- Identify at least three (3) ratios that could be manipulated to mislead investors and creditors regarding the company’s financial condition. Examine the motivation of management to manipulate the ratios identified.
- *From the e-Activity, putting yourself in the role of an investor or creditor, suggest the ratios that you believe would provide you with the most important information needed to make accurate predictions about the company’s financial condition. Provide a rationale for your response.
Gross profit to sales ratio: This ratio can be manipulated by the management of a company mostly because it provides the gross margin enjoyed by the products sold by the company thus, it becomes an indicator of the pricing power of the company.
Net profit to sales ratio: This ratio is a measure of the profits which accrue to shareholders after settling all external claims. This is in fact very important…