A toy store named Twirlybirds is looking to expand their business. To do so, they are

seeking a loan from your company. You obtained the following financial statements from

Twirlybirds:

Twirlybirds

Balance Sheet

As at December 31

202020192018

ASSETS

Cash $ 23,170 $ 27,326 $ 21,936

Temporary investments 29,645 11,097

Accounts receivable 30,050 31,721 31,471

Inventory 74,727 55,253 63,094

Prepaid insurance 4,499 4,105 4,474

Long-term investments 38,478 55,671 49,434

Land 22,117 22,117 22,117

Equipment (net) 142,779 131,280 142,020

Goodwill 41,188 41,188 41,188

Total Assets $ 406,653 $ 379,758 $ 375,734

LIABILITIES AND SHAREHOLDERS' EQUITY

Accounts payable $ 50,989 $ 51,094 $ 49,125

Unearned revenue 24,201 16,796 20,387

Long-term liabilities 43,739 36,978 41,986

Common shares 157,643 157,643 157,643

Retained earnings 130,081 117,247 106,593

Total Liabilities and Shareholders' Equity $ 406,653 $ 379,758 $ 375,734

Twirlybirds

Income Statement

For the years ending December 31

20202019

Net sales (80% on credit) $ 1,427,028 $ 1,318,540

Cost of goods sold 849,964 922,123

Gross profit 577,064 396,417

Operating expenses 255,650 259,994

Operating income (loss) 321,414 136,423

Interest expense 5,280 5,794

Income (loss) before taxes 316,134 130,629

Income tax expense (recovery) 79,034 32,657

Profit $ 237,100 $ 97,972

Perform a liquidity analysis on Twirlybirds by doing the following:

1. Calculate the 9 liquidity ratios listed below for Twirlybirds for 2019 and 2020. (18 marks)

Round your calculations to 2 decimal places.

2. Indicate whether each ratio for Twirlybirds has gotten better or worse from 2019 to 2020

(4.5 marks)

3. Below are the industry averages for each ratio. Indicate whether each ratio you calculated for

Twirlybirds is favourable or unfavourable when comparing to the industry average.

(4.5 marks)

4. Give your overall opinion on whether your company will loan money to Twirlybirds to

fund their expansion. Provide at least 2 reasons to back up your opinion (2 assumptions you

made based on your liquidity analysis - be specific and refer to your calculations). (5 marks)

Ratios Industry average

A. Current ratio 1.44to 1

B. Quick ratio 0.65to 1

C. AR turnover 4.39times

D. Days sales uncollected 91.98days

E. Inventory turnover 8.83times

F. Days sales in inventory 46.96days

G. Total asset turnover 1.05times

H. AP turnover 8.36times

I. Days to pay AP 43.71days