HW3-1 (20 POINTS) Sweet Dreams Corp. has prepared the following financial statements: Sweet Dreams Corp. Income Statement For the Year Ended Dec. 31 2020 Total Current Assets Sales Cost of Goods Sold 2,088,000 2020 3,074,000 2,567,000 1,711,000 2019 Assets Cash Accounts Receivable Gross Profit 986,000 856,000 Inventories Selling and G&A Expenses 294,000 295,000 Fixed Expenses 35,000 35,000 Gross Fixed Assets Depreciation Expense 239,000 223,000 EBIT 418,000 303,000 Interest Expense 93,000 91,000 Earnings Before Taxes 325,000 212,000 Taxes Net Income 94,000 231,000 64,000 148,000 Sweet Dreams Corp. Balance Sheet As of Dec. 31 2020 Accumulated Depreciation Net Fixed Assets Total Assets Liabilities and Owners' Equity Accounts Payable Short-term Notes Payable Accrued Expenses Total Current Liabilities Long-term Debt Total Liabilities Common Stock Retained Earnings Total Shareholder's Equity 2020 2019 431,000 339,000 503,000 365,000 289,000 300,000 1,223,000 1,004,000 4,669,000 4,322,000 2,295,000 2,056,000 2,374,000 2,266,000 3.597,000 3,270,000 382,000 270,000 79,000 99,000 159,000 114,000 620,000 483,000 1,023,000 967,000 1,643,000 1,450,000 819,000 808,000 1,135,000 1,012,000 1,954,000 1,820,000 Total Liabilities and Owners' Equity 3,597,000 3,270,000 a) Using the following 2020 industry averages, evaluate Sweet Dreams Corp.'s financial situation. Set up a ratio analysis as shown in Exhibit 3-7 (Identify and Access Needed Information 4 pts). Ratio c) Using the Altman's model for privately held firms and public ones, calculate the Z-score for Sweet Dreams Corp. Assume that the market value of Sweet Dreams Corp. is $1,200,000. (Identify and Access Needed Information 4 pts). d) Calculate Sweet Dreams Corp.'s economic profit for these years and compare it to net income. Assume that the weighted average cost of capital is 12% (Identify and Access Needed Information 4 pts). e) Interpretation: please describe where you obtained information to develop analyses and interpret the results. Please include your written description in the interpretation" tab. If you do not complete this section with your words or leave the interpretation tab as a blank, you receive 0 point in this HW. 1. Complete individual interpretation for each ratio. 2. Describe your analysis, and elaborate your results in relation to ratios, Do Pont ROE, Z-score and Economic Profit. Value Ratio Value Current Ratio 2.50x Debt to Equity 0.90x Quick Ratio 0.60x Long-Term Debt to Equity 40.00% Inventory Turnover Ratio 6.50x Times Interest Earned 2.50x Accounts Receivable Turnover Ratio 8.00x Cash Coverage Ratio 3.50x Average Collection Period 40.00 days Gross Profit Margin 20.00% Fixed Asset Turnover 2.00x Operating Profit Margin 7.00% 2.00x 50.00% 20.00% 30.00% Total Asset Turnover Total Debt Ratio Long-Term Debt Ratio LTD to Total Capitalization b) Verify Sweet Dreams Corp's ROE using the Du Pont method (Analysis 4 Net Profit Margin 5.00% Return on Total Assets 5.00% Return on Equity 8.00% Return on Common Equity 10.00% pts). End of document