Question 1 35 pts (35 minutes) The following are the comparative financial statements for Outland Corporation for 2020 and 2019: OUTLAND CORPORATION Statement of Income For Periods Ending October 31 2020 167,500 100,000 67,500 Sales Revenue Cost of Goods Sold Gross Profit.. 2019 140,000 85,000 55,000 Expenses Depreciation Selling and Administrative Interest Expense.. Total Expenses. Net Income (before taxes).. Income Taxes Net Income 15,000 22,500 0 47,500 15,000 15,000 0 35,000 25,000 10,000 15,000 22,500 7,500 15,000 OUTLAND CORPORATION Statement of Financial Position As at October 31 2020 2019 Assets Current Assets: Cash Marketable Securities Accounts Receivable Inventory Total Current Assets 4,000 10,000 35,000 31,000 80,000 2,500 7,500 30,000 25,000 65,000 Investments (at cost). 30,000 32,500 Property, plant and equipment Property, Plant and Equipment Less: Accumulated Depreciation. Goodwill Total Assets 200,000 87.500 112,500 2.500 225,000 190,000 80,000 110,000 2,500 210,000 12,500 25,000 20,000 57,500 10,000 20,000 15,000 45,000 Liabilities and Shareholders' Equity Current Liabilities: Accounts Payable Notes Payable...... Accrued and Other Liabilities Total Current Liabilities .. Non-current Liabilities: Bonds and Notes Payable. Total Liabilities ....... Shareholders' Equity Common shares Contributed Surplus Retained Earnings.. Total Shareholders' Equity. 72,500 130,000 78,250 123,250 15,000 55,000 25,000 95,000 15,000 61,750 10,000 86,750 Total Liabilities and Shareholders' Equity 225.000 210.000 All of Outland's sales are on credit. The company gives customers 60 days to pay accounts receivable. Industry average days to sell inventory is 50 days. Competitors to Outland typically generate a 6% return on their assets. . Outland had the following ratio results in 2019: Gross Profit Margin - 39% Days to Collect Accounts Receivable - 78 days Current Ratio - 1.44 Days to Sell Inventory - 107 days Quick Ratio - 0.89 Return on Assets - 7.1% Instructions 1) Comment on the 2020 financial performance of Outland Corp. using ratios in terms of a) Liquidity b) Activity c) Profitability Hint: You should calculate 2020 ratios for those that Outland calculated in 2019, and then interpret them. 2) Would you invest in this company? Why or why not
