Archer, Maddie and Dillon have requested a meeting with you to discuss the potential investment in Sea Salt Surf Ltd. As part of your preparation for this meeting:
a. Prepare a one-page report on the profitability and efficiency of Sea Salt Surf Ltd. Use ratio analysis and comment on any significant changes in profitability and efficiency since 20X2. Ratio formulae is provided at Appendix A.

b. Consider the debt covenants associated with the funds borrowed by Sea Salt Surf Ltd. Undertake the necessary calculations to determine to what extent the company is meeting or breaching these covenants.
c. You notice that there has been a change in the accounting policy adopted by Sea Salt Surf Ltd which relates to the valuation of assets. With reference to your analysis of the company thus far, identify a potential reason for the change in accounting policy.

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APPENDIX A: RATIO FORMULAE CATEGORY Profitability Profitability Profitability Profitability Profitability Profitability Operating efficiency Operating efficiency Operating efficiency Financial gearing (stability) Financial gearing (stability) Liquidity Liquidity Liquidity Liquidity RATIO Return on assets (ROA) ROA (adj.) ROA (adj. EBIT) Return on equity (ROE) Profit ratio Gross profit ratio Inventory turnover Debtors turnover Operating cash flow margin Debt to assets ratio Debt to equity ratio Current ratio Quick ratio Interest coverage ratio Cash flows from operations to current liabilities FORMULA profit + average total assets (profit + interest expense) ÷ average total assets (profit + interest expense + taxes) + average total assets profit + average owners' equity profit + sales revenue (sales revenue - cost of goods sold) + sales revenue cost of goods sold + average inventory credit sales + average accounts receivable cash flows from operations + sales revenue total liabilities + total assets total liabilities + total owners' equity current assets + current liabilities (current assets - inventory-prepayments) + (current liabilities - bank overdraft) earnings before interest and taxes + interest costs cash flows from operating activities + current liabilities