Pinnacle Manufacturing Part

breach I. c drumhead of Observations Including Assessment of Business Risk establish on the financial ratios calculated, it appears that Pinnacle Manufacturing (the political party) is both using up property as trammels and increasing its debt. The Cash dimension has declined to to each one one of the past three years indicating that the go with has a decreasing world power to even so take its true liabilities from interchange and will be required to liquidate assets to chip in off current liabilities. The Current Ratio has excessively declined each of the last three years. In 2009, it was 218. % or 2. 186. This means that for every one dollar bill of current liabilities the political party had $2. 18 in current assets with which to pay those liabilities. armoury employee turn everywhere has declined from 4. 04 times per year in 2009 to 3. 78 times per year in 2011. This would calculate to mention that sales ar retardant and broth is non being change as qu ickly as in prior years. This is further supported by the increasing Days to Sell list occur. In 2009 Days to Sell descent was 90. 44 and had grown to 96. 48 old age in 2011.This makes it important to esteem record obsolescence in light of these numbers. Debt to Equity has change magnitude significantly from 2009 to 2011. In 2009, the Debt to Equity Ratio was 70. 81%. In 2011, it had grown to 96. 48%. This efficiency indicate that the community does not restrain room to continue to fasten on should it collect gold to operate. If borrowing is not available as a funding tool, it is likely that the smart set might need to go through to its stockholders for additional cash or resort to more costly forms for financing. everlasting(a) Profit moldings have declined from 29. 1% in 2009 to 27. 5% in 2011. This ratio is laborsaving analytically to indicate that executable misstatements might exist in the field of battles of sales, COGS, A/R and entry. As noted above the re is already a negative rationalise in inventory for the Company. Similarly, Profit Margin for the Company has declined from 3. 77% to 2. 84% between 2009 and 2011. A decline in kale margin can signal misstatements in various operating write off marks and remainder sheet items. It can also entirely signal a declining transmission line path for the Company.Return on Assets shows the Companys faculty to generate a profit found on assets and equity. In 2009, the Companys profit margin was 3. 07% and in 2011 it had fall to 1. 91%. Overall, the Company appears to have diminish sales leading to growing inventory. The Company is increasing its debt burden to help cash flow 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 contribute covenants it will have to liquidate assets to pay its debts.Forced asset sales are never beneficial to the seller and would tota lly infuriate the already declining business trends of the Company. Part I. f What Data is More Useful in Evaluating the Potential for Misrepresentations? We believe that each set of info has its strengths and weakness. The balance sheet data available for Pinnacle Manufacturing is extremely assistive in evaluating whether certain income statement items could be misstated. As an example, to know the trend in the asset Accounts receivable Trade do evaluating the income statement item Bad Debt expense easier.As a result, the financial data for the put forward Pinnacle could be cross-referenced more easily. However, the auxiliary income statements allow greater detail into the business components that make up Pinnacle. A possible oerstatement in one account for one of the subsidiaries could be cancelled disc over 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 pro blem in the account. As a result possible meager planning would result.With the subsidiary information, an audit of each corresponding account could result in a more accurate number for the parent company. This would appear to help unexceptionable audit risk for the audit firm. ? Part I. g Observations based on Accounts Receivable, muniment and Short/Current long-run Debt Accounts Receivable Trade has grown in out-and-out(a) dollar summate from just under $9. 6 cardinal in 2010 to over $14 Million in 2011. As a result, we believe it is important to look at the reasonableness of the allowance for unsound debts and bad debt expense.Confirmation of balances with customers will help to divulge any discrepancies between Pinnacle and its customers round amounts owed and paid. This could impact the internal control over posting of payments at Pinnacle and whether the money is being diverted through fraud. Inventory has grown from slightly over $25 Million at year-end in both 200 9 and 2010 to more than $32 Million in 2011. Growing inventory could be indicative of inventory obsolescence. Obsolete inventory would be subject to a demoralise in time 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 miserable/current portion of long-term debt was only $41,070. In 2011 it had increased to almost $4 Million. We are concerned 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 scheduled one-time inflate payment being due it is slight of a concern than if a give has been accelerated due to default or fiture to meet certain give covenants.The long-term solvency of Pinnacle depends on the conquest of its operations to raise capital for forthcoming growth and expansion as salutary 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 impact 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 conterminous twelve months as low. While many of the items discussed indicate that Pinnacle has approximately financial problems, its current ratio is still well over 1.It might be holding some 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 force out income. The Company has a positive cash flow which buys it time to try to designate its underlying problems. Inattention to these details could pillow slip us to revisit this question next year with a more direful answer.