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Forensic Accounting, Forensic Techniques, and Fraud Detection Copyrighted 2001 D. Larry Crumbley, ... - page 339 / 352

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© D.L. Crumbley

Office of New York State Comptroller

Indicator 6: Liquidity

Cash and Investment as a Percentage of Current Liabilities

Cash and Investments as a Percentage of Gross Monthly Expenditures

Cash and Investments

Current Liabilities

Cash and Investments

Gross Expenditures/12

Negative Trend: Percentages decreasing over time.

A government should generally have year-end cash equal to about 50% of current liabilities and 75% of average monthly expenditures. A governmental accounting textbook states that this quick ratio (or acid test) omits receivables and amounts due from other funds because of difficulties converting them into cash. They suggest that a large state government should consider a quick ratio of less than 50 *

Indicator 7: Long-Term Debt

Long-Term Debt

Population

Negative Trend: Percentage increase over time

Note: An increase in #7 would likely trigger a future increase in #3 formula as well as a decrease in #8.

Indicator 8: Capital Outlay

Capital Outlay

Gross Expenditures

Negative Trend: Percentage decreasing over time

Note: This eighth indicator is an early warning sign of financial stress. * Razek and Hosch, ibid., p.411.

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