"Q.1A.1Analytical procedures are an important type of evidence on an audit. They involve a comparison of recorded values with expectationsdeveloped by the auditor. They consists of evaluations of financial information made by a study of plausible relationships among bothfinancial and nonfinancial data. For example, the current-year accounts receivable balance can be compared to the prior-years' balancesafter adjusting for any increase or decrease in sales and other economic factors.Analytical procedures are one of many financial audit processes which help an auditor understand the client's business and changes inthe business, and to identify potential risk areas to plan other audit procedures.Analytical procedures include comparison of financial information (data in financial statement) withprior periods budgets forecasts similar industries and so on.Risk assessment procedures are used to assist the auditor to better understand the business and to plan the nature, timing and extent ofaudit procedures.Substantive analytical procedures are used to obtain evidential matter about particular assertions related to account balances or classesof transactions.Final analytical procedures are used as an overall review of the financial information in the final review stage of the audit.RatioCurrent ratio= current assets/ current liabilities quick ratio= cash short term marketable securities+ accounts receivable current liabilitiesCash ratio =cash short term marketable securitycurrent liabilities Debt to assets ratio = Total liability Total assets Debt to capital ratio =Total debttotal debt total shareholders'equity TOTAL DEBT= notes payable current portion of long term debt long term debt debt to equity ratio = Total debt total shareholders' equity Interest coverage ratio =Earnings before interest and taxes interest paymentsgross profit ratio= gross profitnet revenueoperating profit ratio=Operative profit EBIT= net profit income taxes+in terst expensesNet revenue net profit ratio = net profit net revenue return on assets(ROA)= net profit total assets return on equity = net profit total stock holders equity inventory turnover ration= COGS avg. inventory Receivables turnover ratio = Net revenueAverage receivables assets turnover = net revenue Avg. total assetsRATIO ANALYSIS 2013 2014 2015 CURRENT RATIO 5385938 1.424851 7509150 1.466559 9600929 1.6843743780000 5120250 5700000 Quick ratio 3129750 0.827976 4837788 0.944834 5420429 0.9509523780000 5120250 5700000Cash ratio 647250 0.17123 517788 0.101126 347120 0.0608983780000 5120250 5700000 Debt to assets ratio 3780000 0.292343 5120250 0.321949 13200000 0.50481912930000 15903900 26147991 debt to capital ratio 3780000 0.292343 5120250 0.321949 13200000 0.50481912930000 15903900 26147991 debt to equity ratio 3780000 0.413115 5120250 0.474816 13200000 1.0775089150000 10783650 12250491 interest coverage ratio 3454650 40.94206 3357037 40.12571 3867337 4.78608384379 83663 808038 gross profit ratio 6004500 17.55086 6079500 16.12621 6604500 15.1969134212000 37699500 43459500 Operating profit 3454650 10.09777 3357037 8.904726 3867337 8.89871534212000 37699500 43459500 Net profit 2359190 6.895797 2291362 6.077964 2972183 6.83897234212000 37699500 43459500 Return on assets 2359190 18.24586 2291362 14.40755 2972183 11.3667712930000 15903900 26147991 Return on Equity 2359190 25.7835 2291362 21.24848 2972183 24.261759150000 10783650 12250491 inventory has been taken at actual value ignoringInventory turover ratio 28207500 11.93968 37699500 13.4774 36855000 8.815931 obsolescence2362500 2797238 4180500comment:receivables turnoverratio 34212000 12.92238 37699500 8.322185 43459500 9.8313542647500 4530000 4420500 provision for doubtful debts has been ignored Assets turnover ratio 34212000 2.64594 37699500 2.370456 43459500 1.66205912930000 15903900 26147991 Activity Ratios As you can see from Table 1, the activity ratios are “turnover” ratios that relate an income statement line item to a balance sheet line item. Theincome statement measures performance over a specified period, whereas the balance sheet presents data as of one point in time.The activity ratios measure the rate at which the company is turning over its assets or liabilities. In other words, they present how many timesper year inventory is replenished or receivables are collected.Inventory turnoverA higher turnover than the industry average means that inventory is sold at a faster rate, signaling inventory management effectiveness.Additionally, a high inventory turnover rate means less company resources are tied up in inventory. However, there are usually two sides to thestory of any ratio. Going forward, a decrease in inventory or an increase in cost of goods sold will increase the ratio, signaling improvedinventory efficiency (selling the same amount of goods while holding less inventory or selling more goods while holding the same amount ofinventory).In the given case inventory turn ratio is decreasing so there is increase in cost of good.Receivables turnoverThis ratio is a measure of how quickly and efficiently a company collects on its outstanding bills. The receivables turnover indicates howmany times per period the company collects and turns into cash its customers’ accounts receivable.A very high receivables turnover ratio can also mean that a company’s credit policy is too stringent, causing the firm to miss out on salesopportunities. Alternatively, a low or declining turnover can signal that customers are struggling to pay their billsPayables turnoverOur payables turnover of 5.8x suggests that, on average, the firm used and paid off the credit extended 5.8 times during the period or onceevery 63 days (365 days ÷ 5.8). The payables turnover increases as more purchases are made or as a company decreases its accountspayable.An unusually high ratio may suggest that a firm is not utilizing the credit extended to them, or it could be the result of the company takingadvantage of early payment discounts. A low payables turnover ratio could indicate that a company is having trouble paying off its bills or that itis taking advantage of lenient supplier credit policies. In the given case ,this ratio is increasing than decreasingAsset turnoverA low asset turnover ratio may mean that the firm is inefficient in its use of its assets or that it is operating in a capital-intensive environment. Liquidity RatiosLiquidity ratios are some of the most widely used ratios, perhaps next to profitability ratios. They are especially important to creditors. Theseratios measure a firm’s ability to meet its short-term obligations.The level of liquidity needed varies from industry to industry. Certain industries are more cash-intensive than othersCurrent ratioA low current ratio indicates that a firm may have a hard time paying their current liabilities in the short run and deserves furtherinvestigation. A current ratio under 1.00x A high ratio indicates a high level of liquidity and less chance of a cash squeeze. A current ratio that is too high, however, may indicate thatthe company is carrying too much inventory, allowing accounts receivables to balloon with lax payment collection standards or simplyholding too much in cash. Although these issues will not typically lead to insolvency, they will inevitably hurt the company’s bottom line. "