8-35 As part of the analytical procedures of Mahogany Products, Inc., you perform calculations of the following ratios
Part 2 The Audit process
8-35 As part of the analytical procedures of Mahogany Products, Inc., you perform calculations of the following ratios:
Industry Averages | Mahogany Products | |||
Ratio | 2007 | 2006 | 2007 | 2006 |
1. Current ratio | 3.30 | 3.80 | 2.20 | 2.60 |
2. Days to collect receivables | 87.00 | 93.00 | 67.00 | 60.00 |
3. Days to sell inventory | 126.00 | 121.00 | 93.00 | 89.00 |
4. Purchases divided by accounts payable | 11.70 | 11.60 | 8.50 | 8.60 |
5. Inventory divided by current assets | 0.56 | 0.51 | 0.49 | 0.48 |
6. Operating income divided by tangible assets | 0.08 | 0.06 | 0.14 | 0.12 |
7. Operating income divided by net sales | 0.06 | 0.06 | 0.04 | 0.04 |
8. Gross profit percentage | 0.21 | 0.27 | 0.21 | 0.19 |
9. Earnings per share | $14.27 | $13.91 | $2.09 | $1.93 |
Required For each of the preceding ratios:
a. State whether there is a need to investigate the results further and, if so, the reason for further investigation.
b. State the approach you would use in the investigation.
c. Explain how the operations of Mahogany Products appear to differ from those of the industry.
