SECTION A ANSWER TUS QUESTION FOR AO MARKS Annual Reports. Also included below is the industry average data The following financial statements are taken from the ABC Company LM 2019 and 2017 ABC Company Ltd Income Statement For the years ended December 31, 2019 and December 31, 2018 (in GH) Sales 2019 2018 750.000 ..900,000 530.000 420.000 1370,000 330,000 Cost of goods sold Gross profit Operating expenses Selling expenses General and administrative expenses 75,000 117,000 .126,000 243,000 127,000 .24,000 Profit before interest and taxes 95.000 170,000 160,000 30,000 Interest expense ...28.000 40.000 Income tax expense .75.000 90.000 Net Profit ABC Company Ltd. Statement of Changes in Retained Earnings For the years ended December 31, 2019 and December 31, 2018 (in GH) 2019 2018 176,000 115,000 Retained earnings, beginning of year 75,000 Net profit (24,000) (9,000) 90,000 (20,000) (9,000) 176.000 Dividends on common shares Dividend on preferred shares Retained earnings, end of year 218.000 2 ABC Company Ltd Statement of Financial Position (Balance Sheet) December 31, 2019 and December 31, 2018 (in GH) Assets Non-current assets Current assets 2019 2018 Cash..... .560,000 572,000 Accounts receivables 38,000 Inventories 40,000 Prepaid expenses Total assets.... 117,000 .180,000 .55,000 950.000 86,000 120,000 Liabilities and Owners' Equity 42,000 Liabilities 860,000 Current liabilities Non-current liabilities Total Liabilities 94,000 .112,000 .200.000 ...312,000 250,000 344,000 ..100,000 Shareholders' equity Preferred shares, GH 100 per share... Common shares, GH 50 per share Additional capital Retained earnings Total Shareholders' equity Total liabilities and Shareholders' equity.... 100,000 .250,000 .70,000 200,000 40,000 218,000 638,000 176,000 516,000 860,000 250.000 Financial ratios 1. Current ratio 2. Quick ratio 3. Average collection period 4. Days in inventory 5. Gross profit ratio 6. Eamings per share 7. Times Interest Earned ratio Industry average 3.0 times 1.8 times 38 days 96 days 40% GH 15.00 4.8 times 3 Required: a) For decision making purposes, Accountants usually distinguish between better (more useful information from inferior (less useful information. Discuss the two fundamental qualities and their related ingredients of useful accounting information b) Based on the above ABC Company's financial information, calculate for ABC the seven (7) financial ratios listed above, for 2019 and 2018. (10 Marka) (7 Marks) (20 Marks) c) Using the ratios calculated in b), and making industry and inter-period comparisons, assess the financial performance of ABC Company Ltd over the two-year period d) Identify and explain three key limitations of using ratio analysis in assessing a company's performance