The following financial ratios have been calculated for Nova Ltd for the year ended 30 June 2008:Ratio ActualresultsBudgetedresultsPreviousyearIndustry AverageCurrent ratio 1.97 1.92 1.87 1.92Quick asset ratio 1.06 1.06 1.06 1.11Inventory turnover 4.21 4.91 4.86 4.76Net profit ratio 0.05 0.03 0.03 0.03Gross margin 0.65 0.59 0.61 0.61Required:Provide four (4) possible explanations for the results of the various ratios for Nova Ltd and explaintheir implications for the audit.
The following financial ratios have been calculated for Nova Ltd for the year ended 30 June 2008:Ratio ActualresultsBudgetedresultsPreviousyearIndustry AverageCurrent ratio 1.97 1.92 1.87 1.92Quick asset ratio 1.06 1.06 1.06 1.11Inventory turnover 4.21 4.91 4.86 4.76Net profit ratio 0.05 0.03 0.03 0.03Gross margin 0.65 0.59 0.61 0.61Required:Provide four (4) possible explanations for the results of the various ratios for Nova Ltd and explaintheir implications for the audit.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
The following financial ratios have been calculated for Nova Ltd for the year ended 30 June 2008:
Ratio Actual
results
Budgeted
results
Previous
year
Industry Average
Quick asset ratio 1.06 1.06 1.06 1.11
Inventory turnover 4.21 4.91 4.86 4.76
Net profit ratio 0.05 0.03 0.03 0.03
Gross margin 0.65 0.59 0.61 0.61
Required:
Provide four (4) possible explanations for the results of the various ratios for Nova Ltd and explain
their implications for the audit.
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