Which of the following discoveries, when discovered through the use of analytical procedures, would indicate a relatively high risk of financial failure?
A) An increase in the ratio of allowance for uncollectible accounts to gross accounts receivable, while at the same time accounts receivable turnover also decreased
B) A higher than normal ratio of long- term debt to net worth as well as a lower than average ratio of profits to total assets
C) An increase in the balance in fixed assets
D) A decline in gross margin percentages

Question

Quizplus · Accepted Answer

A higher than normal ratio of long-term debt to net worth indicates increased financial leverage and risk, while a lower than average ratio of profits to total assets suggests inefficiency in using assets to generate profit, both of which are indicators of financial distress.

Which of the Following Discoveries, When Discovered Through the Use