The following are the ratios of Youtoepia, a podiatry supplies business:

Ratios	2019	2020	2021	Industry Average
Quick Ratio	.90:1	.95:1	1.2:1	1.0:1
Interest cover(age)	2 times	5 times	8 times	5 times
Collection Period	45 days	44 days	42 days	48 days
Return on Assets	10%	15%	20%	13%
Inventory Turnover	35 days	30 days	28 days	35 days
Return on Equity	17%	27%	40%	22%
Debt ratio	40%	45%	50%	40%
Current Ratio	1.5:1	1.6:1	2.1:1	2.0:1

Formula Table:

Current Ratio	Current Assets/Current Liabilities
Quick Ratio	(Current Assets-Inventory-Prepayments)/Current Liabilities
Collection Period	(Accounts Receivable/ Net Credit Sales) x 365
Inventory Turnover Period	(Inventory/Cost of Sales) x 365
Return on Equity	Net Profit/ Owner Equity
Return on Assets	Net Profit/Assets
Debt Ratio	Total Liabilities/Total Assets
Interest Cover(age)	Net profit before interest expense & tax/ Interest expense

a) Prepare a report commenting on the liquidity (8 marks) and profitability (4 marks) of the above business.

Your answer must identify the type of each ratio and explain the meaning of each ratio.

Your answer must also:

- compare the ratios for the three years using the industry average as a benchmark;

- identify the trends as favourable or unfavourable; and

- suggest reasons for the trends.

Liquidity:

Profitability: