Chapter 14, Problem 14.4BYP

As the CPA for Gandara Manufacturing Inc., you have been asked to develop some key ratios from the comparative financial statements. This information is to be used to convince creditors that the company is solvent and will continue as a going concern. The data requested and the compu­tations developed from the financial statements follow.

	2017	2016
Current ratio	3.1 times	2.1 times
Acid-test ratio	.8 times	1.4 times
Asset turnover	2.8 times	2.2 times
Net income	Up 32%	Down 8%
Earnings per share	$3.30	$2.50

Instructions

With the class divided into groups, complete the following.

Gandara Manufacturing Inc. asks you to prepare a list of brief comments stating how each of these items supports the solvency and going-concern potential of the business. The company wishes to use these comments to support its presentation of data to its creditors. You are to prepare the comments as requested, giving the implications and the limitations of each item separately. Then prepare a collective inference that may be drawn from the individual items about Gandara’s solvency and going-concern potential.