Problem:
2002 2001
Sales 1,000,000 1,200,000
COGS 800,000 960,000
Accounts Receivable 500,000 600,000
Net Income 52,000 103,000
# of shares outstanding 100,000 100,000
Upon computing the above ratios, the internal auditors found nothing suspicious and concluded that fraud didn't exist.
A. Compute the ratios listed above. Is there anything specific you see in the ratios that would indicate fraud?
Gross Profit Margin = Gross Profit/Net Sales= Net Sales - COGS/Net Sales
YR 2001: 1,200,000-960,000 = 0.7
YR 2002: 1,000,000-800,000 = 0.7
Accts Rec Turnover - Net Sales/Accts Rec
YR 2001: 1,200,000/500,000 = 2.4
YR 2002: 1,000,000/600,000 = 1.66
# of days in rec = Accts rec turnover/365
YR 2001: 2.4/365 = .006575342
YR 2002: 1.66/365 = .004547945
EPS = Net income/shares outstanding
YR 2001: 52,000/100,000 = 0.52
YR 2002:103,000/100,000 = 1.03