Instructional Case: The Yeager Tool Company.

Abstract Statistical decision models have been suggested as decision aids for accounting-related judgments as early as 1968, receiving continued attention in the financial analysis and auditing literatures through the 1980s. Yet the rate of adoption of such techniques has not matched their demonstrated success in research studies. The objective of this case is to provide a basis for students to think about the impact of (1) alternative accounting methods on the interpretation of financial ratios, (2) using financial ratios in statistical prediction models for financial decision-making, and (3) common objections to augmenting or replacing managers' judgments with statistical models. Altman's Z-score model and a cash-flow forecast are used to allow students to follow the effects of differences in financial reporting practices on an important financial judgment. This leads to a second part of the case wherein students discuss the pitfalls related to the simplistic use of decision aids and the resistance to the adoption of such techniques. The case study is designed primarily for use during the financial statement analysis segment of introductory financial accounting for MBAs or intermediate accounting and in financial statement analysis courses. This case study was adapted from publicly available documents.