Question 12 (15 points)

Ratio analysis

Cygnet Handmade and Franklin Homewares are two small organisations operating in the retail industry. The table below provides selected information from their Income Statements and Balance Sheets for the last two financial years.

Your task is to use ratio analysis to make a more detailed comparison of their relative financial position and performance.

	Cygnet Handmade		Franklin Homewares
	2019	2020	2019	2020
Current assets	$111 500	$101 060	$167 900	$160 700
Non-current assets	$251 000	$245 000	$299 000	$287 000
Current liabilities	$59 600	$60 400	$23 500	$26 040
Non-current liabilities	$96 800	$90 600	$143 000	$148 000
Owners Equity	$206 100	$195 060	$300 400	$273 660
Additional information
Inventory (included in Current assets)	$41 000	$50 000	$75 000	$77 000
Profit (included in Owners equity	$71 000	$71 000	$68 000	$71 000

Financial Information for 2018

	Cygnet Handmade	Franklin Homewares
Total Owners equity	$201 000	$251 000
Total Assets	$301 500	$411 000

Required:

a. Use two ratios to calculate each organisations liquidity for each year (2019 and 2020).

b. Use two ratios to calculate each organisations profitability for each year (2019 and 2020).

c. Using your calculations from (a) and (b) compare the two organisations with reference to liquidity and profitability. Your answer should also include an explanation of the four ratios used in your calculations.

Type each answer below with its corresponding letter (a-c).