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Question 21 (8 points) Saved At the end of 2019, Baby Ltd. faced increasing competition leading to a build up of inventory, declining profitability and

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Question 21 (8 points) Saved At the end of 2019, Baby 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 Debt to Assets 62% 60% 66% 50% 10% 2.0 6.7 Gross Profit 51% 51% Margin Profit Margin 9% 10% Current Ratio 1.7 2.2 Inventory 4.2 6.9 Turnover Accounts Receivable 7.9 7.5 Turnover Return on Equity 23% 22% Times Interest 5.0 5.2 Earned Free Cash Flow $111 $118 (thousands)* *Capital expenditures remained unchanged and no dividends were declared. 7.6 24% 4.9 $117 Using the above information to support your answer, complete the following analysis in your own words: 1. Discuss Baby's liquidity. (2 marks) 2. Discuss Baby's profitability. (2 marks) 3. Discuss Baby's solvency. (2 marks) 4. Conclude on the success of managements initiative and explain the reason for your conclusion. (2 marks) Paragraph B I Uv A ou + ... Answer Part 1 (liquidity discussion)

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