The following is a summary of the information in the financial statements of RDK Ltd for the years 2021 and 2022.

2022 2021

$000 $000 Current assets 50 100 Noncurrent assets 350 200 Total assets 400 300 Current liabilities 50 50 Noncurrent liabilities 210 150 Shareholders’ equity 140 100 Total liabilities and shareholders’ equity 400 300 Sales 800 750 Expenses 752 720 Net profit (before interest and tax) 48 30 Interest 13 10 Tax payable 14 8 Net profit after tax 21 12 The manager of RDK Ltd has given the following information relating to the firm:

2022 2021

% %

Return on assets (using EBIT) 12 10 Current ratio 100 200 Quick asset ratio 100 100 Debt-to-assets ratio 65 66.7 During 2022, land that cost $50 000 was revalued to $90 000 1 Suggest possible reasons for the change in ROA.

2 Comment on the changes in liquidity during the period.

3 What changes have taken place in the firm’s long-term financial position during the period?

4 Why does a great deal of care need to be taken in the use and interpretation of financial ratios?