The following financial ratios have been calculated for Nova Ltd for the year ended 30 June 2008:

Ratio

Actual results

Budgeted results

Previous year

Industry Average

Current ratio

1.97

1.92

1.87

1.92

Quick asset ratio

1.06

1.06

1.06

1.11

Inventory turnover

4.21

4.91

4.86

4.76

Net profit ratio

0.05

0.03

0.03

0.03

Gross margin

0.65

0.59

0.61

0.61

Required:

Provide four (4) possible explanations for the results of the various ratios for Nova Ltd and explain their implications for the audit. (7marks)