Question 15 (8 marks)

Avoca Ltd is a major retailer selling fishing rods and reels on the Central Coast of NSW. The following ratios are provided by management to assess the performance of the business over the last two years.

	Year Ending June 2021	Year Ending June 2022
Debt/asset ratio	55.6%	75.2%
Current ratio	2.0:1	1.2:1
Return on assets	10.0%	15.3%
Profit Margin	6.5%	11.5%

Required:

a) Using the information above discuss how the liquidity, solvency and profitability of Avova Ltd has changed from 2021 to 2022. In your discussion indicate which ratio(s) would be used to evaluate each category of performance and what the change in performance indicates about the business. (6 marks)

b) Provide two (2) recommendations to Avoca Ltd regarding how the company could improve its solvency in 2023. (2 marks)