In May 199, Hanson, the United Kingdom's most notoriously acquisitive corporation, purchased a 2.8 percent stake in ICI, the United Kingdom's largest manufacturer and the world's fourth-largest chemical corporation. Amid speculation about the possibility of a takeover bid, the comparative performance of the two companies was a significant issue because of the claims of the respective management concerning their relative efficiency and success.

From an accounting perspective, it is possible to assess performance in terms of both U.S. and U.K GAAP because Hanson and ICI are listed in the United States and are required by the SEC, under Form 20-F, to provide reconciliation data. The comparative data below show net income and shareholders' equity data for the period 1998-2002 in accordance with both U.K and U.S GAAP, together with the data for long-term debt.

Questions

1. Calculate the "Conservatism" index and returns on equity for Hanson and ICI for the period 1998-2002 under both U.K and U.S GAAP.

2. Does it appear that U.S GAAP is more or less conservative than U.K GAAP? What could be the main reasons for this?

3. To what extent do the results affect your assessment of comparative corporate performance?

4. Calculate the debt-equity (leverage or gearing) ratio for both corporations under both U.K and U.S GAAPs.

5. To what extent are the results likely to affect your assessment of the comparative riskiness of investing in Hanson and ICI?

ICI and HANSON COMPARATIVE DATA UNDER U.K AND U.S GAAP

	1998	1999	2000	2001	2002
ICI
Net Income
U.K GAAP	83,000,000	252,000,000	(228,000,000)	80,000,000	179,000,000
U.S GAAP	(44,000,000)	53,000,000	(456,000,000)	13,000,000	9,000,000
Shareholders' Equity
U.K GAAP	149,000,000	244,000,000	(216,000,000)	(364,000,000)	499,000,000
U.S GAAP	3,557,000,000	3,373,000,000	2,828,000,000	2,568,000,000	2,805,000,000
Long-term Debt	3,144,000,000	1,503,000,000	1,616,000,000	1,304,000,000	1,709,000,000
Hanson
Net Income
U.K GAAP	338,500,000	302,200,000	236,400,000	278,800,000	187,400,000
U.S GAAP	365,100,000	317,900,000	256,700,000	302,300,000	(628,600,000)
Shareholders' Equity
U.K GAAP	1,592,300,000	1,847,000,000	2,420,600,000	2,720,800,000	,2660,200,000
U.S GAAP	2,520,600,000	2,733,200,000	3,369,000,000	3,556,500,000	2,605,000,000
Long-term Debt	1,007,000,000	1,005,700,000	1,634,100,000	1,599,300,000	972,300,000