Charles Nicholls, chief investment officer of Gertmann Money Management, is reviewing the year-end financial statements of Zartner Canneries. In those statements he sees a sharp increase in inventories well above the sales-growth rate, and an increase in the discount rate for its pension assets. To determine whether or not Zartner Canneries is cooking the books, what should Nicholls do? A) Check Zartner’s cash-flow statement and review its footnotes. B) Calculate Zartner’s turnover ratios and review the footnotes of its competitors. C) Analyze trends in Zartner’s receivables and consider the changing characteristics of its work force. D) Rerun his own model of the stock-market’s growth rate and consider Zartner’s historical current ratios.
B
a
A
a? they can’t ban god.
Your answer: A was incorrect. The correct answer was B) Calculate Zartner’s turnover ratios and review the footnotes of its competitors. To assess the meaning of the inventory increase, look for declines in industry turnover. And if Zartner changes its pension assumptions, Nicholls should see how those new assumptions compare to those found in the footnotes of financial statements from other companies in the same industry.
shizzle my nizzle
B? check for inventory being obsolete?