1. Analyze Take-Twos 1998-2000 financial data included in Exhibit Compute the following financial ratios for each of those years: age of accounts receivable, age of inventory, gross profit percentage, profit margin percentage, return on assets, return on equity, current ratio, debt-to-equity ratio, and the quality-of-earnings ratio. What major red flags, if any, were present in Take-Twos financial statements given these ratios? Explain

2000 1999 1998 EXHIBIT 1 TAKE-Two INTERACTIVE Sales SOFTWARE, INC. Gross Profit FINANCIAL HIGHLIGHTS Operating Income 1998-2000 Net Income (000s OMITTED) Accounts Receivable Inventories Total Current Assets Total Assets Current Liabilities Total Liabilities Net Operating Cash Flows Net Investing Cash Flows Net Financing Cash Flows $387,006 139,210 45,061 24,963 134,877 44,922 214,908 351,641 152,023 164,639 (55,259) (12,906) 71,564 $305,932 90,810 27,381 16,332 107,799 41,300 187,970 231,712 146,531 146,609 (16,748) (21,540) 46,780 $194,052 46,496 10,690 7,181 49,139 26,093 95,302 109,385 73,505 73,820 (8,022) (727) 9,017 Sales Gross Profit Operating Income Net Income Accounts Receivable Inventories Total Assets Total Stockholders' Equity Net Operating Cash Flows Net Investing Cash Flows Net Financing Cash Flows $97,341 15,862 (895) (2,904) 36,369 20,784 56,395 11,935 (14,460) (2,583) 18,809 2000 1999 1998 EXHIBIT 1 TAKE-Two INTERACTIVE Sales SOFTWARE, INC. Gross Profit FINANCIAL HIGHLIGHTS Operating Income 1998-2000 Net Income (000s OMITTED) Accounts Receivable Inventories Total Current Assets Total Assets Current Liabilities Total Liabilities Net Operating Cash Flows Net Investing Cash Flows Net Financing Cash Flows $387,006 139,210 45,061 24,963 134,877 44,922 214,908 351,641 152,023 164,639 (55,259) (12,906) 71,564 $305,932 90,810 27,381 16,332 107,799 41,300 187,970 231,712 146,531 146,609 (16,748) (21,540) 46,780 $194,052 46,496 10,690 7,181 49,139 26,093 95,302 109,385 73,505 73,820 (8,022) (727) 9,017 Sales Gross Profit Operating Income Net Income Accounts Receivable Inventories Total Assets Total Stockholders' Equity Net Operating Cash Flows Net Investing Cash Flows Net Financing Cash Flows $97,341 15,862 (895) (2,904) 36,369 20,784 56,395 11,935 (14,460) (2,583) 18,809