The Finance Director (FD) of International Manufacturing Group (IMG) is preparing for the annual review meeting with one of its main relationship banks. In preparation for this meeting, the FD has asked a new joiner (NJ), within the finance team, to conduct a detailed review of IM's latest financial statements. The aim of their review is to attempt to identify any questions the bank might ask and to be prepared with suitable answers. The NJ has been provided with the key IMG financial statements and a number of credit reports showing financial ratios already calculated. First, the NJ has identified an issue in the income statement as IMG revenues have fallen significantly; however, its profit margins have still improved quite considerably. Secondly, , the NJ is trying to reconcile the company's total equity position, as the total is higher than the value of the shares issued plus IMG's retained earnings. The third issue identified by the NJ relates to a significant discrepancy between the company's quick and current ratios. For their final assessment, the NJ turns their attention to IMG's cash flow. Upon initial investigation, IMG's cash flows from investing have improved whilst its cash flows from operations have deteriorated. Which of the following most likely explains the income statement issue identified by the NJ? 1. Costs have reduced. 2. Inflation rates have fallen. 3. Inventories have increased. 4. Turnover has grown.