Douglas C. Mather, founder, chair, and chief executive of Fly-by-Night International Group (FBN), lived the fast-paced, risk-seeking
Question:
In mid-Year 14, however, FBN began a rapid descent. Although still growing rapidly, its cash flow was inadequate to service its debt. According to Mather, he was just dumbfounded. There was never an inkling of a problem with cash.
In the fall of Year 14, the board of directors withdrew the companys financial statements for the year ending April 30, Year 14, stating that there appeared to be material misstatements that needed investigation. In December of Year 14, Mather was asked to step aside as manager and director of the company pending completion of an investigation of certain transactions between Mather and the company. On December 29, Year 14, NASDAQ (over-the-counter stock market) discontinued quoting the companys common shares. In February, Year 15, following its investigation, the board of directors terminated Mathers employment and membership on the board.
Exhibits 5.315.33 present the financial statements and related notes of FBN for the five years ending April, Year 10, through April, Year 14. The financial statements for Year 10 to Year 12 use the amounts originally reported for each year. The amounts reported on the statement of cash flows for Year 10 (for example, the change in accounts receivable) do not precisely reconcile to the amounts on the balance sheet at the beginning and end of the year because certain items classified as relating to continuing operations on the balance sheet at the end of Year 9 were reclassified as relating to discontinued operations on the balance sheet at the end of Year 10. The financial statements for Year 13 and Year 14 represent the restated financial statements for those years after the board of directors completed its investigation of suspected material misstatements that caused it to withdraw the originally issued financial statements for fiscal Year 14. Exhibit 5.34 lists the members of the board of directors. Exhibit 5.35 presents profitability and risk ratios for FBN.
REQUIRED
Study these financial statements and notes and respond to the following questions:
a. What evidence do you observe from analyzing the financial statements that might signal the cash flow problems experienced in mid-Year 14?
b. Can FBN avoid bankruptcy during Year 15? What changes in the design or implementation of FBNs strategy would you recommend? To compute Altmans Z-score, use the low-bid market price for the year to determine the market value of common shareholders equity.
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial... Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...
Step by Step Answer:
Financial Reporting Financial Statement Analysis and Valuation a strategic perspective
ISBN: 978-1337614689
9th edition
Authors: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw