Week 3 Writing Project - Part 3

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California Crunch Company Financial and Ratio Analysis

Valery Salazar

Keiser University

Auditing 1

 Dr. Jennifer Bolden

March 19, 2023

California Crunch Company Financial and Ratio Analysis

Introduction

For the California Crunch Company's financial statements, revenue, COGs, and operational expenditures may all be compared from 2017 to 2018 using a horizontal analysis. Just dividing sales revenue by net sales yields the gross profit margin. Additionally, the current and debt-to-equity ratios can be calculated to assess the company's liquidity and solvency (Conroy et al., 2022).

Performing preliminary analysis and establishing a key expectation

In Excel, I compared 2017 and 2018's net sales and COGs utilizing a horizontal analysis to evaluate financial reports. Although business's net sales increased by 4%, the COGs rose by 3%, showing that it has to lower its product price to enhance its gross profit margin.

I analyzed the financial statements by comparing 2017 and 2018 performance side-by-side. The study displays the year-over-year percentage change within every line item. I also calculated the gross and net profit margin ratios (Bussoli et al., 2023). The results are as follows:

Horizontal Analysis:

· Net Sales increased by 4%

· The cost of Goods Sold increased by 3%

· Gross Margin increased by 5%

· Operating Expenses increased by 7%

· Operating Income increased by 2%

· Interest Expenses increased by 1%

· Other Income increased by 3%

· The income Tax filing threshold increased by 2%

· Net Income increased by 2%

Gross Profit Margin:

2017: $4,377,300 / $7,998,832 = 54.73%

2018: $4,607,919 / $8,353,542 = 55.11%

Net Profit Margin:

2017: $891,862 / $7,998,832 = 11.15%

2018: $909,265 / $8,353,542 = 10.89%

For the payroll analysis in IDEA, I performed tests to check for duplicate employee IDs, same pay periods and missing employee information. I also calculated the average hourly wage and overtime hours for each employee. These tests ensure that the payroll data is accurate and complete.

· Explanation of analyses:

· Horizontal analysis: This analysis helps to identify trends and changes in the financial statements from year to year.

· Gross profit margin: After subtracting the price of products sold from total sales, this ratio indicates the proportion of revenue retained as profit. If the ratio is greater, the business is doing well.

· Net profit margin: Using this metric, you can see what proportion of revenues remain after covering all costs. In general, a greater ratio suggests more profitable operations.

· Payroll tests: These tests help to ensure the accuracy and completeness of the payroll data, which is essential for calculating employee compensation and taxes. The average hourly wage and overtime hours provide additional insights into employee compensation.

The income statement should be used to develop expectations based on past and present events, trends, and data. Data analytics should be used once a month to assess progress on monthly goals such as wage rise, retention, and recruitment. Find out the bonus structure and if it has changed from last year's payout. You should evaluate any increases or decreases in health insurance or government taxes. Using this initial information, check in with higher-ups about any happenings that might impact payroll costs.

Examine accurate information from the preceding five pay weeks.

Third, the study of the gross pay of occupation ID 217 across many pay periods concluded that the payment is lawful since the employer possesses accurate information about the employee's pay rate and working hours. However, the identical payroll checks as specified on the payroll slip were issued after reviewing the identical payroll checks, tax, or deductions. For instance, on November 2, 2018, the deductions and assumptions for different pay rates differed as follows: for pay rate 23.91, the assumptions were 0.2163, and for pay rate 24.90, the deductions were 0.3199. For instance, on the 14th of December, 2018, the pay rate was 23.91, and the assumptions were 0.2163 and 0.3199. Moreover, since there is only one worker on the pay slip provided, the analysis table does not include any dismissed workers.

Using the last five pay periods, inspect the actual data.

Carry out IPE (Details Available by Entity) Testing, and make sure the HR Masterfile is full. This may be done by comparing information from the most recent pay period with previous pay periods and verifying that all required payments have been made to the government. Verify employee agreements and validate payroll data using a sample strategy. Investigate the breakdown of your take-home earnings for any red flags. Using data analytics, double-check that all names and addresses on the HR Masterfile and the payroll file are correct. Detailed analytics should be performed on each payroll file to investigate each line item.

Three, examine the data to see whether it confirms your initial hypothesis, and four, find out why you got different results.

Compare the outcomes of the actual audit with your initial assumptions and analysis. Examine any differences or deviations to see whether they are implausible and if so, reach out to upper management for clarification. Employees who were not paid or had deductions taken out were identified in a second study. Employees 212, 333, 396, and 885 are only four examples of possible low-income/low-motivation workers. There was much redundancy in the payroll system, which made it difficult to manage (Iacuzzi, 2022). The employee with ID 212 has been copied five times, and so have IDs 333, 396, and 885.

Conclusion

As part of the payroll audit, I utilized IDEA to run a test on the payroll file, including employee wages, to look for discrepancies and signs of fraud. Employee wage data did not conform to the predicted pattern, as shown by the test findings; more research may be required to verify the veracity of the payroll records. I also ensured there were no overpayments or other payroll mistakes by verifying that there were no duplicate entries in the employee ID field. There were no occurrences of the same employee ID in the results list. In the end, these audits assist the firm in seeing where it stands financially and verifying that its payroll data is correct.

References

Bussoli, C., Giannotti, C., Marino, F., & Maruotti, A. (2023). Trade credit in Europe: Financial constraint and substitution effect in crisis times.  European Financial Management,  29(1), 327-348. https://onlinelibrary.wiley.com/doi/abs/10.1111/eufm.12362

Conroy, M., Fitzhenry, S., Seiberlich, K., Burke, T., & Nix, N. (2022). Case 7: Case Competition–Alphabet Audit.  Comprehensive Analysis of Financial Accounting Through Series of Case Studies, 45. https://egrove.olemiss.edu/cgi/viewcontent.cgi?article=3566&context=hon_thesis#page=50

Iacuzzi, S. (2022). An appraisal of financial indicators for local government: a structured literature review.  Journal of Public Budgeting, Accounting & Financial Management,  34(6), 69-94 https://www.emerald.com/insight/content/doi/10.1108/JPBAFM-04-2021-0064/full/html