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MBA $603$ Assignment $4$

Analyze the information on the three tabs below $($Balance Sheet, Income Statement, and Ratio Analysis$).$ Write a one page memo in which you: $1$ Describe the evidence that leads you to belived that the financial statements have been misstated. $2$ Explain whether or not you believe the misstatement could be charatized as an intentional mistatement $($fraud$)$ or an unintentional mistake.

Some Company

Balance Sheets Common Sized Growth

As of December $31,1986$ and $1985$

$1986198519861985$ Analysis Assets Current Assets Cash $$16,329$ $$23,24411\mathrm{.}9\%28\mathrm{.}4\%-29\mathrm{.}7\%$ A$/$R $405181677729\mathrm{.}6\%20\mathrm{.}5\%141\mathrm{.}5\%$ Allowance for doubtful accounts $-752-736-0\mathrm{.}5\%-0\mathrm{.}9\%2\mathrm{.}2\%$ Inventories $451062250133\mathrm{.}0\%27\mathrm{.}5\%100\mathrm{.}5\%$ Other $9362390\mathrm{.}7\%0\mathrm{.}3\%291\mathrm{.}6\%$ Total current assets $$102,137$ $$62,02574\mathrm{.}6\%75\mathrm{.}8\%64\mathrm{.}7\%$ Property, Plant and Equipment $336061958824\mathrm{.}6\%23\mathrm{.}9\%71\mathrm{.}6\%$ Other Assets Depreciation less missing $11342530\mathrm{.}8\%0\mathrm{.}3\%348\mathrm{.}2\%$ Total Assets $$136,877$ $$81,866100\mathrm{.}0\%100\mathrm{.}0\%67\mathrm{.}2\%$ Liabilities and Equity Current Liabilities Accounts payable $$37,160$ $$12,22827\mathrm{.}1\%14\mathrm{.}9\%203\mathrm{.}9\%$ Current portion of long$-$term debt $94617460\mathrm{.}7\%2\mathrm{.}1\%-45\mathrm{.}8\%$ Accrued compensation expenses $282317462\mathrm{.}1\%2\mathrm{.}1\%61\mathrm{.}7\%$ Accrued warrenty expense $137720821\mathrm{.}0\%2\mathrm{.}5\%-33\mathrm{.}9\%$ Other $438032713\mathrm{.}2\%4\mathrm{.}0\%33\mathrm{.}9\%$ Total current liabilities $$46,686$ $$21,07334\mathrm{.}1\%25\mathrm{.}7\%121\mathrm{.}5\%$ Long$-$term debt $238772077117\mathrm{.}4\%25\mathrm{.}4\%15\mathrm{.}0\%$ Total Liabilities $$70,563$ $$41,84451\mathrm{.}6\%51\mathrm{.}1\%68\mathrm{.}6\%$ Equity Preferred stock $$118$ $$1330\mathrm{.}1\%0\mathrm{.}2\%-11\mathrm{.}3\%$ Common stock $($$$1\mathrm{.}00$ par$)2261930\mathrm{.}2\%0\mathrm{.}2\%17\mathrm{.}1\%$ Common stock warrants $7150\mathrm{.}0\%0\mathrm{.}0\%-53\mathrm{.}3\%$ Paid$-$in capital in excess of par $653486202147\mathrm{.}7\%75\mathrm{.}8\%5\mathrm{.}4\%$ N$/$R from officers collateralized by common stock $-2600\mathrm{.}0\%-0\mathrm{.}3\%-100\mathrm{.}0\%$ Treasury stock at cost $-16-0\mathrm{.}0\%0\mathrm{.}0\%$ Retained earnings $631-220800\mathrm{.}5\%-27\mathrm{.}0\%-102\mathrm{.}9\%$ Total Equity $$66,314$ $$40,02248\mathrm{.}4\%48\mathrm{.}9\%65\mathrm{.}7\%$ Total liabilities and equity $$136,877$ $$81,866100\mathrm{.}0\%100\mathrm{.}0\%67\mathrm{.}2\%.$ Some Company Income Statement Common Sized Growth For the Years Ended December $31,1986$ and $19851986198519861985$ Analysis Net Sales $$184,861$ $$113,951100\mathrm{.}0\%100\mathrm{.}0\%62\mathrm{.}2\%$ Cost of Sales COGS $($could be misleading$)13793611144574\mathrm{.}6\%97\mathrm{.}8\%23\mathrm{.}8\%$ Gross profit $$46,925$ $$2,50625\mathrm{.}4\%2\mathrm{.}2\%1772\mathrm{.}5\%$ Selling, general and administrative expenses $$14,459$ $$12,2177\mathrm{.}8\%10\mathrm{.}7\%18\mathrm{.}4\%$ R&D expenses $855042004\mathrm{.}6\%3\mathrm{.}7\%103\mathrm{.}6\%$ Total operating expenses $230091641712\mathrm{.}4\%14\mathrm{.}4\%40\mathrm{.}2\%$ Income from operations $23916-1391112\mathrm{.}9\%-12\mathrm{.}2\%271\mathrm{.}9\%$ Other income $12907080\mathrm{.}7\%0\mathrm{.}6\%82\mathrm{.}2\%$ Other expenses $-2141-3174-1\mathrm{.}2\%-2\mathrm{.}8\%32\mathrm{.}5\%$ Income before taxes and extraordinary items $$23,065-$$$16,37712\mathrm{.}5\%-14\mathrm{.}4\%240\mathrm{.}8\%$ Provision for income tax $27703921\mathrm{.}5\%0\mathrm{.}3\%606\mathrm{.}6\%$ Income before extraordinary item $$20,295-$$$16,76911\mathrm{.}0\%-14\mathrm{.}7\%221\mathrm{.}0\%$ Income tax benefit from NOL carryforward $24301\mathrm{.}3\%0\mathrm{.}0\%$ Net income $$22,725-$$$16,76912\mathrm{.}3\%-14\mathrm{.}7\%235\mathrm{.}5\%$ Some Company Ratio Analysis Total current assets $/$total current liability For the Years Ended December $31,1986$ and $1985$ Liquidity $19861985$ Current $2\mathrm{.}192\mathrm{.}94$ Quick $1\mathrm{.}201\mathrm{.}86$ Cash $0\mathrm{.}351\mathrm{.}10$ Activity Inventory Turnover $4\mathrm{.}084\mathrm{.}95$ Times Computed using avg inventory Number of Days in Inventory $89\mathrm{.}4573\mathrm{.}69$ Days Receviables Turnover $6\mathrm{.}456\mathrm{.}79$ Times Computed using avg A$/$R Average Collection Period $56\mathrm{.}5653\mathrm{.}74$ Days Operating Cycle $146\mathrm{.}01127\mathrm{.}43$ Days Payables Turnover $4\mathrm{.}979\mathrm{.}32$ Times Payment Period $73\mathrm{.}3739\mathrm{.}17$ Days Working Cap Turover $3\mathrm{.}332\mathrm{.}78$ Times Fixed Asset Turnover $5\mathrm{.}505\mathrm{.}82$ Times Total Asset Turnover $1\mathrm{.}351\mathrm{.}39$ Times Leverage Debt to Equity $106\mathrm{.}41\%104\mathrm{.}55\%$ Leverage $206\mathrm{.}41\%204\mathrm{.}55\%$ Debt Ratio $51\mathrm{.}55\%51\mathrm{.}11\%$ LTD to Equity $36\mathrm{.}01\%51\mathrm{.}90\%$ Profitability Gross Margin $\%25\mathrm{.}38\%2\mathrm{.}20\%$ Return on Sales $12\mathrm{.}29\%-14\mathrm{.}72\%$ Return on Assets $16\mathrm{.}60\%-20\mathrm{.}48\%$ Return on Equity $34\mathrm{.}27\%-41\mathrm{.}90\%$

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