2 Perfect Smile's financial statements are shown below. Analyze the statements, completing the requirements to the right. Your answers should be in the cells noted in blue. Do not make any changes to the financial statements. B 4 5 6 7 2020 $3,851, 108 1,498,081 2,353,027 Perfect Smile Company 8 Statement of Income 9 For the year ended December 31 10 11 2021 12 Sales Revenue (Note 1) $3,782,299 13 Cost of Goods Sold: 1582 298 14 Gross Margin 2,200,001 15 16 Operating expenses 17 Sales and marketing expenses 922,188 18 Occupancy expenses 184,438 19 Administration expenses 258, 213 20 Total operating expenses 1,364,838 21 Operating income 22 Non-operating or other 23 Gain (loss) on sale of land and building 144,753 24 Interest (expense) income 22.000 Total non-operating 166.753 912,020 182,404 310,087 1.404,511 12,444 23,530 35,974 25 26 Income before tax 668,409 912,542 27 Income tax expense 150,392 214,447 28 Net Income (Loss): 518,017 698,095 29 Note 1. Management has determined that 80% of its sales were on credit in 2021, and 90% 30. in 2020 31 2019 153,842 330,000 17,957 747.404 1,249,203 32 33 Perfect Smile Company 34 Statement of Financial Position 35 As at December 31 36 2021 2020 37 Assets 38 Current assets: 39 Cash 95,379 114,643 40 Accounts receivable, net (Note 2) 883,260 715,441 41 Prepaid expenses 16,656 17,506 42 Inventory 912 581 830,449 43 Total current assets 1,907,876 1,678,039 44 Non-Current Assets 45 Marketable securities 500,000 400,000 46 Property plant & equipment, net 610,288 600, 124 47 Total assets 3,018,165 2,678,163 48 Liabilities and shareholders' equity 49 Current liabilities: 50 Accounts payable 396,891 521,590 51 Unearned revenue 72,867 30.408 52 Bank loan, current portion 75.000 75,000 53 Total current liabilities 544,758 626,998 54 Non-Current liabilities: 55 Bank loan payable 478 300 553 300 56 Total liabilities 1,023,058 1,180,298 57 Shareholders' equity 58 Sharecapital 523,625 400,000 59 Retained earnings 1.471.482 1.097,865 Total liabilities and shareholders' 60 equity 3,018,165 2,678,163 61 62 ---- Q1 Financial Statements Q2 STMT of changes in equity 50,000 564,290 1,863,493 303,098 54,875 75,000 432,973 628 300 1,061,273 200,000 1602.220 1,863,493 n. VACA BE Q3 Inventory Q4 D B D 65 A Perfect Smile Company Statement of Cash Flows For the Year Ended December 31 66 67 2021 2020 518,017 66,018 -144,753 698,095 97,100 -12,444 - 167,819 -82,132 850 -124,699 42.459 -385,441 -83,045 451 218,492 -24,467 107,940 508,741 68 69 70 Cash Flows from Operating Activities 71 Net Income 72 Depreciation Expense 73 Gain on sale of Equipment 74 Changes in working capital items: 75 Accounts Receivable 76 Inventories 77 Prepaid expenses 78 Accounts Payable 79 Unearned revenue Net cash used for operating activities 80 81 Cash Flows from Investing Activities 82 Add: Purchase of marketable securities 83 Add: Proceeds from Sale of Equipment 84 Deduct: Acquisition of equipment 85 Net cash provided by investing 86 Cash Flows from Financing Activities Issurance (repurchase) of common shares 87 88 Less: Dividends Paid 89 Less: Repayment of Bank Loan 90 Net cash used for financing activities 91 92 Overall increase (decrease) in cash 93 Cash position at beginning of year 94 Cash position at end of year -100,000 236,000 - 167.429 -31,429 -350,000 54,000 -174.490 -470.490 123,625 -144.400 -75.000 -95.775 200,000 -202,450 -75,000 -77 450 -19,264 114.643 95,379 -39,199 153.842 114.643 OC Q1 Financial Statements Q2 STMT of changes in equity Q3 Inventory Ready Requirement 1a - Ratio Analysis Please ensure you read the notes to the financial statements. Please calculate each of the following ratios for 2020 and 2021. Answers must be in the blue cells provided using formulas in Excel (do not use your calculator and input your final answer into Excel). Activity Ratios 2021 2020 Inventory Turnover Cost of Goods Sold / Average Inventory Days to Sell Inventory 365 days / Inventory Turnover Accounts Payable Turnover Credit Purchases/ Average Accounts Payable Average Payment Penod 365 / Accounts Payable Turnover Solvency Ratios Debt to Equity Net debt / Shareholders Equity Profitability Ratios Proht Margin Net Income / Sales Revenue Return on Equity Net Income / Average Total Shareholders Equity Return on Assets Net Income / Average Total Assets Requirement 1b Financial Statement Analysis 1) Management has a policy of trying to sell inventory in 200 days. Since they pay for shipping and insurance they typically purchase inventory in large quantities. Is management meeting this target? Comment on the change year to year. ii) Has the inventory turnover ratio improved or worsened from 2020 to 2021? in) What has happened to the days to sell inventory from 2020 to 2021? v) What does the debt to equity ratio tell you? Comment on the change year to year. vil Have the profitability ratios improved or worsened? Profit Margin Return on Equity Return on Assets What do the profitability ratios mean to shareholders