Question
Home Value Stores operates 264 membership ware- house stores in the United States, Europe, and Asia.The company offers low prices on a limited selection of
Home Value Stores operates 264 membership ware- house stores in the United States, Europe, and Asia.The company offers low prices on a limited selection of house- hold and grocery products. In the past year, sales increased by approximately 10.8 percent and net earnings increased by 6.4 percent. The company opened only two stores in 2017 and 2018 and closed one of its stores due to poor performance. Jack Davidson and Michael Prine are on the board of directors of Home Value and serve on the company's compensation com- mittee. At a recent lunch meeting, they discussed the company's performance. (See the table on the next page for a balance sheet and an income statement.) Both were pleased with the increase in profit and decided to recommend a contract extension and a substantial six-figure bonus for the company's CEO. They an- ticipated, however, that the third member of the compensation committee, Tanya Barrett, would object to the bonus. Tanya believes that accounting profit is a poor measure of future firm performance. In her opinion, the company should be focused on what it is doing today to create future value for shareholders. She has also pointed out that, although the company showed quarterly profit increases, its stock price remained flat.
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