Go to www.sec.gov and obtain WorldComs Form 10- K405 for 2001. Using the income statement found on

Question:

Go to www.sec.gov and obtain WorldCom’s Form 10- K405 for 2001. Using the income statement found on page F- 2 and the balance sheet found on page F- 3 of the 10- K405 form:

a. Prepare a common- size balance sheet and in-come statement for years 2000 and 2001.

b. Compute the following financial ratios for years 2000 and 2001:

Profitability

• Gross margin percent

• Return on sales

• Return on assets

• Return on equity

Efficiency

• Total asset turnover

• Accounts receivable turnover

• Accounts receivable days Leverage

• Debt to assets (including minority interest and preferred)

• Equity to assets

• Debt to equity

• Equity multiplier Liquidity

• Current ratio

• Acid test (quick) ratio

• Net working capital

Equity

• Book value per share

• Earnings per share

• Price to earnings

c. Does your analysis raise any questions that might lead to a fraud hypothesis? Explain.

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