Page 1: 1 1 3 2 i w At the end of 2021, ACME Corporation faced increasing competition leading to a build up of inventory and declining profitability and liquidity. In an effort to generate more revenue and improve the company's financial position, the management team determined that the best course was to reduce prices and extend generous credit terms that would generate higher sales and cash flow. The results of the initiative are shown in the following table: 4 5 6 Ratio 2021 2022 Industry 7 00 8 9 Current Ratio 2.1 1.8 2.0 6.5 10 11 12 5.2 13 14 15 54% I 10% 16 17 18 Accounts Receivable 7.3 4.2 Turnover Inventory 2.6 6.4 Turnover Gross Profit 56% 52% Margin Profit Margin 12% 8% Return on Equity 23% 19% Times Interest 5.7 3.9 Earned Debt to Assets 62% 61% Free Cash Flow $125 $97 (thousands)* *Capital expenditures remained unchanged and no dividends were declared. 24% 4.9 19 20 21 70% $127 Page 1: Using the above information to support your answer, complete the following analysis in your own words: 1 1 2 3 3 4 5 6 1. Discuss ACME Corporation's liquidity. (2 marks) 2. Discuss ACME Corporation's profitability. (2 marks) 3. Discuss ACME Corporation's solvency. (2 marks) 4. Conclude on the success of management's initiative and explain the reason for your conclusion. (2 marks) 5. Recommend two actions based on your analysis and conclusion (2 marks) 7 00 8 9 Paragraph V BI Uv A Ev on + 7 10 11 12 Answer Part 1 (liquidity discussion); 13 14 15 Answer Part 2 (profitability discussion); 16 17 18 Answer Part 3 (solvency discussion) 19 20 21 Answer Part 4 (Conclusion)