Case Study No.19
(Solvency And Liquidity Analysis)
The Warnaco Group Inc.declared bankcruptcy in June 2001 soon after publishing its financial statements for its year ended December 31,2000.Warnaco Group’s financial data for 1997 through 1999 are presented in Exhibit 4P-4. a) Discuss whether the information provided in the exhibit provides any warning of the company’s eventual demise.Your answers should be based on an analysis of Warnaco’s 1998-1999 activity,solvency,liquidity,and profitability ratios. b) Briefly describe any anomalies or pecualiarities in Warnaco’s ratio and /financial data. c) Warnaco’s fiscal year 2000 annual report included the following revisions and restatements of previous years’ data: * The allowance for doubtful accounts was revised to $90,$86,and 94$ million for 1997-1999,respectively ,from the previously recorded amounts of ($46, $37,and $33 million) * COGS and SGA for 1999 were increased by $12.4 million and $ 5.3 million ,respectively.(Net income was not affected as income tax was reduced by $17.7 million) * Previous years’ equity was reduced by $26 million.
Discuss the relevance of these items to parts a and b.
Based on the question above,the case is required us to identify whether if there is any warning of the company eventual demise provided through the calculated ratios,and the ratios should be on the analysis on Warnaco’s 1998-1999 .Besides that,the case also required us to manipulate the ratios by our own and identify the effect occur with the ratio if there are any changes,which means by revisions and restatements on the balance sheet and income statements.
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