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Which of the following ratios is relatively more helpful in highlighting revenue-related frauds?

1) Current ratio
2) Quick ratio
3) Debt-to-equity ratio
4) Gross profit margin

User Sgimeno
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1 Answer

7 votes

Final answer:

The Gross Profit Margin is the most helpful ratio in highlighting potential revenue-related frauds, as it reflects the relationship between gross profit and sales, and unusual fluctuations can indicate fraud.

Step-by-step explanation:

The ratio that is relatively more helpful in highlighting revenue-related frauds is the Gross Profit Margin. This ratio compares the gross profit to sales, indicating how effectively a company is producing its goods and services. If gross profit margin significantly deviates from industry norms without a reasonable explanation, it can be an indicator of potential revenue-related frauds such as overstatement of sales or understatement of the cost of goods sold.

The Current Ratio and the Quick Ratio are primarily used to assess a company's short-term liquidity, while the Debt-to-Equity Ratio offers insight into the company's financial leverage. These financial ratios focus on solvency and liquidity circumstances rather than directly indicating profitability manipulation or potential sales-oriented discrepancies.

User Panos Boc
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