Accounting Case Study: Audit of Computers Inc

1. You are analyzing a company that has cash of $2,000, accounts receivable of $3,700, fixed assets of $10,900, accounts payable of $6,600, and inventory of $4,100. What is the quick ratio?

Ratio analysis is a very useful tool when it comes to understanding the performance of the company. It highlights the strengths and the weaknesses of the company and pinpoints to the mangers and their subordinates as to which area of the company requires their attention be it prompt or gradual. The return on shareholder’s fund gives an estimate of the amount of profit available to be shared amongst the ordinary shareholders; where as the return on capital employed measures an organization 's profitability and the productivity with which its capital is utilized. Return on total assets is a profitability ratio that measures the net income created by total assets amid a period.

1. Please conduct a financial ratio analysis using the data in Exhibit 2. How do the results reflect different strategies pursued by the 4 firms?

The Current Ratio for Jones is 3.01:1 shows that Mr Jones’ business has 3 times more assets than liabilities so they have a lot of money left over. This shows it is bad for the business as the money should be used within the business such as reinvesting the money back into the business to improve it.However for Smiths the current ratio is 1:1 this is bad for the business as they may find it difficult to pay it suppliers as the current assets equal the current liabilities so there is no money left over.

19. The financial statements of the Bolton Manufacturing Company reports net sales of $500,000 and accounts receivable of $50,000 and $30,000 at the beginning of the year and end of year, respectively. What is the receivables turnover ratio for Bolton?

Ratio analysis: Perform trend and ratio analysis on current and fixed assets, current and long term liabilities, owner’s equity, sales revenues, EBIT, net income, and earnings per share. Project these trends

You are the internal audit senior responsible for conducting an assurance engagement of the XYZ Company payroll process. This process has not been audited for three years and, as such, is due in the normal audit cycle. There have been no significant changes since the previous audit, that is, there were no system changes, no reorganization of personnel, and no substantive procedural changes. However, during the last assurance engagement, the internal audit function identified several observations, some of which were considered significant. The significant observations related to:

The company’s debt ratios are 54.5% in 1988, 58.69% in 1989, 62.7% in 1990, and 67.37% in 1991. What this means is that the company is increasing its financial risk by taking on more leverage. The company has been taking an extensive amount of purchasing over the past couple of years, which could be the reason as to why net income has not grown much beyond several thousands of dollars. One could argue that the company is trying to expand its inventory to help accumulate future sales. But another problem is that the company’s

With this company the inventory management ratios further indicate that there may be an issue with inventory and inventory controls. The inventory turnover ratio is lower than the industry average and the days’ sales in inventory are high. A company wants to turn inventory quickly to reduce storage costs, and

Another problem Laura & Bob are facing is having high inventory levels which generally means your company is struggling to turn over inventory and make sales. As a result of the increase in inventory levels current ratio is being affected by decreasing as

The firm’s accounts receivable ratio increased from 68.71 in 2006 to 74.56 in 2010. This means that it is taking Abbott almost six days longer to collect from its customers today than it did five years ago. Furthermore, the firm’s accounts payable days has decreased from 43.72 in 2006 to 38.22 in 2010. This means that Abbott is paying its suppliers 5½ days earlier today than it did in 2006. A change in the inventory ratio from 8.01 in 2006 to 11.03 in 2010 indicates that it is taking the firm longer to sell finished goods than it used to. The increase in the accounts receivable and inventory ratios, combined with a decrease in the accounts payable ratio, indicates poor working capital management and helps to explain why the firm has increased its holdings of cash and short-term investments. To correct this, Abbott’s managers should focus on collecting cash from its customers faster and delaying payments to its suppliers. To maximize its cash position, the firm would be best served by paying its suppliers in the same amount of time as it collects payment from its customers.

Before beginning an analysis of a company it is necessary to have a complete set of financial statements, preferably for the pas few years so that historical trends can be obtained. Ratios are a way for anyone to get an idea of the financial performance of a company by using the information contained in the financial statements. Ratios are grouped into four basic categories, liquidity, activity, profitability, and financial leverage. This document will use a variety of these ratios to analyze the firm, Sample Company, as of December 31,2000.

| * David should keep a straightforward and honest relationship with MAL. * David integrity will be compromised if these errors are discovered.

Ratio analysis is generally used by the company to provide some information on how the company has performed during that year, so that the parties involved including shareholders, lenders, investors, government and other users could make some analysis before making any further decision towards that particular company. As mentioned by Gibson (1982a cited in British Accounting Review, 2002 pg. 290) where he believes that the use of ratio analysis is such an effective tool to evaluate the company’s finance, and to predict its future financial state. Ratios are simply divided in several categories; these are the profitability, liquidity, efficiency and gearing.

This paper will discuss the corporation WorldCom, a telecommunications company that was based in Mississippi. In 2002 WorldCom was involved in one of the largest accounting scandals in the United States. WorldCom inflated its assets by nearly $11 billion dollars, which eventually lead to about 30,000 employees losing their jobs, as well as, 180-billion dollars in losses for its investors. The CEO at the time of this accounting fraud was Bernard Ebbers and led to him receiving a 25-year prison sentence. This paper will go into the details of how WorldCom was able to manipulate its accounting records to deceive its internal auditors, as well as, investors.