PLEASE HELP! WILL RATE!!!! Please draw conclusions regarding the company from th

Question

PLEASE HELP! WILL RATE!!!!

Please draw conclusions regarding the company from the balance sheet given.

2021 2020 2019 ASSETS Current Assets Cash Raw Materials Inventory Finished Goods Inventory $10,614,465 $0 $0 $7,717,624 $3,942,669 $0 S2,067,102 $0 S290,343 Total Current Assets $10,614,465 $8,007,967 S6,009,772 Non Current Assets Plant Less: Accumulated Depreciation 3,600,000 3,600,000 $4,000,000 $2,165,109 $2,005,677 $2,031,700 $1,968,300 $12,049,356 9,602,290 $7,978,072 Total Non Current Assets $1,434,891 $1,594,323 TOTAL ASSETS

Explanation / Answer

Balance sheet shows company’s financial situation till date. It is prepare by the amounts of various assets, liabilities, and shareholders’ equity.

Conclusion: (1) This is a profit making company, since its retained-earning increases from year to year. Each difference of retained-earning is the profit during the year. Therefore, profit of 2020 is (7,812,649 - 6,320,154 =) $1,492,495; and profit of 2021 is (9,993,235 – 7,812,649 =) $2,180,586. This is the increasing trend of profit, which means the company is growing as the year progresses.

(2) Company’s liquidity could be judged through current ratio; this is the ratio of current assets and current liabilities. Current ratio of 2019 = (6,009,772 / 507,918) = 11.83, which is too high (Average normal is 2); it happens because of higher amount of finished goods inventory; all the production during the year were not sold. Current ratio of 2020 = (8,007,967 / 639,641) = 12.52; still it is high although finished goods inventory reduces; it happens because of higher collection of cash. Current ratio of 2021 = (10,614,465 / 956,112) = 11.10. Based on these the company’s liquidity is very high, which is safe for the investors.

(3) The company is not a manufacturing house, since its raw material inventory for all 3 years is $0. This is a trading house, since based on finished goods inventory; inventory was purchased heavily when the price is law; this is in the year 2019, because in this year its balance is very high (2,067,102).

(4) The company has one-time debt of $150,000 which is repaid in the year 2021, since in that year the balance is $0. Lower debt indicates higher solvency. Therefore, the company is solvent.

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