Ch. 10 - Analytical Procedures

Question 1

Reliability - things to consider

Answer 1

1. how reliable is the information being analyzed
2. how reasonable is it to compare to benchmarks
3. how reliable is prior year information

Question 2

Annualizing

Answer 2

If analyzing part way through the year, income statement items need to be annualized

Question 3

Types of analytical procedures (3)

Answer 3

1. Horizontal analysis
2. Vertical analysis
3. Ratio analysis

Question 4

Accounts receivable turnover - calculation

Answer 4

net credit sales / average AR

Question 5

Inventory Turnover - calculation

Answer 5

COGS / average inventory

Question 6

Current ratio - calculation

Answer 6

current assets / current liabilities

Question 7

debt to equity ratio - calculation

Answer 7

total liabilities / total equity

Question 8

Gross profit margin - calculation

Answer 8

(revenue - COGS) / revenue

Question 9

General approach in a case setting (steps)

Answer 9

1. set your expectations
2. compute ratios
3. perform horizontal and vertical analysis
4. Interpret results