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Nicola owns and operates a small business selling homewares. She established the business around 12...

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Accounting

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Nicola owns and operates a small business selling homewares. She established the business around 12 years ago, and has seen a big increase in demand in recent years. Nicola is concerned that operating the business on her own is becoming too much for her, and is considering downsizing. Her accountant advised her to analyse business performance based on the items she sells, as it may provide insights into the direction she could move. Selected accounting information for the divisions, and the business as a whole, are provided below. These relate to the year ended 30 June 2022 . Nicola has recently started analysing her financial statements by calculating financial ratios, but is confused by the results. Her current (working capital) ratio shows a positive improvement over a twoyear period, while her quick asset ratio shows a decline over the same period. Explain to Nicola how this is possible. (4 marks)

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