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Financial Reporting Problems At Molex Inc A Case Solution

Solution Id Length Case Author Case Publisher
1700 1517 Words (6 Pages) Paul M. Healy Harvard Business School : 105082
This solution includes: A Word File A Word File

The accounting landscape in which the Melox, Inc. operates is highly competitive, and the accounting firms are under severe pressure to improve the independence and quality of audits. The wave of corporate accounting scandals including Enron Worldcom, Adelphia and Global Crossing have caused the audit firms to focus on the fair representation of financial statement and give them reliability to financial statement and their users. 

Following questions are answered in this case study solution

  1. Business Strategy

  • SWOT Analysis 

  • Porter’s five forces Analysis

  • Accounting Analysis

  • Financial Analysis 

  • Prospective Analysis

Case Analysis for Financial Reporting Problems At Molex Inc A

The following report covers current financial, operational and business development issues faced by Molex, Inc. There are multiple analyses which are being made part of the report including business strategy, accounting, financial and prospective analysis. 

1. Business Strategy

In business strategy, many analysis including SWOT analysis, Porter’s five forces Model and business model has been discussed. 

i. SWOT Analysis 
  • The company’s major strength comes from the usage of its electronic connectors by a wide variety of the customer all over the globe. The customers belong to diverse industries which give Molex, Inc. flexibility in revenues. As a result, fluctuation of demand in the industry would not affect the revenue of Molex, Inc. heavily as the company's dependence on its customers’ industries is widely diversified. 

  • The company is the second largest manufacturer of electronic connectors and possesses a market share of 6.9%.

  • Being a major market player in the electronic connector industry, Molex Inc. enjoys economies of scale which enables it to bring down the per unit production cost of the electronic connector.

  • The expertise of the financial team does not seem to be up to the mark as evidenced by the generation of errors in recording the inventory. This was a result of the less experience of CFO as he has briefly joined the firm. 

  • The over internal controls appear to be a week as such significant misstatement of facts was established. If internal control had been strong, the error could have been rectified in the first place.  

  • The compensation and remuneration process of the firm can also be reexamined. The monetary benefits of the employees are linked with the financial performance of the firm. Therefore, the employees frequently indulge in activities which allow them to overstate their earnings. 

  • As mentioned in the case, the region recovers from the recession hence it is highly likely that the consumer spending to be increased. Thus, multiple industries would recover subsequent to which demand for the product including electronic connectors will increase.

  • Barring in mind, the prospect of t high demand Molex Inc. should anticipate a decrease in per unit cost as a result of Economies of Scale. 

  • As the auditor had asked to remove the CEO Mr Joe King and the CFO Diance Bullock to be removed from their respective positions as they could no longer rely on Bullock's and King's representations and they would only complete the review in the presence of a new CEO and CFO. These claims can bring negative sentiment in the market and can portray a bad image of the company.

  • Moreover, with the advent of the new CEO and CFO massive changes will be brought in the organization. The newly appointed CEO is most likely to set up its own management team affecting the job security of the current management.

ii. Porter’s five forces Analysis

Following Chart depicts the element of Porter’s five forces 

Threat of Entry

The threat of entry is lower as the barrier to entry in the subject industry is comparatively high. The amount of capital required to set up a plant in order to manufacture electronic connectors is high generating barriers to entry.

Moreover, as evident by the market share of Melox. Inc. being the second largest manufacturer of electronic connectors is only 6.9%. This shows that the market is already saturated and the potential investors are less likely to opt for an investment in an industry which is already saturated enough. 

Industry Rivalry

The competition in the electronic connector industry is relatively intense as the demand for the subject item is high and across the various industries. Therefore, service quality and new product development is the key to survive in the industry.

Bargaining power of supplier

The bargaining power of supplier is lower in the case of Molex, Inc. being the second largest company in the connector industry would allow Molex Inc. to negotiate better terms for prices of raw material and payment policy. 

Moreover, the production facilities are spread across the world which means that the overall production capacity of the group is very high. Hence, procurement of raw materials will be in bulk quantity. This again is another element which gives Melox, Inc. power to negotiate better prices for raw material.

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