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MAFFESSANTI & SONS LIMITED GOING CONCERN REPORT BASED ON RATIO ANALYSIS DECEMBER 31, 2012

PROFITABILITY Ratio analysis reveals that the company profitability has decreased over the period. The return on equity fell by 139% in the current year and by 202% in the previous year. An analysis of other profitability ratio reveal some dramatic fall in percentage points over the same period. Given the retardation in profitability ratios, it is reasonable to assume that there may be some indication that the company is not a going concern and as such, the financial statements should be prepared on a basis that is consistent with the entity not being a going concern.

SHAREHOLDERS RATIOS Where going concern is to be assessed based on shareholders ratios, it is safe to say that shareholders would regard the entity as not being a going concern. Reason being is that there was a decrease in earnings per share by approximately $6,200 over the period ending December 31, 2012. Also the book value of the company fell approximately $756 per stock unit held by shareholders. This is critical indication of going concern deterioration in the eyes of shareholders; as shareholders constantly expect to see an increase on book value and as such market value per share. Therefore these declining shareholders ratios would leave shareholders dubious about the going concern of the company.

LIQUIDITY RATIOS Liquidity and profitability are the fundamental objectives of any profit motive entity. Liquidity is important in that the company needs enough liquid assets in order to be profitable. An analysis of the liquidity ratios shows further indication where doubts can be cast upon the entitys going concern assumption. The acid test ratio has fallen from 0.48 to 0.38 over the period; similarly the current ratio has fallen from 0.57 to 0.44. This reduction in both ratios can lend itself to the fact that company would be able to pay off its short term liabilities as they fall due by its current level of current5 assets. This may lead to disgruntled suppliers who will in turn

withdraw any credit facilities offered, this will have an adverse impact the supply of raw material which is essential for the effective operations of the company. This information casts significant doubt on its going concern assumption. The operating cycle ratios have lengthened which may give further indication that there doubt surrounding its going concern. The debtor collection period has increased from 30 to 51 days. Inventory days have lengthened by 3 days (from 11 to 14 days). While at the same time the company has been taking 56 more days to pay its creditors (from 39 to 95 days). This may be sensible given the fact that debtors are taking a longer time to settle their debts; but at the same time this may damage credit relationship with suppliers; which will inevitably have an adverse impact on its going concern.