4-1 Activity: WorldCom Spreadsheet Analysis

Overview

Using Excel and WorldCom’s income statement and balance sheet for 2001, provided on pages F-2 and F-3 of

Form

10

-K

, prepare a common-size balance sheet and income statement for the years 2000 and 2001. Using formulas, compute the following ratios: gross margin percent, return on sales, return on assets, return on equity, total asset turnover, accounts receivable turnover, accounts receivable days, debt to assets, equity to assets, debt to equity, equity multiplier, current ratio, acid test, net working capital, book value per share, earnings per share, and price earnings.

Address the following questions and include your Excel spreadsheets in your submission as exhibits.

1. What did you learn about the relationship between the income statement and balance sheet?
2. Does your analysis raise any questions that might lead to a fraud hypothesis? Explain.

What to Submit

Your submission should be a 1–2 page Microsoft Word document with double spacing, 12-point Times New Roman font, and one-inch margins. Any sources used must be cited in APA format. Include your Excel spreadsheets as exhibits.

Module Four Activity Rubric

)

Financial Statement Analysis

Relationship Between the Income Statement and Balance Sheet

30

Fraud Hypothesis

30

Articulation of Response

10

100%

Criteria	Exemplary (	100%	Proficient (90%)	Needs Improvement (70%)	Not Evident (0%)	Value
Meets “Proficient” criteria and demonstrates thorough understanding of the ratios	Prepares common-size financial statements and computes ratios for gross margin percent, return on sales, return on assets, return on equity, total asset turnover, accounts receivable turnover, accounts receivable days, debt to assets, equity to assets, debt to equity, equity multiplier, current ratio, acid test, net working capital, book value per share, earnings per share, and price earnings	Does not include common-size financial statements and/or all required ratios	Does not include common-size financial statements or ratios			30
Meets “Proficient” and demonstrates nuanced understanding of relationship between the income statement and balance sheet	Explains relationship between the income statement and balance sheet	Discusses financial statement analysis within each financial statement but does not explain relationship between the income statement and the balance sheet	Does not discuss financial statement analysis or explain relationship between the income statement and balance sheet
Meets “Proficient” criteria and substantiates ideas with research	Explains how analysis may lead to a fraud hypothesis	Explanation of fraud hypothesis lacks detail	Does not explain how analysis may lead to a fraud hypothesis
Submission is free of errors related to citations, grammar, spelling, syntax, and organization and is presented in a professional and easy-to-read format	Submission has no major errors related to citations, grammar, spelling, syntax, or organization	Submission has major errors related to citations, grammar, spelling, syntax, or organization that negatively impact readability and articulation of main ideas	Submission has critical errors related to citations, grammar, spelling, syntax, or organization that prevent understanding of ideas
Total: