Assignment 3: Audit Risk and Sampling Due Week 6 and worth 100 points In this assignment, you will prepare a two to three (2-3) page report that addresses the requirements specified in the case. Fully
Running head: BUSINESS ANALYSIS. 1
BUSINESS ANALYSIS
Teisha Robinson
Professor Bunney Schmidt
Acc 562 Advanced Auditing Strayer University
April 17, 2020
Business Analysis
Retail and wholesale industries are called the distribution industries. These industries are involved within the procedures of products distribution between the producer and therefore the consumer. The wholesale industries distribute the products to retailers, merchants, institutions, or other sectors (Huy, 2018).
They neither produce nor consume but rather act as intermediaries within the market. On the other hand, retail industries sell merchandise in smaller proportions to consumers for household or personal consumption to other businesses or institutions (Huy, 2018).
Various areas impact financial reporting. These include financial crisis, Management’s discussion, and analysis reverse mergers, backdoor registrations, valuation of equity transactions, and smaller reporting company status.
Cloud9 is a company of e-sports based in Los Angeles, California, formed in 2013. The company runs its activities across the states and internationally (Scholz, 2019). Financial ratios are essential in evaluating Cloud9 financial position and wellbeing. Economical rates that are used in measuring financial areas include liquidity ratio, leverage financial ratio, and profitability ratio (Liang, 2016).
Liquidity ratio defines the potential effect of how Cloud9 repays its future long term and current short-term debts. It is calculated through the present ratio, which is assets divided by present liabilities. Current liabilities are current assets minus current equity which is 0.5-1.0= -0.5. Negative means prepaid expenses (Liang, 2016).
Current ratio= 0.5/0.5=1.
The current ratio is 1 meaning Cloud9 can meet its short-term repayments.
The leverage financial ratio is calculated through the equity ratio. Equity ratio will measure how sustainable Cloud9’s business is. The equity ratio is calculated by dividing total equity by total assets.
The equity ratio is 1.0/0.5=2. This means that Cloud9 Inc. has a higher solvency level and is thus able to meet its long-term obligations. The Profitability ratio measures the ability of Cloud9 to generate income (Liang, 2016). They include EBITDA margin and Return on Investment. EBITDA is determined by dividing income before tax by revenue.
EBITDA is 5.0/0.5=100. This is a higher EBITDA, and it means Cloud9 generates a lot of cash per year. Return on sales is decided by the division of gross profits by total revenue.
Return on sales is 2.0/0.5*100%= 40%. Cloud9 Inc. generates 40 dollars of profits out of 100-dollar sales. This is often an honest to God profit. Thus, all the above financial ratios show that Cloud9 has good financial health and thus can outlive its competitors.
The major risks facing Cloud9 are untimely supply of products from suppliers, competition from major competitors, Unfavorable changes in technology, seasonal demand of products by customers and financial crises (Scholz, 2019).
References
Huy, D. T. N. (2018). Selecting Various Industrial Competitors Affect the Risk Level of Viet Nam Wholesale and Retail Industry During and After the Global Crisis 2007-2011. International Academic Journal of Innovative Research, 5(1), 60-68.
Liang, D., Lu, C. C., Tsai, C. F., & Shih, G. A. (2016). Financial ratios and corporate governance indicators in bankruptcy prediction: A comprehensive study. European Journal of Operational Research, 252(2), 561-572.
Reid, L. C., Carcello, J. V., Li, C., Neal, T. L., & Francis, J. R. (2019). Impact of auditor report changes on financial reporting quality and audit costs: Evidence from the United Kingdom. Contemporary Accounting Research, 36(3), 1501-1539.
Scholz, T. M. (2019). Conclusion: The Future of eSports. In eSports is Business (pp. 135-147). Palgrave Pivot, Cham.
