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Ratio Analysis

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In order to determine how risky Company A is that you are auditing, you prepare these five ratios along with the same ratios of this company's peers.
Company A Peers

Day's Sales in Receivable Index 1.51 1.05
Gross Margin Index 1.98 1.11
Asset Quality Index 1.21 1.01
Sales Growth Index 1.53 1.19
Total Accruals to Total Assets 0.11 0.06.

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Solution Summary

The response addresses the ratio analysis of a company posted in 625 words with references.

Solution Preview

The response addresses the queries posted in 625 words with references.

// Ratio Analysis is an effective tool that is used by the experts and the investors to judge the financial position of the companies. Auditors view it as a tool for evaluating the financial statement of the companies. Thus, we should analyze the given ratios of Company A, against the standards and its peers; and should identify the risks associated with the company, in the following manner: //

Day's sale in receivable index, gross margin index, asset quality index, sales growth index, total accruals to total assets are useful in analyzing the risk associated with the company's financial position. Beneish research indicates that it is better if these ratios lay around their mean index and if they are above, then a thorough auditing is required. Beneish research made on public companies' financial data suggests that higher ratios are an indication of ...

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  • MBA (IP), International Center for Internationa Business
  • BBA, University of Rajasthan
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