The attached is the Excel worksheet for Janel Janitorial’s balance sheet and income statement included in the case study. Use this worksheet to perform the following analyses.
1. Horizontal Analyses for 5 years.
2. Vertical Analyses for 5 years both for the balance sheet (using the total asset as the benchmark) and income statement (with total sales).
3. Ratio analyses – Use 1) Professor Grove and Cook’s 6 ratios for red flags for reporting problems and financial performance (e.g. gross margins and sales growth, PE ratios, profit margines, etc.), and 2) ‘Beneish’s 5 statistically significant ratios for catching earnings management’ in the textbook (page 4-44).*
*Note: If the case does not provide sufficient informaton to calculate a ratio, you can simply document that and skip the ratio (e.g. PE ratio). But when most, if not all, of the numbers needed for a ratio are available in the case, calculate the ratio using the available information.
After the analyses, identify the areas that suggest further investigation of irregular activities (errors or fraud). Also document anything else you noticed on Janet Janitorial’s financial statements.
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