Course Project

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.

CLIENT NAME: | Pinnacle Manufacturing Company |

DATE OF FINANCIAL STATEMENTS: | |

LIQUIDITY RATIOS:

This ratio signifies the ability of a company to meet its short-term liabilities with its short-term assets. The formula for calculating current ratio kis shown below:

2011 | 2010 | 2009 | |

1. Current ratio = Current Assets Current Liabilities | 53,171743/ 30,413,148 | 41,625,107/ 21,526,804 | 41,406,199/ 18,941,595 | |

| = | = | = | |

| 1.75 | 1.93 | 2.19 | |

Comments:

A current ratio greater than or equal to one indicates that current assets should be able to satisfy short term obligations and vice versa. The current ratios in all the three years are greater than one. This indiated that Pinnacle was able to meet its short-term obligations in all the years. The ration however reduced consistently in all the three years. The reduction was as a result of an increase in all liabilities in all the three years.

2011 | 2010 | 2009 | |

2. Quick or acid test ratio = | | | | |

Current Assets – Inventory Current Liabilities | (53,171,743-32,236,021) /30,413,418 | (41,625,107-25,537,198) /21,526,804 | (41406,199-25271,503) /18,941,595 | |

| | | | |

= = =

0.69 0.75 0.85

Comments:

Quick ratio above one indicated that...