The following ratios are available for a three-year period for Woolfrey Ltd.:

Required:
1. Explain why the current ratio is increasing while the quick ratio is decreasing.
2. Comment on the company’s use of financial leverage.

Transcribed Image Text:

Current ratio Quick ratio Average collection period of accounts receivable Inventory turnover Debt to total assets Long-term debt to shareholders' equity Sales as a percentage of 20X6 sales Gross profit percentage Operating margin Return on total assets Return on shareholders' equity 20X6 1.7 1.1 51 days 4.5 51% 52% 100% 36% 7% 8% 14% 20X7 1.8 0.9 57 days 4.0 46% 57% 103% 35% 7% 8% 13% 20X8 1.9 1.0 66 days 3.3 41% 62% 107% 35% 7% 8% 13%