The following financial statements were prepared for the management of Morgan Ltd. The statements contain some information that will be disclosed in note form in the general purpose external financial statements to be issued to the investors.

Morgan Ltd

Income Statement

For the year ended 30 June 2018

Revenues (Note 2)$850,500

Expenses, excluding finance costs (Note 4)686,700

Finance costs6,300

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Profit before income tax157,500

Income tax expense63,000

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Profit $ 94,500

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Morgan Ltd

Statement of Financial Position

As at 30 June 2018

Current assets

Cash and cash equivalents$ 37,800

Accounts receivables$299,250

Less: Allowance for doubtful debts18,900

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280,350

Inventories252,000

_______

Total current assets570,150

_______

Non-current assets

Land63,000

Building$189,000

Less: Accumulated Depreciation37,800

_________151,200

Store equipment47,250

Less: Accumulated Depreciation22,050

_________ 25,200

_______

Total Non-current assets239,400

_______

Total assets809,550

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Current liabilities

Accounts payables270,900

Preference dividends payable3,780

Ordinary dividends payable25,200

Other current liabilities12,600

_______

Total current liabilities312,480

_______

Non-current liabilities

Long-term borrowings (Note 5)63,000

_______

Total Non-current liabilities63,000

_______

Total liabilities375,480

_______

Net assets434,070

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Equity

Share capital$315,000

Retained earnings119,070

_______

Total equity 434,070

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Morgan Ltd

Statement of Changes in Equity

For the year ended 30 June 2018

Share capital

Ordinary:

Balance at start of period$252,000

________

Balance at end of period252,000

________

Preference (Note 6):

Balance at start of period63,000

_______

Balance at end of period63,000

________

Total share capital$315,000

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Retained earnings

Balance at start of period$53,550

Total profit for the period94,500

Dividends - preferences(3,780)

Dividends - ordinary(25,200)

________

Balance at end of period$119,070

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Notes to the financial statements

Note 2: Revenue

Sales$850,500

Note 4: Expenses

Cost of sales567,000

Selling and distribution expenses89,000

Administration expenses30,700

Note 5: Long-term borrowings

10% mortgage payable 63,000

Note 6: Preference shares

6% preference shares 63,000

Additional information:

1.The balance of certain accounts at the beginning of the year are:

Accounts receivables$315,000

Allowance for doubtful debts (26,350)

Inventories220,500

2.Total assets and total equity at the beginning of the year were $756,000 and $368,550 respectfully.

REQUIRED:

A.Name the ratios that a financial analyst might calculate to give some indication of the following cases: (2 Marks)

1.A company's earning power

2.The extent to which internal resources have been used to finance acquisition of assets

3.Rapidity with which accounts receivables are collected

4.The ability of the entity's earnings to cover its interest commitments

5.The length of time taken by the business to sell its inventories

B.Calculate and briefly discuss the suitability of the ratios mentioned for each of the above cases. (6 Marks)

C.Given the above financial statements, comment on the company's profitability and liquidity. (2 Marks)