Analytical Procedures—Ratio Analysis Form

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ANALYTICAL PROCEDURES—RATIO ANALYSIS FORM

The auditor can use this form to document the performance and evaluation of ratio analysis in connection with analytical procedures performed in an audit. The form is only a guide and is not a substitute for professional judgment. The form may be modified by adding or omitting certain ratio analysis.

AUDITING COURSE PROJECT
GROUP B:

CLIENT NAME:| Pinnacle Manufacturing Company|

DATE OF FINANCIAL STATEMENTS:| July 15, 2009|

LIQUIDITY RATIOS

2009| 2008| 2007| |
1.Current ratio =| | | | |
Current Assets| | | | |
Current Liabilities| 1716| 2056| 2203| |

Comments:
Since the current ratio is greater one, it suggests that the company will | be able to pay off its obligations.|
|

2009| 2008| 2007| |
2.Quick or acid test ratio =| | | | |
Current Assets - Inventory| | | | |
Current Liabilities| 0.635| 0.795| 0.895| |

Comments:
When the ratio is less than one it means the company cannot pay their| current liabilities.|
|

PROFITABILITY RATIOS

2009| 2008| 2007| |
1.Gross profit ratio =| | | | |
Net Sales - Cost of Goods Sold| | | | |
Net Sales| 0.298| 0.298| 0.295| |

Comments:
The company retains about $0.30 from every $1.00 towards paying off| selling, general, and administration expenses, interest expenses and| distributions to shareholders.|

2009| 2008| 2007| |
2.Operating margin ratio =| | | | |
Income before Income Taxes and Interest| | | | |
Net Sales| 0.041| 0.044| 0.038| |

Comments:
The company has a higher financial risk because of the low operating | margin.|
|

2009| 2008| 2007| |
3.Net income ratio (or profit margin ratio) =| | | | | Net Income| | | | |
Net Sales| 0.022| 0.018| 0.012| |

Comments:
There is a slight profit for the year.|
|
|

2009| 2008| 2007| |
4.Return on total assets ratio =| | | | |
Net Income + Interest Expense| | | | |
Total Assets| 0.050| 0.051| 0.041| |

Comments:
The company earns about $0.05 for each $1.00 of assets.| |
|

2009| 2008| 2007| |
5.Return on equity ratio =| | | | |
Net Income| | | | |
Average Stockholders’ Equity| 0.058| 0.047| 0.029| | | | | | |

Comments:
The company generates between $0.06 - $0.03 profits with the amount | that shareholder has invested.|
|

LEVERAGE RATIOS

2009| 2008| 2007| |
1.Debt to assets ratio =| | | | |
Total Debt| | | | |
Total Assets| 0.458| 0.412| 0.413| |

Comments:
For each year reported, the total debt to assets ratio is less than 50%. | This is favorable as the higher the ratio the more debt the company has.| |

| 20__| 19__| 19__|
2.Debt to equity ratio =| | | | |
Long-Term Debt| | | | |
Stockholder’s Equity| _____| _____| _____| _____|

Comments:
|
|
|

20__| 20__| 19__| 19__|
3.Times interest earned ratio =| | | | |
Income before Income Taxes and Interest| | | | |
Interest Expense| _____| _____| _____| _____|

Comments:
|
|
|

ACTIVITY RATIOS

20__| 20__| 19__| 19__|
1.Inventory turnover =| | | | |
Cost of Goods Sold| | | | |
Average Inventory| _____| _____| _____| _____|

Comments:
|
|
|

20__| 20__| 19__| 19__| 2.Average age of inventory =| | | | |...
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