BYP15-4 - BYP15-4) The current ratio increase is a...

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BYP15-4) The current ratio increase is a favorable indication as to liquidity, but alone tells little about the going-concern prospects of the client. From this ratio change alone, it is impossible to know the amount and direction of the changes in individual accounts, total current assets, and total current liabilities. Also unknown are the reasons for the changes. The acid-test ratio decrease is an unfavorable indication as to liquidity, especially when the current-ratio increase is also considered. This decline is also unfavorable as to the going-concern prospects of the client because it reflects a declining cash position and raises questions as to reasons for the increases in other current assets, such as inventories. The change in asset turnover cannot alone tell anything about either solvency or going-concern prospects. There is no way to know the amount and direction of the changes in sales and assets. An increase in sales would be favorable for going-concern prospects, while a decrease in assets could represent a number of
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This note was uploaded on 08/22/2011 for the course ACCOUNTING 201 taught by Professor Stevejoseph during the Winter '11 term at Aarhus Universitet.

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BYP15-4 - BYP15-4) The current ratio increase is a...

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