Mary Ann has always loved to cook and is interested in starting a catering business. Being aware of the failure rate of new businesses, she is considering buying an existing catering business that is up for sale. The current owners claim that the business is highly profitable, but Mary Ann has her doubts. She wonders why the owners would be so interested in selling the business if it is such a money maker. Furthermore, the price that they are asking seems high to Mary Ann. Without any formal training in accounting, Mary Ann asks a friend, Rolanda, for advice.
1. The auditor has expressed concerns about the company's ability to pay its bills as they are due. What type of financial ratio might provide insight into this concern?
2. Rolanda suggests that Mary Ann hire an accountant to audit the financial statements. Mary Ann is not sure what an audit involves. Explain auditing.