Mr. Jones has brought you a set of financial statements of a company that he is considering investing in as a long-term investment. He is asking for your help in determining if the company would be a good investment for him.

Using the attached financial statements, you need to create a vertical analysis as percentage of Total Assets for the Balance Sheet and as a percentage of Sales for the Income Statement, as well as a horizontal analysis of the Balance Sheet and Income Statement. Complete this for both years. In addition to the vertical and horizontal analysis, you need to calculate the following ratios:

Liquidity & Efficiency:

• Current Ratio
• Acid-Test Ratio
• Receivables Turnover & Days Sales Uncollected
• Inventory Turnover & Days sales in Inventory

Solvency:

• Debt Ratio
• Equity Ratio
• Debt to Equity Ratio

Profitability:

• Profit Margin Ratio
• Gross Margin Ratio
• Return on Total Assets (ROA)
• Return on Equity (ROE)

This information then needs to be incorporated into a written memo to Mr. Jones. Be sure to include the following information in your memo.

1. What is the purpose of creating a vertical analysis and why is it useful in analyzing a potential investment?
2. What is the purpose of creating a horizontal analysis and why is it useful in analyzing a potential investment?
3. Overall, what do each of the three sections of ratios (Profitability, Liquidity & Solvency) tell a person about a company?

For the Years Ended December 31, 2018 and 2017 12/31/2018 12/31/2017 5 764,400 432,640 547,820 216,580 Sales Cost of Goods Sold Gross Profit 304,200 Operating Expenzes 95,824 33,124 86,632 47.320 20,280 60,840 Selling & Administrative Expenses Operating Income 4,732 10,816 Interest Expense Income Tax Expense 10,192 17,836 $58,604 $45 Net Income Comparative Balance Sheet For the Years Ended December 31, 2018 and 2017 12/31/2018 12/31/2017 Assets: Current Assets 563,700 34,496 59,584 15,680 109,760 Cash Accounts Receivable 91,728 30,576 186,004 Total Current Assets Long-Term Aszets 229,320 141,120 31,360) 109,760 Total Long Term Assets 165,620 $351,624 219 Total Assets Liabilities and Shareholders' Equity: 556,056 28,224 10,192 66,248 Accounts Payable Salaries Payable Total Current Liabilities 9,408 37,632 Long-Term Liabilities Notes Payable Total Long-Term Liabilities 89,180 9,180 70,560 70,560 Total Liabilities 155,428 108,192 Shareholders' Equity Common Stock, $1 par Paid In Capital Retained Earning 50,960 38,220 107,016 31,360 23,520 56,448 Total Shareholders' Equity 195,196 111,328 $351,624$ 219,520 Total Liabilities and Shareholders Equity