Reference no: EM13341956

You are the auditor of Globe Ltd, a manufacturer of colour printers. You have closely scrutinised the financial reports of the company and are concerned about its 'going concern status'. The summarised financial reports for the past three years plus the unaudited draft accounts for the current year are shown below.

Globe Pty Ltd
	2009	2010	2011	2012
Statement of Financial Performance $'000s
Sales	131	196	266	298
Cost of Goods Sold	(116)	(175)	(231)	(262)
Gross Profit	15	21	35	36
Other Expenses	(14)	(27)	(39)	(48)
Interest	(2)	(10)	(15)	(25)
Net Profit (Loss)	(1)	(16)	(19)	(37)
Statement of Financial Position $'000s	2009	2010	2011	2012
Current assets
Debtors	22	32	50	72
Inventory	25	35	52	63
Total current assets	47	67	102	135
Non-current assets
Property, plant and equipment	37	92	100	111
Total assets	84	159	202	246
Current liabilities
Creditors	40	45	82	112
Bank Overdraft	16	51	62	78
Total current liabilities	56	96	144	190
Non-current liabilities
Secured loan	0	50	50	50
Total liabilities	56	146	194	240
Capital and Reserves
Share capital	3	3	3	3
Retained earnings	25	10	5	3
Total Liabilities and Owners Equity	84	159	202	246

 
In an attempt to expand into overseas markets, Globe automated a lot of its operations in 2010 with the purchase of some highly sophisticated plant and machinery. The new plant and machinery was largely financed with a secured variable loan of $50,000 and a bank overdraft facility.

The company purchases the component parts that make up the printers from a variety of local and overseas suppliers. The company has plans to broaden its sales base (currently 85% of its sales are to one discount chain store) to both local and overseas markets. This broadening of the company's sales base revolves around the development and production of a state of the art printer that will be tailored to meet the needs of the top end of the market. The new printer however will require a significant amount of money that the directors hope will come via a new public issue of shares and promises of loans and other forms of assistance from business acquaintances of the CEO, Mr. Beam Laser.

Required:

1. For each year (2009, 2010, 2011 & 2012) calculate the following ratios: Net profit ratio, Gross profit ratio, Working Capital ratio, Quick asset ratio, Debt to total assets ratio.

2. With reference to each one of the five ratios in turn and the other information provided explain what the results of your calculations indicate for Globe Ltd's going concern.

3. What other audit techniques could the auditor use to indicate whether Globe Ltd has a going concern problem?