Case Study Part 1 Pinnacle Essay

specie Ratio cash and marketable securities/ current liabilities 6,714,156/25,926,158 =0.03 (2009)6,369,431/17,605,301 = 0.36 (2008)7,014,387/16,340,517 = 0.43 (2007)Current Ratio cash +marketable securities+ can flier receivables/ current liabilities 6,714,156+9,601,883/25,926,158 = 0.63 (2009)6,369,431+7,495,528/17,605,301 = 0.79 (2008)7,014,387+6,901,225/16,340,517 =0.85 (2007)Current Ratio current assets/ current liabilities44,497,169/25,926,158 = 1.72 (2009)36,195,745/17,605,301 = 2.06 (2008)36,005,390/16,340,517 = 2.20 (2007)Accounts receivable turnover net sales/ just gross receivables (9,601,883 + 866,330) + (7,495,528+948,679) + (6,901,225 +862,690) = 26,676,335/3 = 8,892,111.7 average gross receivables 149,245,176/8,892,111.7 = 16.79 (2009)137,579,664/8,892,111.7 = 15.47 (2008)125,814,272/8,892,111.7 = 14.15 (2007)Days to collect receivables 365/accounts receivable turnover 365/16.79 = 21.74 eld (2009)365/15.47 = 23.59 days (2008)365/14.15 = 25.80 days (2007)Inventory turnover cost of goods change/average stemma(28,031,323 +22,206,259 + 21,975,220) = 72,212,802 / 3 = 24,070,934 average inventory 104,807,966/24,070,934 = 4.35 (2009)96,595,908/24,070,934 = 4.01 (2008)88,685,361/24,070,934 = 3.68 (2007)Days to sell inventory 365/inventory turnover365/4.35 = 83.91 days (2009)365/4.01 = 91.02 days (2008)365/3.68 = 99.18 days (2007)Debt to honor contribute liabilities/total equity25,926,158/55,825,756 = 0.46 (2009)17,605,301/52,758,726 = 0.33 (2008)16,340,517/50,872,536 = 0.32 (2007)Times interest earned operating income/interest expense6,171,502/1,897,346 = 3.25 (2009)5,998,463/2,128,905 = 2.82 (2008)4,745,339/2,085,177 = 2.28 (2007)Earning per sh atomic number 18 net income/average common shares outstanding 3,260,411/1,000,000 = 3.26 (2009)2,470,557/1,000,000 = 2.47 (2008)1,493,609/1,000,000 = .1.49 (2007)Gross profit percent net sales cost of goods sold/net sales (149,245,176- 104,807,966)/149,245,176 =29.77%(137,579,664 96,595,908)/137,579,664 =29.79%(125,814,272 88,685,361)/125,814,272 =29.51%Profit Margin operating income/net sales6,171,502/149,245,176 =0.045,998,463/137,579,664 =0.044,745,339/125,814,272 =0.04Return on assets income in the beginning taxes/average total assets(102,968,775 + 89,791,858 + 86,673,853)=279374486/3 =93,124,828.7 average total assets 4,274,156/93,124,828.7= 0.053,869,558/93,124,828.7=0.042,660,162/93,124,828.7=0.03Return on common equity income sooner taxes- preferred dividends/average stock holder equity (55,825,756+52,758,726+50,872,536)=189,457,018/3 =63,152,339.3 average stock holder equity (4,274,156-0)/63,152,339.3 =0.07(3,869,558 -0)/63,152,339.3 =0.06(2,660,162 -0) / 63,152,339.3 =0.04B) Based on your calculations, assess the likelihood (high, medium, or low) that Pinnacle is likely to fail financi all(prenominal)y in the next 12 months. When reviewing the proportionality calculations, it is apparent that the companys likelihood of failing financially in the next 12 months is low. This is because it is apparent that the short-term debt paying ratios are down from the previous years. For example, the current ratio has decreased from the preceding year concluding that the current assets can cover the current liabilities successfully. Also face at days to collect receivables is also lowered which presents that it takes less days for the company to collect their receivables implying that the monies owed to them are coming in more quickly. Lastly, in order for a company to succeed they need to hold back a good turnover rate for the inventory which is just what Pinnacle company has. The inventory turnover ratio is low indicating that it is taking fewerdays than before to sell inventory. C and D) are on the Excel Spreadsheet labeled Pinnacle Case Study Common-Size Income Statement C)Account Balance Estimate of $ of potentiality Misstatement Training37,621Miscellaneous expenses74,791Rent125,115 well-grounded Fees232,798Miscellaneous office expenses211,874D)Accoun t BalanceEstimate of $ of Potential MisstatementWelburn DivisionTraining26,928Depreciation880,286Executive salaries174,362Solar-Electro DivisionLegal fees234,669Miscellaneous office expense202,331Machine-Tech DivisionDepreciation66,596E) Explain whether you believe the information in unavoidableness c or d provides the most useful data for evaluating the potential for misstatements. Explain why.I believe that the information in requirement d provides the most useful data for evaluating the potential for misstatements because you can see exactly what for each one division is claiming in each sub-category. When using the information in requirement c, you are getting an overview of what all the divisions have done and cannot tell which division each misstatement is coming from. Also, by using information from requirement d, the auditor has a better chance of depicting the misstatements because you are focused on one circumstantial division instead of trying to figure out which divis ion the misstatement might have been from. Requirement d is more informative thanusing requirement c.