The Pine Boutique Ltd. operates several stores selling pine furniture. Selected financial ratios are as follows:

In 2018, Pine Boutique decided to change its strategy from selling high-end furniture to selling lower-cost items in order to be more competitive and began importing low-cost furniture. In order to do this the company invested in new warehouse facilities and its total assets grew from $2.5 million in 2018 to $4.5 million in 2019 and finally to $5 million in 2020.

Required

a. Briefly discuss what these financial ratios indicate about how Pine Boutique was affected by its decision to change its strategy in 2018.

b. Which measures have deteriorated during the subsequent periods?

c. Which ratios indicate positive action taken by Pine Boutique during the subsequent periods?

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2020 2019 2018 2.30 Current ratio 2.35 2.25 Quick ratio 0.96 0.91 0.88 10.43 Receivables turnover 9.61 8.69 Inventory turnover 5.62 5.37 5.07 Debt to equity ratio 0.88 0.77 0.58 6.0% Return on assets 5.5% 9.8% Gross margin 8.7% 12.6% 18.7% 4.2% 3.8% Profit margin 6.9% 13.0% Return on equity 14.2% 12.0%