The financial statements of Star Corporation appear below:

Star Corporation

Comparative Balance Sheets

December 31, 2018 - 19

Assets 2019 2018

Cash $ 50,000 $ 100,000

Short-term investments 50,000 150,000

Accounts receivable (net) 100,000 75,000

Inventory 150,000 175,000

Property, plant and equipment (net) 650,000 750,000

Total assets $1,000,000 $1,250,000

Liabilities and stockholders' equity

Accounts payable $ 50,000 $ 75,000

Short-term notes payable 100,000 225,000

Bonds payable 200,000 400,000

Common stock 375,000 375,000

Retained earnings 275,000 175,000

Total liabilities and stockholders' equity $1,000,000 $1,250,000

Star Corporation

Income Statement

For the Year Ended December 31, 2019

Net sales $1,000,000

Cost of goods sold 625,000

Gross profit 375,000

Expenses

Operating expenses $105,000

Interest expense 45,000

Total expenses 150,000

Income before income taxes 225,000

Income tax expense 67,500

Net income $ 157,500

Required:

(a) Using the financial statements, compute the following ratios for Star Corporation for 2019. Show all computations. (4 marks)

1. Current ratio.

2. Acid-test ratio.

3. Accounts receivable turnover.

4. Inventory turnover.

5. Profit margin.

6. Return on assets.

7. Assets turnover.

8. Times interest earned.

9. Working capital.

10. Debt to assets ratio.

(b) Prepare a vertical analysis of the 2019 income statement data for Star Corporation.

(2 marks)

(c) Based on the ratios calculated in (a), and the vertical analysis in (b), discuss briefly the improvement or lack thereof in financial position and operating results from 2018 to 2019 of Star Corporation. (2 marks)