Following are the auditor’s calculations of severalkey ratios for Cragston Star Products. The primary purpose of this information is tounderstand the client’s business and assess the risk of financial failure, but any otherrelevant conclusions are also desirable.Ratio 2013 2012 2011 2010 20091. Current ratio 2.08 2.26 2.51 2.43 2.502. Quick ratio .97 1.34 1.82 1.76 1.643. Times interest earned 3.50 3.20 4.10 5.30 7.104. Accounts receivable turnover 4.20 5.50 4.10 5.40 5.605. Days to collect receivables 86.90 66.36 89.02 67.59 65.186. Inventory turnover 2.03 1.84 2.68 3.34 3.367. Days to sell inventory 179.80 198.37 136.19 109.28 108.638. Net sales divided by tangible assets .68 .64 .73 .69 .679. Profit margin .13 .14 .16 .15 .1410. Return on assets .09 .09 .12 .10 .0911. Return on equity .05 .06 .10 .10 .1112. Earnings per share $4.30 $4.26 $4.49 $4.26 $4.14a. What major conclusions can be drawn from this information about the company’sfuture?b. What additional information would be helpful in your assessment of this company’sfinancial condition?c. Based on the preceding ratios, which aspects of the company do you believe shouldreceive special emphasis in the audit?
Following are the auditor’s calculations of several
key ratios for Cragston Star Products. The primary purpose of this information is to
understand the client’s business and assess the risk of financial failure, but any other
relevant conclusions are also desirable.
Ratio 2013 2012 2011 2010 2009
1.
2. Quick ratio .97 1.34 1.82 1.76 1.64
3. Times interest earned 3.50 3.20 4.10 5.30 7.10
4. Accounts receivable turnover 4.20 5.50 4.10 5.40 5.60
5. Days to collect receivables 86.90 66.36 89.02 67.59 65.18
6. Inventory turnover 2.03 1.84 2.68 3.34 3.36
7. Days to sell inventory 179.80 198.37 136.19 109.28 108.63
8. Net sales divided by tangible assets .68 .64 .73 .69 .67
9. Profit margin .13 .14 .16 .15 .14
10. Return on assets .09 .09 .12 .10 .09
11. Return on equity .05 .06 .10 .10 .11
12. Earnings per share $4.30 $4.26 $4.49 $4.26 $4.14
a. What major conclusions can be drawn from this information about the company’s
future?
b. What additional information would be helpful in your assessment of this company’s
financial condition?
c. Based on the preceding ratios, which aspects of the company do you believe should
receive special emphasis in the audit?
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