What are common comparables that auditors use in ratio analysis?
The five (5) major categories in the financial ratios list include the following :
The most commonly used ratios by auditors are dividend yield, P/E ratio, earnings per share, and dividend payout ratio.
Question 16 One audit procedure commonly used by auditors is ratio analysis. How is this procedure useful? a. To expose management fraud. b. Identifying potential audit issues when ratios change significantly from year over year. c. Identifying significant differences between the client’s ratios and those of industry norms. d. Both b and c.
Auditors sometimes use ratios as audit evidence. For example, an unexplained DECREASE in the ratio of gross profit to sales may suggest which of the following possibilities? a. Fictitious purchases. b. Unrecorded purchases. c. Fictitious sales. d. Selling expense recorded as general expense.
1.What is the average Trailing PE of the comparables? Round to one decimal place. 2.What is the average Forward PE of the three comparables? Round to one decimal place. 3.What is the average PEG of the comparables? Round to one decimal place. 4.If Gamecocks Inc is forecasted to earn $2.2 per share over the next twelve months, what is its implied price per share using relative valuation with the comps above? Round to one decimal place. Questions 2-5: Suppose you...
Distinguish between common-law liability and statutory liability for auditors. What is the basis for the difference in liability? (Chapter: Legal, Regulatory, and Professional Obligations of Auditors)
As your text describes, ratio analysis is a common technique in financial analysis. One of your colleagues states that a thorough ratio analysis is all that is needed in considering the financial health of a company. Although you agree that ratio analysis is a helpful guide, there may be some potential pitfalls in ratio analysis. Discuss at least three potential issues in utilizing ratio analysis that you would share with your colleague. In addition, calculate a liquidity, profitability, and efficiency...
As your text describes, ratio analysis is a common technique in financial analysis. One of your colleagues states that a thorough ratio analysis is all that is needed in considering the financial health of a company. Although you agree that ratio analysis is a helpful guide, there may be some potential pitfalls in ratio analysis. Discuss at least three potential issues in utilizing ratio analysis that you would share with your colleague. In addition, calculate a liquidity, profitability, and efficiency...
1. What is the average Trailing PE of the comparables? Round to one decimal place. 2. What is the average Forward PE of the three comparables? Round to one decimal place. 3. What is the average PEG of the comparables? Round to one decimal place. 4. If Gamecocks Inc is forecasted to earn $2.2 per share over the next twelve months, what is its implied price per share using relative valuation with the comps above? Round to one decimal place....
To what extent should auditors use sampling? What problems do auditors face when using sampling methods?
133 CHAPTER 3 Financial Statements and Ratio Analysis Common-size statement analysis A common-size income statement for Enterprises' 2018 operations follows. Using the firm's 2019 income stater Creek ment P3-19 em 3-16, develop the 2019 common-size income statement and compare it with the 2018 statement. Which areas require further analysis and investigation? Creek Enterprises Common-Size Income Statement for the Year Ended December 31, 2018 100.0% 65.9 34.1 % Sales revenue ($35,000,000) Less: Cost of goods sold Gross profits Less: Operating expenses...
What is ratio analysis? Explain the purpose and usefulness of this analysis. What are the limitations of ratio analysis? What is the difference between a time-series analysis and a cross-sectional analysis? Is one preferred over the other?