Question

I NEED URGENT HELP PLEASE, MY ASSIGNMENT IS DUE IN HALF AN HOUR. THANK YOU IN ADVANCE!!

Current Attempt in Progress (Ratio analysis over time) The following information comes from the accounting records of Hercep Ltd. for the first three years of its existence: 2018 2019 2020 Statement of Financial Position Assets Cash Accounts receivable Inventory Capital assets (net) Other assets $22,000 $19,000 $25,000 66,500 50,000 140,000 100,000 130,000 220,000 420,000 450,000 460,000 230,000 200,000 265,000 $838,500 $849,000 $1,110,000 Liabilities and equity Accounts payable Long-term debt Common shares Retained earnings $100,000 $50,000 $100,000 180,000 230,000 460,000 510,000 510,000 510,000 48,500 59,000 40,000 $838,500 $849,000 $1,110,000 Statement of Earnings Sales Cost of goods sold Other expenses $600,000 $750,000 (330,000) (495,000) (160,000) (220,000) 110,000 35,000 (33,000) (10,500) $77,000 $24,500 $880,000 (616,000) (218,000) 46,000 (13,800) $32,200 Income tax Net income Based on above information, analyze the changes in the company's profitability and liquidity, in addition to the management of accounts receivable and inventory from 2018 to 2020. (Round answers to 1 decimal place, eg. 13.5% or 13.5.) 2018 2019 % % Sales Cost of goods sold Gross margin Other expenses Income taxes Net income 2018 Current Ratio Quick Ratio A/R Turnover Average Collection Period Inventory Turnover Days to Sell Inventory :1 : 1 times days times days

Answer 1

1

Particulars	2018	2019	2020
Sales	100%	100%	100%
Cost of goods sold	55% ($330000 / $600000)	66% ($495000 / $750000)	70% ($616000 / $880000)
Gross margin	45%	34%	30%
Other expenses	26.7% ($160000 / $600000)	29.3% ($220000 / $750000)	24.8% ($218000 / $880000)
Income taxes	5.5% ($33000 / $600000)	1.4% ($10500 / $750000)	1.6% ($13800 / $880000)
Net income	12.8%	3.3%	3.6%

2

Particulars	2018	2019	2020
Current ratio (Current assets / Current liabilities)	1.9 :1 ($188500 / $100000)	4 :1 ($199000 / $50000)	3.9 :1 ($385000 / $100000)
Quick ratio (Quick assets / Current liabilities)	8.9 :1 ($88500 / $100000)	1.4 ($69000 / $50000)	1.7 :1 ($165000 / $100000)
A/R turnover (Net sales / Average accounts receivable)	9 times ($600000 / $66500)	12.9 times [$750000 / ($66500 + $50000)/2 ]	9.3 times [$880000 / ($50000 + $140000)/2 ]
Average collection period (Total days in year / A/R turnover)	40.6 days (365 days / 9 times)	28.3 days (365 days / 12.9 times)	39.4 days (366 days / 9.3 times)
Inventory turnover (Cost of goods sold / Average inventory)	3.3 times ($330000 / $100000)	4.3 times [$495000 / ($130000 + $100000)/2]	3.5 times [$616000 / ($130000 + $220000)/2]
Days to sell inventory [(Average inventory / cost of goods sold) / Total days in a year]	110.6 days [($100000 / $330000) X 365]	84.8 days [($115000 / 495000) X 365]	104 days [($175000 / $616000) X 366]

Notes:
1- Current assets = Cash + accounts receivable + Inventory
2- Current liabilities = Accounts payable
3- Quick assets = Cash + accounts receivable
4- in 2020, 366 days are taken since it is leap year

3

Particulars	2018	2019	2020
Debt to equity (Total liabilities / Shareholders' Equity)	50.1% [($100000 + $180000) / ($510000 / $48500)]	49.2% [($50000 + $230000) / ($510000 + $59000)]	101.8% [($100000 + $460000) / ($510000 + $40000)]
Return on assets (Net income / Average Total assets)	9.2% ($77000 / $838500)	2.9% [$24500 / ($838500 + $849000)/2]	3.3% [$32200 / ($849000 + $1110000)/2]
Return on Equity (Net income / Average shareholders equity)	13.8% ($77000 / $558500)	4.3% [$24500 / ($558500 + 569000)/2]	5.8% [$32200 / ($569000 + $550000)/2]

Notes:
1- Total liabilities = Accounts payable + Long term debt
2- Shareholders Equity = Common shares + Retained earnings

(The above computations may vary in decimal due to roundiong off but are correct. If there are any questions, kindly let me know in comments. If the solution is to your satisfaction, a thumbs up would be appreciated. Thank You)