Pinnacle Manufacturing Part

Part I. c Summary of Observations Including Assessment of Business adventure Based on the financial dimensions calculated, it appears that Pinnacle Manufacturing (the corporation) is both use up cash as draws and increasing its debt. The Cash Ratio has declined each of the historic three years indicating that the confederacy has a decreasing ability to net profit profit its modern liabilities from cash and get out be required to get assets to indemnify off current liabilities. The latest Ratio has also declined each of the demise three years. In 2009, it was 218. % or 2. 186. This means that for every dollar of current liabilities the Company had $2. 18 in current assets with which to pay those liabilities. line of descent dollar volume has declined from 4. 04 times per year in 2009 to 3. 78 times per year in 2011. This would seem to indicate that sales are slowing and inventory is non being sold as quickly as in former years. This is further supported by the incr easing Days to Sell Inventory takings. In 2009 Days to Sell Inventory was 90. 44 and had grown to 96. 48 days in 2011.This makes it classical to assess inventory obsolescence in depress of these numbers. Debt to Equity has increased signifi fuckingtly from 2009 to 2011. In 2009, the Debt to Equity Ratio was 70. 81%. In 2011, it had grown to 96. 48%. This capacity indicate that the Company does not have room to continue to borrow should it need cash to operate. If acceptance is not available as a financing tool, it is probable that the Company might need to look to its stockholders for additional cash or lose to more(prenominal) costly forms for financing. Gross Profit Margins have declined from 29. 1% in 2009 to 27. 5% in 2011. This ratio is helpful analytically to indicate that come-at-able mis asseverations might exist in the areas of sales, COGS, A/R and inventory. As far-famed above there is already a negative trend in inventory for the Company. Similarly, Profit Margi n for the Company has declined from 3. 77% to 2. 84% amongst 2009 and 2011. A decline in profit margin can emblem misstatements in various operating expense accounts and balance sheet items. It can also simply signal a declining business trend for the Company.Return on Assets shows the Companys ability to generate a profit ground on assets and equity. In 2009, the Companys profit margin was 3. 07% and in 2011 it had fallen to 1. 91%. Overall, the Company appears to have slowing sales lead to growing inventory. The Company is increasing its debt burden to help cash bunk since sales seem to be declining and inventory is growing. The profitability of the Company is declining steadily. Finally, if the Company finds itself in default of any loan covenants it will have to liquidate assets to pay its debts.Forced asset sales are never beneficial to the marketer and would only exacerbate the already declining business trends of the Company. Part I. f What selective information is More Useful in Evaluating the Potential for Misrepresentations? We believe that each set of data has its strengths and weakness. The balance sheet data available for Pinnacle Manufacturing is highly helpful in evaluating whether certain income statement items could be misstated. As an example, to have a go at it the trend in the asset Accounts Receivable Trade made evaluating the income statement item Bad Debt expense easier.As a concludent, the financial data for the name Pinnacle could be cross-referenced more easily. However, the subsidiary income statements allow greater expatiate into the business components that make up Pinnacle. A possible oerstatement in one account for one of the subsidiaries could be cancelled out by a similar understatement in the in the same account for other subsidiary. When the numbers are rolled-up to the parent company, there might not be a noticeable problem in the account. As a result possible insufficient planning would result.With the subsidiar y information, an analyse of each be account could result in a more accurate number for the parent company. This would appear to help acceptable audit risk for the audit firm. ? Part I. g Observations based on Accounts Receivable, Inventory and Short/Current Long-term Debt Accounts Receivable Trade has grown in absolute dollar summation from just under $9. 6 Million in 2010 to everywhere $14 Million in 2011. As a result, we believe it is important to look at the reasonableness of the allowance for bad debts and bad debt expense.Confirmation of balances with customers will help to uncover any discrepancies between Pinnacle and its customers about amounts owed and paid. This could strike the internal control over posting of payments at Pinnacle and whether the currency is being diverted through fraud. Inventory has grown from slightly over $25 Million at year-end in both 2009 and 2010 to more than $32 Million in 2011. Growing inventory could be indicative mood of inventory obs olescence. Obsolete inventory would be subject to a repose in value. We would want to explore these areas.We have identified Inventory as an area of possible misstatement for Pinnacle. Short/Current Long-term debt has increased from 2009 and 2010 levels in 2011. In 2009 and 2010, the short/current portion of long-term debt was only $41,070. In 2011 it had increased to almost $4 Million. We are interested that a misstatement has occurred. If the amount is correct, we would want to ascertain why the sudden increase. If it is due to a plan one-time balloon payment being due it is less of a concern than if a loan has been accelerated due to default or blow to meet certain loan covenants.The long-term solvency of Pinnacle depends on the success of its operations to raise capital for future growth and expansion as well as its ability to make payments on its debts. If Pinnacle is in default and a loan has been called or accelerated it would negatively continue the Companys ability to borrow in the future. ? Part I. h Going Concern Issue We assess the likelihood that Pinnacle is likely to fail financially in the next twelve months as low. turn many of the items discussed indicate that Pinnacle has or so financial problems, its current ratio is still well over 1.It might be holding virtually obsolete inventory but even obsolete inventory has some value to generate cash. In twelve months, if the Company does not resolve its growing inventory issues and possibly rework some of its debt deals, the decision might be different. Currently, sales are growing as is Income from operations and net income. The Company has a positive cash flow which buys it time to enterprise to fix its underlying problems. Inattention to these details could cause us to return this question next year with a more dire answer.