Question 20 (10 points) At the end of 2019, Masterworks Ltd. faced increasing competition leading to a build up of inventory, 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 show in the following table: Ratio 2019 2020 Industry 72% 70% 76% 61% 61% 60% 10% 9% 1.7 10% 2.1 2.2 4.1 6.9 6.8 Debt to Assets Gross Profit Margin Profit Margin Current Ratio Inventory Turnover Accounts Receivable Turnover Return on Equity Times Interest Earned Free Cash Flow (thousands) 7.9 7.4 7.5 23% 22% 24% 5.0 5.1 4.9 $110 $118 $117 Times Interest 5.0 5.1 4.9 Earned Free Cash Flow $110 $118 $117 (thousands) Capital expenditures remained unchanged and no dividends were declared. Using the above information to support your answer, complete the following analysis in your own words: 1. Discuss Mastewworks' liquidity. (2 marks) 2. Discuss Masterworks' profitability. (2 marks) 3. Discuss Masterworks' solvency. (2 marks) 4. Conclude on the success of managements initiative and explain the reason for your conclusion. (2 marks) 5. Recommend two actions based on your analysis and conclusion (2 marks) Format Answer Part 1 (liquidity discussion); Answer Part 2 (profitability discussion); Format BI U Answer Part 1 (liquidity discussion) Answer Part 2 (profitability discussion); Answer Part 3 (solvency discussion) Answer Part 4 (Conclusion) Answer Part 5 (Recommendation): CO