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Forensic Accounting, Forensic Techniques, and Fraud Detection Copyrighted 2001 D. Larry Crumbley, ... - page 217 / 352

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© D.L. Crumbley

Five Statistically Significant Ratios

Use the ratios for two successive fiscal years.

Convert into indexes for benchmarking.

All indexes should be close to one.

Day’s Sales in Receivable Index:

(Accounts Receivable t / Sales t )

            (Accounts Receivable t-1 / Sales t-1)

Index for manipulators: 1.5 to 1

--------------------------------------------------------

Gross Margin Index:

[(Sales t-1 - Cost of Sales t-1  ) / Sales t-1]

[(Sales t-1 - Cost of Sales t-1  ) / Sales t-1]

Index for manipulators = 1.2 to 1

--------------------------------------------------------

Source: M.D. Beneish, “The Detection of Earnings Manipulation,” Financial Analysts Journal, September/October, 1999. t-1 = prior year.

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