Ratio annlysis

Current ratio is always larger than quick ratio, it may because that inventory is overstated. Inventory turnover ratio has a relatively slight rise , it also can be an indicator for the overstated inventory.As per the current ratio, overstating inventory allows Santa to avoid booking expenses and reduces the cost of goods sold. It could also indicate obsolete stock problems. Ratio Explanation Account Key assertion The change in current ratio compared with the previous year, supports the idea that inventory could be overstated. As a decrease in inventory lead to a decrease in gross margin, the auditor would be concerned that inventory is overstated.Inventory Existence Overstating inventory allows Santa to avoid booking an expense now and also rates a larger asset base. By overstating inventory. Management can reduce the cost of good sale. In order to overstate inventory, management may book sales for inventory that does not exist or miscalculate costs . Days in inventory The increase in days in inventory inventory Existence and valuation As per the current ratio, overstating allows management to avoid booking expenses and reduces the cost of goods sold, it could also indicate obsolete stock problems.