You are the auditor of Globe Ltd, a manufacturer of colour printers. You have closely scrutinised the financial reports of the company and are concerned about its 'going concern status'. The summarised financial reports for the past three years plus the unaudited draft accounts for the current year are shown below.
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Globe Pty Ltd
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2009
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2010
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2011
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2012
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Statement of Financial Performance $'000s
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Sales
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131
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196
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266
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298
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Cost of Goods Sold
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(116)
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(175)
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(231)
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(262)
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Gross Profit
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15
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21
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35
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36
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Other Expenses
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(14)
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(27)
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(39)
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(48)
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Interest
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(2)
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(10)
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(15)
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(25)
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Net Profit (Loss)
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(1)
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(16)
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(19)
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(37)
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Statement of Financial Position $'000s
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2009
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2010
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2011
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2012
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Current assets
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Debtors
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22
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32
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50
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72
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Inventory
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25
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35
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52
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63
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Total current assets
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47
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67
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102
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135
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Non-current assets
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Property, plant and equipment
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37
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92
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100
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111
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Total assets
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84
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159
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202
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246
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Current liabilities
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Creditors
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40
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45
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82
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112
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Bank Overdraft
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16
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51
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62
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78
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Total current liabilities
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56
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96
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144
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190
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Non-current liabilities
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Secured loan
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0
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50
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50
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50
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Total liabilities
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56
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146
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194
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240
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Capital and Reserves
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Share capital
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3
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3
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3
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3
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Retained earnings
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25
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10
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5
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3
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Total Liabilities and Owners Equity
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84
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159
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202
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246
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In an attempt to expand into overseas markets, Globe automated a lot of its operations in 2010 with the purchase of some highly sophisticated plant and machinery. The new plant and machinery was largely financed with a secured variable loan of $50,000 and a bank overdraft facility.
The company purchases the component parts that make up the printers from a variety of local and overseas suppliers. The company has plans to broaden its sales base (currently 85% of its sales are to one discount chain store) to both local and overseas markets. This broadening of the company's sales base revolves around the development and production of a state of the art printer that will be tailored to meet the needs of the top end of the market. The new printer however will require a significant amount of money that the directors hope will come via a new public issue of shares and promises of loans and other forms of assistance from business acquaintances of the CEO, Mr. Beam Laser.
Required:
1. For each year (2009, 2010, 2011 & 2012) calculate the following ratios: Net profit ratio, Gross profit ratio, Working Capital ratio, Quick asset ratio, Debt to total assets ratio.
2. With reference to each one of the five ratios in turn and the other information provided explain what the results of your calculations indicate for Globe Ltd's going concern.
3. What other audit techniques could the auditor use to indicate whether Globe Ltd has a going concern problem?