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 Manufacturing
Financial ratio analysis for manufacturing entities centres on three critical areas: inventory management efficiency, asset utilisation, and production cycle profitability. Manufacturing companies carry significant working capital tied up in raw materials, work-in-progress (WIP), and finished goods inventory — making activity ratios and liquidity ratios especially revealing for audit analytical procedures under ISA 520.
The Altman Z-Score original formula was specifically designed for publicly traded manufacturing companies, making it directly applicable without adjustment. The original model's inclusion of asset turnover (Sales/Total Assets) captures the capital-intensive nature of manufacturing operations. Auditors performing going concern assessments under ISA 570 should pay particular attention to deteriorating inventory turnover, declining gross margins (which may signal pricing pressure or cost overruns), and increasing debt-to-equity ratios that could indicate financial distress.
European manufacturing benchmarks from the BACH database show that median inventory days range from 55–75 days depending on the subsector, with heavy manufacturing typically at the higher end. Gross margins in European manufacturing typically fall between 25–40%, with significant variation by country — German manufacturers (Mittelstand) often achieve higher margins through specialisation, while Southern European manufacturers may operate with thinner margins due to competitive pressures. The cash conversion cycle is a key metric: manufacturers with CCC exceeding 90 days face elevated working capital risk.
Regulatory Context
ISO 9001 quality management systems may indicate better process controls. Consider the impact of component depreciation on the asset base. For EU manufacturers, CSRD sustainability reporting obligations may affect operating costs from 2025.
Industry-Specific Going Concern Indicators (ISA 570)
Inventory days increasing while revenue is declining (potential obsolescence)
Gross margin decline exceeding 5 percentage points year-on-year
Cash conversion cycle exceeding 120 days
Customer concentration: single customer exceeds 25% of revenue
Covenant breaches on asset-based lending facilities
Declining order backlog or cancellation of major contracts
Worked Example: Mid-Size European Manufacturer
EuroTech GmbH — industrial equipment manufacturer with €45M revenue
Key results: Current Ratio: 1.64, Quick Ratio: 0.86, Gross Margin: 30.0%, Net Margin: 6.0%, ROE: 15.0%, ROA: 6.4%, D/E: 1.33, Interest Coverage: 4.5x, Inventory Days: 98, DSO: 42 days, Altman Z-Score: 2.45 (Grey Zone — warrants further investigation)