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Question One: (40 marks) Smart Ltd. (Smart) is a general fashion sales and distribution corporation established in Hong Kong for thirty some years. It was listed fifteen years ago. Smart primarily engages in the sales and distribution of fashions, clothes and accessories. Average price of Smart products ranges from $200 to $2,000 in general. For thirty years Smart focuses primarily in Europe and Hong Kong market with fewer outlets in the North America and other Asia Pacific countries. Extracts from the accounts of Smart for the years ended 31 December 2018 and 2019 respectively and selected financial ratios there from are presented below: 2019 2018 Turnover: Local & Asia $4,073,500,000 3,367,000,000 Overseas 32,296,000,000 25,573,000,000 Cost of Goods Sold: Local & Asia 1,888,000,000 1,562,000,000 Overseas 15,369,000,000 12,193,000,000 Promotional Expenses: Local & Asia 58,000,000 16,500,000 Overseas 79,000,000 68,000,000 Rental Expenses 2,918,000,000 2,325,000,000 Directors' Fees 154,052,000 124,201,000 Staff Salaries and Wages 4,426,000,000 3,514,000,000 Properties 165,000,000 167,000,000 Other Plant and Equipment 3,230,000,000 2,358,000,000 Current Ratio 2.72 2.78 Acid Ratio 2.14 2.02 Current Asset / Total Asset 0.69 0.67 Accounts Receivable Turnover 9.29 times 9.98 times Accounts Payable Turnover 10.98 times 9.56 times Property, Plant & Equipment / Total Asset 0.16 0.15 Operation Margin 20.74% 21.11% Net Margin 17.33% 17.47% Return on Assets 29.46% 18% Return on Equity 40.45% 23%Debt / Equity 2.43% 3.12% Earnings per Share $5.21 $4.22 (Note: You can assume that all accounting data and calculated accounting ratios are mathematically correct.) Smart claims that the corporation is getting even more business opportunities by expanding both the Europe and the Mainland market. But some financial analysts question its innovation and profitability ability. You are required to: A. Discuss the possible difficulties in analyzing the financial performance of Smart by Hong Kong financial analysts. (15 marks) B. Comment on the profitability of Smart with regard to the extracted data. You may make assumptions in giving your comments. Please clearly state any assumptions you have made. (25 marks)