Earthwear's quick ratio is 0.73 and the industry average is 0.80 discuss the meaning of the analytical procedure and how it may affect risks relating to the earthwear audit or your planned audit procedures.

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Business

Bradley Coleman

23 May, 16:07

Earthwear's quick ratio is 0.73 and the industry average is 0.80 discuss the meaning of the analytical procedure and how it may affect risks relating to the earthwear audit or your planned audit procedures.

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Dominique Fleming · Answer 1

The industry average quick ratio = 0.80

Earth wear's quick ratio = 0.73

The quick ratio is defined as the ratio of the current assets less the inventories to the current liability and reflects on the liquidity position of the business. Since Earth wear's quick ratio is slightly lower than that of the industry, Earth wear's liquidity is slightly poor when compared to that of the industry. The risks of poor liquidity will be that the business will not have enough cash to meet short term obligations or taking extra trade credit to meet the current obligations. However, since the difference between the company and industry is very small, these risks may not suffice in reality.