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Question 1

The table below shows an analysis of the Take-Two's 1998-2000 financial information:

Year
Item 1998 1999 2000

Age of Accounts ($49,139 x 365) ÷ $194,052 = ($107,799 x 365) ÷ $305,932 ($134,877 x 365) ÷ $387,006
Receivable 92.4 Days or 92 Days = 128.6 Days or 129 Days = 127.2 Days or 127 Days

(365 ÷ 7.43) = 49.1 Days or 49 (365 ÷ 7.40) = 49.3 Days or (365 ÷ 8.61) = 42.4 Days or
Age of Inventory
Days 49 Days 42 Days

Gross Profit ($46,496 ÷ $194,052) x 100 = ($90,810÷ $305,932) x 100 = ($139,210 ÷ $387,006) x 100
Percentage 23.96% 29.68% = 35.97%

Profit Margin ($7,181 ÷ $194,052) x 100 = ($16,332 ÷ $305,932) x 100 = ($24,963 ÷ $387,006) x 100 =
Percentage 3.7% 5.33% 6.45%

Return on Assets ($7,181 ÷ $109,385) = .065 ($16,332 ÷ $231,712) =.071 ($24,963 ÷ $351,641) =.071

Return on Equity ($7,181 ÷ $11,935) = .60 ($16,332 ÷ $11,935) = 1.37 ($24,963 ÷ $11,935) = 2.09

Current Ratio ($95,302 ÷ $73,505) = 1.29 ($187,970 ÷ $146,531) = 1.28 ($214,908 ÷ $152,023) = 1.41

Debt-to-Equity
($73,820 ÷ $11,925) = 6.19 ($146,609 ÷ $11,925) = 12.29 ($164,639 ÷ $11,925) = 13.80
Ratio

Quality-of-
($8,022 ÷ $7,181) = 1.11 ($16,748 ÷ $16,332) = 1.03 ($55,259 ÷ $24,963) = 2.21
Earnings ratio

There are three red flags in the financial statement of Take-Two’s. They include:

• The operational negative flow of cash

• Significant increase in receivable accounts in form of sales

• Increasing debt as indicated by the rising debt-to-equity ratio