Solvency and going-concern potential

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As the CPA for Carismo Manufacturing Inc., you have been asked to develop some key ratios from the comparative financial statements. This information is to be used to convince creditors that the company is solvent and will continue as a going concern. The data requested and the computations developed from the financial statements follow.

2008 2007

Current ratio 3.1 times 2.1 times

Acid-test ratio .8 times 1.4 times

Asset turnover 2.8 times 2.2 times

Net income Up 32% Down 8%

Earnings per share $3.30 $2.50

Book value per share Up 8% Up 11%


With the class divided into groups, answer the following.

Carismo Manufacturing Inc. asks you to prepare a list of brief comments stating how each of these items supports the solvency and going-concern potential of the business. The company wishes to use these comments to support its presentation of data to its creditors. You are to prepare the comments as requested, giving the implications and the limitations of each item separately. Then prepare a collective inference that may be drawn from the individual items about Carismo's solvency and going-concern potential.

Reference no: EM13148425

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