting policy. As of 1995, there were two new entrants, MSN and Internet World Wide Web, which influenced greatly the customers’ preferences. As a result, AOL saw a decline in its market share and faced

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