Financial Data
Enter the essential financial figures below. Expand the additional sections for a comprehensive analysis.
Financial Ratio Analysis Guide for European Auditors — free PDF
ISA 520 & ISA 570 practical workbook: all formulas with visual explanations, industry benchmark reference tables from BACH for 15 industries, ratio interpretation guide, and template narrative paragraphs for audit working papers.
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ISA 520.5 — Design and perform analytical procedures near the end of the audit that assist in forming an overall conclusion.
ISA 520.A1 — Analytical procedures may include ratios such as gross margin percentages and ratio of sales to accounts receivable.
ISA 570.A3 — Negative working capital, adverse key financial ratios, operating losses, and other indicators may cast doubt on going concern.
Financial Ratio Analysis for Agriculture
Agricultural financial ratio analysis must contend with IAS 41 biological asset fair value measurement, extreme seasonal working capital patterns, and commodity price volatility. IAS 41 requires biological assets (livestock, crops, orchards) to be measured at fair value less costs to sell, creating unrealised gains and losses that distort traditional profitability ratios in ways unique to agriculture. A dairy farm's net margin may swing from 20% to -10% based purely on biological asset revaluation, with no change in underlying milk production economics.
The Common Agricultural Policy (CAP) provides significant subsidy income to European agricultural entities, accounting for 30–60% of net income for many farms. This creates a unique dependency that standard ratio analysis may not capture: a profitable agricultural entity that appears financially healthy may be entirely dependent on CAP payments, with negative profitability on a pre-subsidy basis. For ISA 520 analytical procedures, auditors should analyse ratios both with and without subsidy income to assess the underlying commercial viability of the farming operation.
Seasonal working capital patterns in agriculture are more extreme than any other sector. Planting seasons require significant cash outflows for seeds, fertiliser, and labour, while revenue from harvest may not materialise for 3–8 months. Livestock operations have different but equally seasonal patterns related to breeding, feeding, and sales cycles. BACH benchmarks show wide quartile ranges for agricultural ratios (Q1 inventory days: 40, Q3: 140) reflecting this diversity. The cash conversion cycle should be assessed against the specific crop or livestock cycle, not annual averages.
Regulatory Context
IAS 41 biological asset fair value measurement. IAS 20 government grants (CAP subsidies). EU Common Agricultural Policy reforms. Nitrogen regulation (Netherlands: stikstofbeleid). CSRD sustainability reporting for large agricultural entities.
Industry-Specific Going Concern Indicators (ISA 570)
Consecutive harvest failures or livestock disease outbreaks
CAP subsidy changes reducing income beyond replacement ability
Commodity prices below production cost for extended periods
Water rights disputes or access restrictions
Nitrogen regulation compliance costs exceeding capacity (Netherlands)
Biological asset fair values declining significantly
Worked Example: European Arable Farm
Van der Berg Landbouw BV — Dutch arable farm with €4.5M revenue
Key results: Current Ratio: 2.00, Quick Ratio: 0.91, Gross Margin: 30.0%, Net Margin: 7.0%, ROE: 7.3%, ROA: 3.7%, D/E: 0.98, Interest Coverage: 2.5x, Inventory Days: 139 (grain storage — seasonal), Altman Z'-Score: 2.35 (Grey Zone — assess seasonal timing)