Financial Statement Analysis

The financial statements of Gelato Corporation show the following information:

Statement of Financial Position

December 31, 2020

Assets 2020 2019

Cash $257,000 $263,000

Accounts receivable 128,000 163,000

Fair value through net income investments 120,000 119,000

Inventory 320,000 361,000

Plant assets (net) 398,000 418,500

Intangible assets 102,000 128,500

Total Assets $1,325,000 $1,453,000

Liabilities and Equity

Accounts payable $240,000 $303,500

Long-term debt 60,000 137,500

Share capital 293,000 293,000

Retained earnings 732,000 719,000

Total Liabilities and equity $1,325,000 $ 1,453,000

Income Statement

Year Ended December 31, 2020

2020 2019

Net sales $725,000 $703,000

Cost of goods sold (474,000) (477,000)

Gross profit 251,000 226,000

Selling and admin expenses (126,000) (100,000)

Other expenses, net (106,000) (99,000)

Income before income tax 19,000 27,000

Income tax (5,400) (8,100)

Net income $13,600 $18,900

REQUIRED: Show all calculations. Round percentages to one decimal place.

A. Using horizontal analysis, analyze Gelato Corporations change in liquidity, solvency, and profitability in 2020.

B. Using vertical analysis, analyze Gelato Corporations decline in net income in 2020

C. Identify at least two profitability ratios that are obtained from the vertical analysis performed in part (b). Is profitability improving or deteriorating based on these ratios? Briefly explain