Analyzing Financial Statements of Printers by Choice Ltd using Ratio Analysis

AUDITING THEORY AND PRACTICE

(1) Analytical Procedures
Being an auditor of Printers by Choice Ltd (PBCL), we have used analytical procedures, that is,
ratio analysis so as to understand whether the financial statements are in consistent with the
auditor's understanding of the entity. We have used different ratios to analyze the performance
from 2015 to 2017. The analysis on the basis of discovered analysis:
1. Liquidity Ratios
1. LIQUIDITY RATIOS
CURRENT RATIO
PARTICULARS 2015 2016 2017
Current Assets 10771876 15018300 19201858
Current Liabilities 7560000 10240500 12795000.00
Current Ratio (Current
Assets/Current Liabilities) 1.42 1.47 1.50
CASH RATIO
PARTICULARS 2015 2016 2017
Cash & Cash Equivalents 1294500 1035576 694240
Accounts Receivables (Net) 4965000 8640000 10146618
Depreciation 498750 548624 945376
Total Cash Assets 6758250 10224200 11786234
Current Liabilities 7560000 10240500 12795000.00
Cash Ratio (Total Cash
Assets/Current Liabilities) 0.89 1.00 0.92

 The current ratio of 2017 is 1.5, of 2016 is 1.47 and of 2015 is 1.42 which signifies a
favourable condition, that is, the short term liquidity of company is strong to generate
almost 1.5 times cash if it has to meet its obligations instantly. This ratio has improved
from previous years due to increase in accounts receivable and decrease in interest
bearing liabilities.
 However, quick ratios and cash ratios are better indicators of liquidity as they exclude
those items which cannot be readily converted into cash. The cash ratio of 2017 is 0.92,
of 2016 is 1 and of 2015 is 0.89. Thus, where we see an improvement in 2016 compared
to 2015, we see degradation in 2017 compared to 2016. We see a drastic decrease in cash
balance approximately by $341,336 compared to 2016 and by $600,260 compared to
2015 (Atkinson, 2012). Since we added depreciation back to cash, we see more total
cash assets in 2017. We also see a drastic increase in the current liabilities by $25,54,500
compared to 2016 and by $52,35,000 compared to 2015.
2. Solvency Ratios
2. SOLVENCY RATIOS
PROPRIETARY RATIO
PARTICULARS 2015 2016 2017
Shareholder's funds 18300000 21567300 24500982
Total Assets 25860000 31807800 52295982
Proprietary Ratio
(Shareholder's Funds/Total
Assets)
0.71 0.68 0.47
DEBT TO EQUITY
RATIO
PARTICULARS 2015 2016 2017