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 Technology
Technology company financial ratio analysis requires a growth-adjusted perspective that traditional ratio frameworks do not always accommodate. Many technology companies — particularly SaaS businesses, marketplace platforms, and pre-profit startups — deliberately prioritise revenue growth over profitability, making profit-based ratios (net margin, ROE, ROA) misleading or negative. Revenue-based ratios and gross margin are more diagnostic for technology entities.
The gross margin is the single most important traditional ratio for technology companies, particularly SaaS businesses where gross margins of 60–80% (BACH median: 62%) indicate the scalability of the business model. A declining gross margin in a technology company may indicate rising infrastructure costs, increased customer support burden, or competitive pricing pressure. For ISA 520 analytical procedures, compare gross margin trends against the company's own history and against the BACH technology sector quartiles.
R&D capitalisation under IAS 38 is a critical area for technology companies. Companies that capitalise a higher proportion of development costs will show better current-period profitability but inflated asset bases, affecting ROA and asset turnover ratios. The auditor should assess whether capitalisation criteria are consistently applied and whether the asset will generate future economic benefits. Stock-based compensation (IFRS 2) is another significant non-cash expense that distorts standard profitability ratios — a technology company with 15–25% of revenue in SBC expense may show operating losses despite strong cash generation.
Regulatory Context
IFRS 15 revenue recognition for multi-element SaaS arrangements. IAS 38 development cost capitalisation. IFRS 2 share-based payment expense. Deferred tax asset recoverability for loss-making entities.
Industry-Specific Going Concern Indicators (ISA 570)
Cash runway less than 12 months without committed funding
Declining gross margin below 50%
Customer concentration: single customer exceeds 20% of revenue
Unable to raise follow-on funding
Key person departure without succession plan
Annual churn rate exceeding 15% (SaaS)
Worked Example: European SaaS Company
CloudMetrics GmbH — B2B SaaS platform with €12M ARR
Key results: Current Ratio: 2.00, Quick Ratio: 2.00, Gross Margin: 70.0%, Net Margin: -15.0% (pre-profit stage), ROE: -22.5% (negative — expected), D/E: 0.75, Cash Ratio: 1.38, Z'' Score: 4.85 (services variant — Safe, but negative RE reduces reliability)