*1,000,000 Omitted

As a consultant of a company, with the information provided develop the basis for the firm to move forward with a substantial growth plan as the firm has recently gone public.

What would the audit report look like that contains the following: Identify the trends and fluctuations in the financial statements

Select 7-10 of these "flags that would be considered the most important

Are there on-going issues, a one-off, an item of concern and so forth and why

What recommendation is there for the "flags" that can and should be addressed by the firm going forward

Lastly, what is the overall assessment of the company

What are some red flags seen in this company based on the information provided below

Raw Data

000,000

Trend

Common Size

Ratios

Cash Flow

Income Statement 007 $2,142,659,000 3,957,000 818,702,000 $5,413,625,000 $8,671,715,000 032,513,200 3,639,201,800 $12,175,476,500 $13,664,714,160 COGS 886,796,00 4,288,680,500 2,293,624,500 4,690,564,584 545,980,400 854,300,000 365,660,340 1,001,234,530 785,774, 212,340,640 934,532,230 350,230 Administration 17,610 344,810 EBITDA 1,121,963,460 1,586,501,160 1,923,215,214 187 929,165 1,398,571,995 Amortization Operating Profit (EBIT) 336,303,181 999,497,872 1,590,128,722 1,528,775,163 329923,700 1,198,851,463 Earnings Before Taxes 283,051,725 854,063,638 1,109,673,411 Taxes 459,354,622 Net Income Balance Sheet $310,630,300 316,972,950 253,578,360 $790,419,373 758,988,750 607,191,000 45,354,460 960,187,250 3,162,140,833 $1,437,227,573 1,201,094,250 960,875,400 66,650,675 1,451,230,215 $1,366,526,361 1,328,523,975 1,062,819,180 $1,413,474,400 1,503,560,340 1,201,345,530 A/R Parts Invento WIP Inventory Finished Goods Inventory 359,340,630 1,267,311,420 1,605,660,505 5,439,170,231 1,805,340,520 6,013,296,190 Total Current Assets 710,727,625 103,416,660 2,081,455,705.00 812,956,891 411,698,984 4,386,796,708.00 1,317,388,220 561,903,428 6,995,369,761.00 2,281,077,095 601,083,781 8,321,331,107.00 3,363,891,508 580,509,006 9,957,696,704.00 0 Liabilities and Owners Equity A/P Current Portion of LT Debt $422,630,600 147,920,710 70,551,310 $1,011,985,000 341,394,916 1,353,379,916 $1,305,530,320 607,184,919 1,912,715,239 $1,509,430,300 651,847,287 $1,564,430,450 785,532,620 2,349,963,070 Total Current Liabilities 2,161,277 Shareholders Equity Total Liabilities & Equities 739,603,550 771,300,845 $2,081,455,705 3,035,924,595 2,047,729,927 $6,996,369,761 3,259,236,437 2,900,817,082 $8,321,331,107 3,927,663,101 3,680,070,533 $9,957,696,704 1,326,442,210 4,386,796,708 1,000,000 ommitted Income Statement 2005 2006 2007 2008 2009 8,672 5,033 3,639 13,665 8,974 4,691 5,414 12,175 7,887 4,288 COGS Gross Profit 935 476 S & D 1,001 786 980 1,924 366 Administration 405 EBITDA 1,878 Amortization Operating Profit (EBIT) 337 1,001 1,398 1,590 1,530 Interest Earnings Before Taxes 1,109 1,200 Taxes 420 780 Net Income Balance Sheet 2005 2006 2007 2008 2009 Assets 790 759 607 1,437 1,201 1,367 1,329 1,063 1,413 1,504 1,201 Parts Inventory WIP Inventory Finished Goods Inventory 1,451 1,606 1,805 6,013 Total Current Assets 1,268 3,161 5,117 L,P, & E, Net Intangibles 2,281 601 3,364 581 103 2082 423 562 Total Assets 4.386 Liabilities and Owners Equity 1,012 1,564 786 2,350 3,928 6,278 3,680 9958 1,306 607 1,509 CP of LT Debt Total Current Liabilities 1,707 3,060 1,326 4.386 2,161 3,259 5,420 2,901 8,321 Long-Term Debt 3,036 4,949 2,048 6,99Z Total Liabilites Shareholders Equity Total Liabilities & Equities 2082 1,000,000 ommitted 2005 2006 %Change 2007 %Change 2008 %Change 2009 %Change 5,414 152.6% 3,120 135.6% 2,294 180.1% 8,672 5,033 3,639 60.2% 12,175 7,887 4,288 40.4% 13,665 COGS Gross Profit 546 157.5% 220 134.0% 405 326.3% 1,001 R & D Administration 95 105.7% 980-1.9% EBITDA 1,123 168.7% 1,586 41.2% 1,878 18.4% 1,924 Amortization 54.1% 39.7% 1,590 13.7% 1,530 38% 288 Operating Profit (EBIT) 337 1,001 197.0% 1,398 145 173.6% 856 201.4% 1,109 330 1,312 18.3% 1,200 Interest 278 Earnings Before Taxes 29,6% -8,5% 299 202.0% 557 201.1% Taxes Net Income 853 18.3% -8.6% Balance Sheet 2005 2006 2007 2008 2009 Assets A/R Parts Inventory WIP Inventory Finished Goods Inventory 790 759 607 154.0% 139.4% 139.0% 66.7% 167.4% 1,437 1,201 1,367 1,329 1,063 1,413 1,504 1,201 10.7% 254 960 51.1% 1,606 10.7% 1,805 12.4% 61.9% 5,441 Total Current Assets 1,268 3,161 149.3% 5,117 6.3% 6,013 10.5% L,P, & E, Net Intangibles 36.4% Total Assets 2.082 4.386 110.7% 6.996 5% 8.323 19.0% 2.958 19.6% Liabilities and Owners Equity A/P CP of LT Debt 1,012 139.2% 341 130.4% 1,353 137.0% 1,509 607 7.4% Total Current Liabilities 2,161 2,350 Long-Term Debt 3,036 1,707 130.7% 3,060 133.4% 77.9% 3,259 7.3% 3,928 20.5% Total Libilities 4,949 5,420 6,278 Shareholders Equity Total Liabilities & Equities 26.9% 2.082 4.386 110.7% 6.997 59.5% 8.321 18.9% 9.958 19.7% 771 1,326 72.0% 2,048 2301 41.7% 3680 Balance Sheet Assets Cash Accounts Receivable Parts Inventory WIP Inventory Finished Goods Inventory Total Current Assets 2005 2007 2008 2009 Industry 4.5% 8.3% 55% 1.3% 32.0% 51.7% 2006 14.9% 15.2% 12.2% 1.3% 17.2% 60.9% 18.0% 17.3% 13.8% 1.0% 21.9% 72.1% 20.5% 17.2% 13.7% 1.0% 207% 73.1% 16.4% 16.0% 12.8% 0.9% 19.3% 65.4% 14.2% 15.1% 12.1% 0.9% 18.1% 60.4% Land, Plant, & Equipment, Net Other Assets Total Assets 18.8% 8.0% 34.1% 18.5% 9.4% 27 .4% 7.2% 33.8% 5.8% 41.3% 7.0% 4.9% Liabiities Accounts Payable Current Portion of Long-term Debt Total Current Liabilities 20.3% 27.4% 35.5% 23.1% 7.8% 30.8% 18.7% 87% 273% 18.1% 7.8% 26.0% 15.7% 9% 23.6% 11.2% 7.0% 18.2% Long-term Debt Shareholders' Equity Total Liabilities and Equities 38.9% 30.2% 43.4% 29.3% 39.2% 39.4% 31.5% 37.0% 34,9% 37.0% 50.3% Ratio Formula 2005 2006 2007 20082009 Industry Comments Liquidity Current Quick Cash CA/CL CA-Inv-PP/CL Cash MS/CL 2.22 1.10 0.54 2.342.672.522.56 1.141.381.251.24 0.58 0.750.63 0.60 2.84 0.05 Asset Management AR TO AR TO Day Inv. TO Inv. TO Days AP TO AP TO Days FA TO TA TO Credit Sales/ Avg AR 365/AR TO COGS/Avg. Inv 365/Inv. TO COGS/Avg. AP 365/AP TO Sales/Avg. FA Sales/Avg. Ta NA NA NA NA NA NA NA NA 2.52 2.212.41 2.41 145.1 165.0151.7151.3 30.4 1.18 1.041.291.32 308.6349.7282.9 277.5 1.09 1.091.401.46 11.11 335.8336.2260.5 250.0 0.61 0.520.58 0.60 2.13 1.37 1.191.261.00 2.42 Lerverage Debt Debt/Equity Coverage TIE Profitability GPM OPM NPM OP ROI ROA ROE TL/TA LTD/Equity 1.64 0.96 1.391.37 1.531.66 1.291.481.121.07 0.50 EBIT/Int.Exp 6.36 6.90 4.845.724.64 3.21 GP/Sales Op. Inc./Sales NI/Sales EBIT/Avg. TA NI+1(1-t/Avg. TA NI/Avg. Equity 38.2% | 42.4% | 42.0% | 35.2% | 34.3% | 38.00% 19.5% | 20.7%| 18.3% | 15.4% | 14.1%| 7.41% 8.6% | 10.3%| 8.3% | 7.0% | 5.7% | 3.32% NA NA NA 7.7% | 6.1% | 5.2% | 4.2% 4.7% | 3.8% | 3.7% | 2.9% | 3.3% 13.3%| 10.7%| 8.6% 5.9% | 6.60% Tax rate 35% 1,000,000 ommitted Cash Flow Statement 2009 Operations Net Income Add/Minus: Depreciation Accounts Receivable Parts Inventory WIP Inventory FG Inventory Accounts Payable 780 (394) 1,504 1,201 90 1,805 (1,594) 3,392 Total Investing Land, Plant, and Other Assets 103 814 Total Financing Long-term Debt (704) (704) 4,282 Total Change in Cash