The financial statements of Harvey Company and Jenny Company are as follows: Statements of Financial Position as at December 31, 2018 Harvey Co. Current Assets Cash Accounts receivable, net Inventory Total Current Assets 18,000 21,100 18,500 Jenny Co. $ 1,900 14,700 6,700 23,300 57,600 Non-Current Assets Long-term financial assets Property, plant and equipment, net Total Non-Current Assets 167,000 123,400 64,000 65,000 290,400 129,000 TOTAL ASSETS 348,000 152,300 Current Liabilities Accounts payable Notes payable Total Current Liabilities 18,000 10,000 11,600 10,000 28,000 21,600 Non-Current Liabilities Bank loan (repayable in 3 years) 80.000 68,000 TOTAL LIABILTIES 108,000 89,600 EQUITY Capital 240,000 348,000 62.700 152,300 Income Statements for the year ended December 31, 2018 Harvey Co. Jenny Co. Sales (all credit sales) Less: Cost of sales Gross Profit Less: Operating expenses Net Profit 420.000 278,000 142,000 88,000 54,000 135,000 100.000 35,000 28,000 7,000 Statements of Financial Position as at January 1. 2018 (Extract) Statements of Financial Position as at January 1, 2018 (Extract) Harvey Co. Jenny Co. Accounts receivable, net Inventory 45,000 9,500 32,000 6,000 Required: (a) Calculate the following ratios for the two firms: (round the answers to 2 decimal places.) (1) Gross profit ratio (11) Net profit ratio (111) Working capital (iv) Current ratio (v) Acid test ratio (vi) Accounts receivable turnover (vii) Inventory turnover ratio (v111) Debt ratio (16 marks) (6) Explain briefly the terms (i) profitability. (11) liquidity and (111) solvency. (3 marks) (c) Based on the ratios calculated in (a), comment on the () profitability and (ii) liquidity of the two firms. (10 marks)
