2-1 Oceanview Marine Company Ratio Analyses December 31, 2018 LIQUIDITY RATIOS: Unadjusted 12/31/2018 PERCENT CHANGE INDUSTRY AVERAGE 12/31/2017 CHANGE 2.31 2.49 -0.18 -7.23% 1.53 0.42 0.40 0.02 5.00% 0.43 Current ratio current assets/ current liabilities Quick ratio (current assets -- inventory/current liabilities Sales / Receivables net sales / net ending receivables Number of days sales in A/R net ending receivables / (net sales/365) Inventory turnover cost of sales/average inventory 16.05 17.78 -1.73 -9.73% 20.29 17.99 1.41 PROFITABILITY/PERFORMANCE RATIOS: 23.83% 0.06 0.06 0.04 0.02 50.00% 0.04 Gross profit margin (%) gross profit/ net sales Income before taxes / Owners' equity net income before taxes / total owners' equity Income before taxes / Total assets net income before taxes / total assets Sales / Long-term assets net sales / net long-term assets Sales / Total assets net sales / total assets Sales / Working capital net sales /(current assets - current liabilities) 44.29 37.33 6.96 18.64% 19.07 1.54 1.49 0.05 3.36% 1.32 2.82 2.59 0.23 8.88% 2.18 SOLVENCY RATIOS: 0.56 0.59 -0.03 -5.08% 0.31 0.06 0.07 -0.01 -14.29% 0.47 Owners' Equity / Total assets total stockholders' equity / total assets Long-term assets/Owners' equity net long-term assets/total stockholders' equity Current liabilities/Owners' equity current liabilities / total stockholders' equity Total Liabilities / Owners' equity total liabilities / total stockholders' equity 1.13 2.03 Current workpapers - audit planning + P- Oceanview Marine Company Preliminary Analytical Procedures December 31, 2018 2-2 Summary of Ratio Analyses Liquidity: possible warning signs: Although the liquidity ratios do not indicate there are any serious problem areas, they do reveal some The current ratio declined by over 7% during the year. However, it is still above the 2:1 level, which is a sign of good financial condition, and it is above the industry average. Profitability: Solvency: The solvency ratios have deteriorated somewhat: Long-term Assets to Owners 'Equity dropped nearly 15%. Current workpapers--audit planning + Page 7 2-3 Oceanview Marine Company Assessment of Financial Condition December 31, 2018 A. Identify ratios and trends, if any, that cause concern about the client's ability to continue as a going concern. B. Identify ratios and trends, if any, which indicate a high likelihood that the client will continue successfully as a going concern. C. Assess the client's financial condition as one of the following (check one) High probability that the company will successfully continue in business for at least two years and be able to pay its debts as they become due. Moderate possibility that the company will not successfully continue in business for at least two years and will be unable to pay its debts as they become due. High probability that the company will not successfully continue in business for at least two years and will be unable to pay its debts as they become due. D. Briefly explain the reasoning behind your assessment. Current workpapers - audit planning + Page 2-1 Oceanview Marine Company Ratio Analyses December 31, 2018 LIQUIDITY RATIOS: Unadjusted 12/31/2018 PERCENT CHANGE INDUSTRY AVERAGE 12/31/2017 CHANGE 2.31 2.49 -0.18 -7.23% 1.53 0.42 0.40 0.02 5.00% 0.43 Current ratio current assets/ current liabilities Quick ratio (current assets -- inventory/current liabilities Sales / Receivables net sales / net ending receivables Number of days sales in A/R net ending receivables / (net sales/365) Inventory turnover cost of sales/average inventory 16.05 17.78 -1.73 -9.73% 20.29 17.99 1.41 PROFITABILITY/PERFORMANCE RATIOS: 23.83% 0.06 0.06 0.04 0.02 50.00% 0.04 Gross profit margin (%) gross profit/ net sales Income before taxes / Owners' equity net income before taxes / total owners' equity Income before taxes / Total assets net income before taxes / total assets Sales / Long-term assets net sales / net long-term assets Sales / Total assets net sales / total assets Sales / Working capital net sales /(current assets - current liabilities) 44.29 37.33 6.96 18.64% 19.07 1.54 1.49 0.05 3.36% 1.32 2.82 2.59 0.23 8.88% 2.18 SOLVENCY RATIOS: 0.56 0.59 -0.03 -5.08% 0.31 0.06 0.07 -0.01 -14.29% 0.47 Owners' Equity / Total assets total stockholders' equity / total assets Long-term assets/Owners' equity net long-term assets/total stockholders' equity Current liabilities/Owners' equity current liabilities / total stockholders' equity Total Liabilities / Owners' equity total liabilities / total stockholders' equity 1.13 2.03 Current workpapers - audit planning + P- Oceanview Marine Company Preliminary Analytical Procedures December 31, 2018 2-2 Summary of Ratio Analyses Liquidity: possible warning signs: Although the liquidity ratios do not indicate there are any serious problem areas, they do reveal some The current ratio declined by over 7% during the year. However, it is still above the 2:1 level, which is a sign of good financial condition, and it is above the industry average. Profitability: Solvency: The solvency ratios have deteriorated somewhat: Long-term Assets to Owners 'Equity dropped nearly 15%. Current workpapers--audit planning + Page 7 2-3 Oceanview Marine Company Assessment of Financial Condition December 31, 2018 A. Identify ratios and trends, if any, that cause concern about the client's ability to continue as a going concern. B. Identify ratios and trends, if any, which indicate a high likelihood that the client will continue successfully as a going concern. C. Assess the client's financial condition as one of the following (check one) High probability that the company will successfully continue in business for at least two years and be able to pay its debts as they become due. Moderate possibility that the company will not successfully continue in business for at least two years and will be unable to pay its debts as they become due. High probability that the company will not successfully continue in business for at least two years and will be unable to pay its debts as they become due. D. Briefly explain the reasoning behind your assessment. Current workpapers - audit planning + Page