company Whole Food Market, find the data online and calculate AQI example Asset
ID: 2501029 • Letter: C
Question
company Whole Food Market, find the data online and calculate AQI
example
Asset Quality Index (AQI)
The AQI measures the proportion of total assets for which future benefits are uncertain. This index reflects the change in asset realization risk by comparing current assets and property, plant, and equipment with total assets. An AQI greater than 1 means the company has potentially deferred costs in an effort to increase the bottom line.
receivables current year/ sales current year Days' Sales in Receivables Index = ________________________________
receivables prior year/sales prior year
Companies in the study that manipulated earnings had median AQIs of 1 and mean of 1.254. The evidence of Enron's cost deferrals in 1997 is reflected in the AQI of 1.308.
Explanation / Answer
Assets quality index = Asset quality of current period / Asset quality for previous period
Asset quality = Non- current assets other than fixed assets / Total assets
Asset quality = 1- {(Current assets + Fixed assets) / Total assets}
The latest financials reported by the Whole Food market Inc. relates to the year ending September 30, 2015. The assets portion of balance sheet as on September 30, 2015 can be tabulated as below:
(in millions)
Assets
September 30,2014
September 30,2015
Current assets
$1,756.00
$1,544.00
Property plant and equipment
$2,923.00
$3,163.00
Other non-current assets
$1,065.00
$1,034.00
Total assets
$5,744.00
$5,741.00
Asset quality for year ending September 30, 2014 = 1 – {($1,756 + $2,923)/$5,744} = 1 – 0.8146 = 0.1854
Asset quality for year ending September 30, 2015 = 1 – {($1,544 + $3,163)/$5,741} = 1 – 0.8199 = 0.1801
Asset quality index for the year ending September 30, 2015 = 0.1801 / 0.1854 = 0.9714
Asset quality index less than 1 indicates that the company is not an accounting manipulator.
(in millions)
Assets
September 30,2014
September 30,2015
Current assets
$1,756.00
$1,544.00
Property plant and equipment
$2,923.00
$3,163.00
Other non-current assets
$1,065.00
$1,034.00
Total assets
$5,744.00
$5,741.00
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