Section B Interpretation of Financial Statements (20 marks)

Hang Heng Corporation engages in wholesaling and retailing of children toys and books in Hong Kong. Condensed statements of financial position and income statements for Hang Heng Corporation are as follows:

STATEMENT OF FINANCIAL POSITION

DECEMBER 31

2019

2018

2017

Plant and equipment (net)

300,000

266,000

240,000

Long Term Investments

582,000

480,000

412,000

Accounts receivables (net)

54,000

48,000

60,000

Inventory

124,000

119,000

79,000

Other current assets

60,000

111,000

101,000

Cash

222,000

144,000

122,000

1,342,000

1,168,000

1,014,000

Current liabilities

136,000

116,000

112,000

Long-term debt

154,000

104,000

98,000

Ordinary shares, $10 par

400,000

400,000

360,000

Retained earnings

652,000

548,000

444,000

1,342,000

1,168,000

1,014,000

HANG HENG CORPORATION
INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31
	2019	2018
Sales	798,000	812,000
Less: Sales allowances	12,000	18,000
Net sales	786,000	794,000
Less: Cost of goods sold	444,000	414,000
Gross profit	342,000	380,000
Operating expenses	180,000	190,000
Less: Interest expense	20,000	16,000
Less: Income tax	30,000	24,000
Net income	112,000	150,000

Section B (continued)

Required:

1. Compute the following ratios for 2019 and 2018 (round up your answers to 2 decimal places).

1. Current ratio
2. Inventory turnover
3. Receivable turnover (Assumed that all sales are credit sales)
4. Profit margin
5. Return on assets
6. Earnings per share (Weighted-average ordinary shares in 2019 were 400,000 and in 2018 were 380,000)
7. Times interest earned ratio

(14 marks)

2. Based on your analysis above, comment on the change in liquidity and profitability for the company from the year 2018 to 2019.

(6 marks)