2869 words 12 pages
| TMH Assignment | Spring 2010 | | Bella SongYi Wang | 3/2/2010 |

This memorandum is presented in order to assess the risk Triangle Manufactured Homes (TMH) is engaged in. To assess the risk, we have thoroughly gone through the Company’s annual report and selected analyses of its financial condition and results of operations. These analyses have become the base of the level of risks that we determine TMH is exposed of.

Business Analysis
According to the Company’s annual report, TMH is a business that engages in the retailing of manufactured homes. It is one of the leading players in the manufactured homes industry, representing about 45 percent of the total U.S. market. Operating a total of 114 retail sales
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Under the accounting policy, TMH makes necessary estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. For example, estimated warranty costs are accrued at the date of sale based on historical warranty experience and current industry trends. Estimated volume rebates are also accrued based on prior experience with the manufacturers.

Income Statement Elements
The annual report of the Company’s 2007 operation emphasizes that its sales have not dropped in the downturn of the U.S. economy; on the contrary, the sales have even increased about 50% from $176.6 million to $267 million during 2007. Because of the increased material prices and spending in business as general, the profit margin has dropped almost 60% to 2.1% in years 2006 and 2007. The two changes mentioned above are the main reasons why earnings per share decreased sharply in 2007.

Due to the business characteristics, most of the Company’s sales are credit sales; therefore, sales transactions are very complicated. The revenue recognition method is clearly disclosed in the notes and complies with FASB regulations. Potential credit risk related to the sales recognition can be inferred in the notes. However, no adequate information can be found regarding the rising cost of sales. The increase of selling, general and administrative cost was caused by the investment on marketing and managing the expanding of the Company, according to