Read the brief case about Aardvark and Zebra companies at the end of chapter 8 and use the data provided to complete the following assignments:
a. describe any symptoms of fraud
b. draw a conclusion about fraud prediction and recommend next steps
91% 877-5 150 Identification of Red Flags Aardvark Company Zebra, Inc. Balance Sheet Year 1 Year 2 Analysis Year 1 Year 2 Analysis Assets-Cash 375 720 92% 375 720 92% Assets-Accounts Receivable 375 795 112% 375 495 32% Assets-Long-term 750 1350 80% 750 1,350 80% Assets 1,500 2,865 1,500 2,565 71% Liabilities-Current 600 1125 88% 600 1125 88% Liabilities-Long-term 300 562.5 88% 300 562.5 88% Liabilities 900 1,687.5 88% 900 1,687.5 88% Stockholders Equity 600 1,177-5 96% 600 46% Liabilities and Stockholders Equity 1,500 2,865 91% 1,500 2565 71% Income Statement Revenues 1,800 3,600 100% 1,800 3,300 83% Costs of Good Sold 750 1,387.5 85% 750 1,387-5 85% Gross Profit 1,050 2,212.5 111% 1,050 1,912.5 82% Operating Expenses 900 1,635 82% 900 1,635 82% Operating Income 577.5 285% 150 277-5 85% Analysis of Statement of Cash Flows Operating Income 150 577.5 285% 150 277.5 85% Depreciation * Operating Cash 37.5 -232.5 -720% 37-5 80% Operating Cash Flows 187.5 345 84% 187.5 345 84% Aardvark Company Zebra, Inc. Ratios Year 1 Year 2 Industry Year 1 Year 2 Industry Current Ratio 0.63 0.64 1.15 0.63 0.64 1.15 Debt-to-Assets Ratio 0.600 0.589 0.625 0.600 0.658 0.625 Return on Assets 10% 20% 10% 10% 11% 10% Gross Margin 58% 61% 58% 58% Operating Cash Flow/Income 125% 60% 125% 125% 124% 125% DuPont Expression Ratios Risk-Assets-to-Equity 2.50 2.43 2.75 2.50 2.92 2.75 Revenue Generation-Asset Turn 1.20 1.26 1.25 1.29 1.25 Profits-Profit Margin 8% 16% 8% 8% 8% Return on Equity 25% 49% 27% 25% 32% 27% Aardvark Company Zebra, Inc. Analysis of Nonfinancial Metrics Year 1 Year 2 Analysis Year 1 Year 2 Analysis Retail Square footage 85,500 157,500 84% 85,500 157,500 84% # Employees 1710 3112.5 82% 1710 3112.5 82% # Store locations 142.5 255 79% 142.5 255 79% 67.5 58% 58% 1.20 8% 91% 877-5 150 Identification of Red Flags Aardvark Company Zebra, Inc. Balance Sheet Year 1 Year 2 Analysis Year 1 Year 2 Analysis Assets-Cash 375 720 92% 375 720 92% Assets-Accounts Receivable 375 795 112% 375 495 32% Assets-Long-term 750 1350 80% 750 1,350 80% Assets 1,500 2,865 1,500 2,565 71% Liabilities-Current 600 1125 88% 600 1125 88% Liabilities-Long-term 300 562.5 88% 300 562.5 88% Liabilities 900 1,687.5 88% 900 1,687.5 88% Stockholders Equity 600 1,177-5 96% 600 46% Liabilities and Stockholders Equity 1,500 2,865 91% 1,500 2565 71% Income Statement Revenues 1,800 3,600 100% 1,800 3,300 83% Costs of Good Sold 750 1,387.5 85% 750 1,387-5 85% Gross Profit 1,050 2,212.5 111% 1,050 1,912.5 82% Operating Expenses 900 1,635 82% 900 1,635 82% Operating Income 577.5 285% 150 277-5 85% Analysis of Statement of Cash Flows Operating Income 150 577.5 285% 150 277.5 85% Depreciation * Operating Cash 37.5 -232.5 -720% 37-5 80% Operating Cash Flows 187.5 345 84% 187.5 345 84% Aardvark Company Zebra, Inc. Ratios Year 1 Year 2 Industry Year 1 Year 2 Industry Current Ratio 0.63 0.64 1.15 0.63 0.64 1.15 Debt-to-Assets Ratio 0.600 0.589 0.625 0.600 0.658 0.625 Return on Assets 10% 20% 10% 10% 11% 10% Gross Margin 58% 61% 58% 58% Operating Cash Flow/Income 125% 60% 125% 125% 124% 125% DuPont Expression Ratios Risk-Assets-to-Equity 2.50 2.43 2.75 2.50 2.92 2.75 Revenue Generation-Asset Turn 1.20 1.26 1.25 1.29 1.25 Profits-Profit Margin 8% 16% 8% 8% 8% Return on Equity 25% 49% 27% 25% 32% 27% Aardvark Company Zebra, Inc. Analysis of Nonfinancial Metrics Year 1 Year 2 Analysis Year 1 Year 2 Analysis Retail Square footage 85,500 157,500 84% 85,500 157,500 84% # Employees 1710 3112.5 82% 1710 3112.5 82% # Store locations 142.5 255 79% 142.5 255 79% 67.5 58% 58% 1.20 8%
