The following information relates to the operations of the East Lancashire Trading Company for the three-year period ended 31 December 20X2:

Required:
From the foregoing information, calculate the following ratios for the years 20X1 and 20X2 (assume that all sales are on a credit basis and the year is 360 days):

(a) The current ratio

(b) The acid test ratio

(c) The average stock turnover

(d) The average collection period for debtors

(e) The shareholders’ equity ratio

(f) The return on capital employed (g) The earnings per share.
Evaluate the liquidity position of the company at the end of 20X2 as compared with 20X1.

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Profit and loss accounts 20X2 20X1 20X0 Net sales 1,000,000 900,000 800,000 Cost of goods sold 600,000 550,000 545,000 Gross profit 400,000 350,000 255,000 Selling and administrative expenses 300,000 275,000 220,000 Net profit before tax 100,000 75,000 35,000 Tax at 50% 50,000 37,500 17,500 Net profit after tax 50,000 37,500 17,500 Dividends 30,000 25,000 10,000 Net increase in retained earnings 20,000 12,500 7,500