Analytical Procedures—Ratio Analysis Form

11 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