The financial statements of Divine Company are presented here.

DIVINE COMPANY Income Statement For the Year Ended December 31, 2014 Net sales $700,000 Cost of goods sold 400,000 Selling and administrative expenses 150,000 Interest expense 7,800 Income tax expense 43,000 Net income $ 99,200 DIVINE COMPANY Balance Sheet December 31, 2014 Assets Current assets Cash $ 22,100 Debt investments 34,800 Accounts receivable (net) 90,700 Inventory 155,000 Total current assets 302,600 Plant assets (net) 461,300 Total assets $763,900 Liabilities and Stockholders’ Equity Current liabilities Accounts payable $119,700 Income taxes payable 29,000 Total current liabilities 148,700 Bonds payable 110,000 Total liabilities 258,700 Stockholders’ equity Common stock 170,000 Retained earnings 335,200 Total stockholders’ equity 505,200 Total liabilities and stockholders’ equity $763,900 Net cash provided by operating activities $61,300 Capital expenditures $42,000 Dividends paid $10,000 Average number of shares outstanding 65,000 Instructions

(a) Compute the following values and ratios for 2014. (We provide the results from 2013 for comparative purposes.)

(i) Current ratio. (2013: 2.4:1)

(ii) Working capital. (2013: $178,000)

(iii) Debt to assets ratio. (2013: 31%)

(iv) Free cash flow. (2013: $13,000)

(v) Earnings per share. (2013: $1.35)

(b) Using your calculations from part (a), discuss changes from 2013 in liquidity, solvency, and profitability.

AppendixLO1