BACKGROUNDFive years later, Cookie and Coffee Creations Inc. has been very successful. The company operates coffee shops in five states with plans for expansion into additional states over the next several years. They have a strong following for their high$-$end mixers and have a fast$-$growing e$-$business where they sell mixers on$-$line and offer on$-$line cooking classes and mixer demonstrations. The company has generally been profitable, with a few loss years due to costs of starting up new locations and development of the on$-$line business as well as interest expense for loans they have incurred to fund the growth. They have also had to close a few locations that did not work out. Natalie and Curtis believe they are ready to go public with Cookie and Coffee Creations Inc. They have had preliminary discussions with Panther Investment Banking Co$.($PIBCO$)$ about selling shares to the public and what would be involved. PIBCO seems very interested in being the lead investment banker in an IPO, or Initial Public Offering, of the stock of the company. However, PIBCO has told Natalie and Curtis that PIBCO will need to conduct extensive due diligence on the company and will need significant information to begin to prepare the offering documents for the Securities and Exchange Commission and ultimately the public. PIBCO has provided a summary of information it will need and questions for Natalie and Curtis. An all$-$day meeting is scheduled for next week. Natalie and Curtis have come to you to help with gathering the requested documents and information and responding to PIBCOs questions. Following is the initial information request provided by PIBCO: $1.$ Balance sheets for the past two years$2.$ Income statements for the past three years$3.$ Statements of retained earnings for the past three years$4.$ Statements of Cash Flows for the past three years$5.$ Horizontal and Vertical analysis of the balance sheets and income statements$6.$ Financial statement ratios:a$.$ Working capitalb. Current ratioc. Inventory turnoverd. Days in inventorye. Accounts receivable turnoverf. Average collection periodg. Debt to assets ratioh. Times interest earnedi. Free cash flowj. Earnings per sharek. Gross profit ratel. Profit marginm. EBITDAn. Return on assetso. Asset turnoverp. Payout ratioq. Return on common stockholders equityPIBCO also wants to discuss the following:I. The Quality of Earnings for the past three years.II$.$ The Internal Controls in place or planned as a public company.III. The factors that will be considered to determine the IPO stock price.INSTRUCTIONSIn a brief memo not to exceed $3$ pages, explain to Natalie and Curtis the following:$1.$ Why PIBCO needs the financial statements listed in #$1$ to $4.$ What is the objective of each financial statement? What is reported on each financial statement? $2.$ Why PIBCO needs a horizontal and vertical analysis described in #$5$ of the balance sheets and income statements. What is horizontal analysis? What is a vertical analysis? What are the objectives of these analyses?$3.$ Why PIBCO needs the ratios described in #$6.$ How is each ratio calculated? What is the objective of each ratio? $4.$ Why PIBCO needs to discuss the Quality of Earnings for the past three years. What does this mean? What types of financial information, events or transactions should be discussed? $5.$ Why PIBCO needs to discuss Internal Controls. What are Internal Controls? What are the key principles of Internal Control Activities? $6.$ What factors should be considered in determining the IPO price?