QUESTION 2 (15 POINTS) - ratio analysis. The management of BB Inc. Needs a loan to finance the working capital of the business. The bank is asking to Mr. John to provide the financial statements of the two last years. Here is below the financial statements of the two last years, 2018 and 2019, of BB ince Better Buy Inc. Balance sheet as at december (Not audited - see notice to readers) 2018 2019 Assets (in thousand $) $ $ Short term assets Cash accounts receivable Inventory 12.278 8.454 32,707 47,161 5,000 16,354 53,438 88,515 long term assets 10,040 Fixed assets - equipment Cummulated depreciation - Equipment Fixed assets - Net Total assets 10,040 3,961 6,080 5,593 59,518 74, 108 Liabilities Short term liabilities Accounts payable Short term loans 12,586 7,899 10.069 6,320 Long term liabilities Long term loans 34.835 54,835 Total liabilities 55,320 71,224 Equity Common shares Retained earnings 4 4,194 4 2.880 Total Equity 4,198 2,884 Liabilities plus equity $ 50 518 74,108 Better Buy Inc. Retained earnings as at december 31st. (Not audited - see notice to readers) 2018 2019 in thousand $) $ A 1,921 2.272 Retained earnings - Opening balance Profit of the year Dividends Retained earnings - Closing balance 3,086 5,000 2.880 4,194 $ Better Buy Inc. Income statement for the year ending december 31st. (Not audited - see notice to readers) 2018 2019 Revenues in thousand ) Sales $ 217,830 $ 228,722 217,830 228,722 Cost of goods sold 24.628 151.542 opening balance inventory Purchases Closing balance inventory Cost of goods sold 32,707 132,310 16,354 32.707 143.463 148,669 Gross margin 74,367 80,053 General and Administration expenses Depreciation expense Interest and bank fees Office supply Travel fees Food and representation Professional fees Publicity Salary(commission to sales staff) licence fees Telecommunication Donations 1.095 2,259 7,984 5.173 916 1,293 17.102 32,676 955 1,061 448 486 2,304 8,144 5.276 934 1,319 17.444 33,983 974 1,082 3,500 Total-General and Administration expenses 71,562 75,446 Profit before tax Income tax (19%) 2,805 533 4,607 921 Profit of the year $ 2.272 $ 3.680 WORK TO DO Importante notice : all the numbers of the financial statements are in thousands of S. a) Calculate the following ratios for 2018 and 2019: 5 points Liquidity: current ratio, acid test ratio profitability: profit margin ratio, return on assets, retun on equity Solvency: Debt ratio, equity ratio b) using the ratios calculated above, should BB ine ask for a debt financing? Why or why not? (borrower's (BB Inc.) point of view) 5 points. c) using the ratios calculated above, should the bank give a loan to BB inc ? Why or why not? investor's (Bank) point of view) 5 points. Note: Here are below the ratios of the industry: Curent ratio 1, 6:1 Acid-test ratio 1,1:1 profit margin ratio 14% Debt ratio equity ratio return on assets (ROA) retun on equty (ROE)