Bochum Traders: Financial ratio analysis Financial ratio analysis involves the methods of calculating and interpreting financial ratios to assess an enterprise's performance and status in relation to that of other entities, or to itself, over time. There are four basic groups of financial ratios: liquidity ratios, activity ratios, debt ratios, and profitability ratios. Liquidity, activity and debt ratios primarily measure risk, whereas profitability ratios measure return. You are interested in taking over Bochum Traders but need to analyse and evaluate the financial status of the entity. The bookkeeper of Bochum Traders has provided you with the following calculated ratios from information available from the entity's financial statements: 2023 0.5:1 Acid test ratio 2022 0.9:1 Inventory turnover rate 9 times 6 times Debtor collection period 32 days 48 days Creditor payment period 45 days 45 days Gross profit percentage 50% 50% Analyse the financial performance of Bochum Traders using each of the financial ratios indicated below. Inventory Turnover Rate Bochum Traders achieved an inventory turnover rate of nine times in 2022. Identify the two operational strengths and explain how they contributed to this efficient management of inventory. The inventory turnover rate decreased to six times in 2023. Discuss two factors that led to this decline and explain how they impacted the company's overall efficiency and profitability. In light of the reduced inventory turnover rate, recommend any three strategies that Bochum Traders should adopt to optimise inventory management, reduce carrying costs, and improve overall efficiency. Debtor Collection Period The debtor collection period increased from 32 days in 2022 to 48 days in 2023. Identify two possible challenges or weaknesses that led to this delay in receiving payments. Justify each. Provide any two reasons of how this delay impacts cash flow. Creditor Payment Period The 2023 debtor payment period is 48 days and exceeds the creditor payment period of 45 days by three days. Explain the impact of this difference on the financial performance of the company. Provide any two reasons for your answer. After reading the financial statement analysis above, would you still be interested in taking over Bochum Traders? Provide any two reasons for your answer.