You are the senior auditor conducting the audit of Grasslands Pty Ltd, a large distributor of lawn mowers and garden accessories. This is the first year your audit firm has performed the audit of this company. As part of the planning work, you have performed analytical procedures on an annualised basis and compared the results to industry averages and lasts years audited financial information. The results are given below:

Industry Average Grasslands Pty Ltd

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Ratio 2016 2015 2016 2015

1. Current ratio 2.84 3.27 1.89 2.24

2. Accounts Receivables turnover 4.9 4.6 6.3 7.0

3. Inventory turnover ratio 3.7 3.8 5.0 5.5

4. Return on assets 7% 5% 13% 11%

5. Profit margin 0.06 0.06 0.04 0.04

6. Gross profit per cent 20% 26% 20% 18%

Required:

Based on the information given:

1- explain the general meaning of each of the above ratios;

2- discuss the conclusions that you can draw about Grasslands Pty Ltd financial position;

3- identify potential audit risks to be investigated further.

Your answer must be presented in a three-column format as follows:

What the ratio means	Conclusions to draw	Potential risks to be investigated