(Analyze financial information, LO 4, 7) Below are the summarized income statements and balance sheets for Miramichi Inc. (Miramichi) for 2004 and 2005:

Required:

a. Calculate the following for Miramichi for 2004 and 2005:
i. working capital ii. current ratio iii. debt-to-equity ratio iv. gross margin v. gross margin percentage

b. Explain why the amounts you calculated in

(a) changed from 2004 to 2005.

c. Comment on Miramichi’s liquidity position on December 31, 2005. As a prospective lender of money to Miramichi, what concerns would you have about its current liquidity position?

d. What could Miramichi’s management do to improve liquidity?

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Assets Miramichi Inc. Balance Sheets As at December 31 2005 2004 2005 2004 Liabilities and shareholders' equity Cash $ 15,000 $10,000 Bank loan $ 50,000 $ 35,000 Accounts Accounts payable 100,000 60,000 receivable 120,000 75,000 Current portion of Inventory 170,000 105,000 long-term debt 20,000 15,000 Plant and Long-term debt 140,000 80,000 equipment (net of accumulated Shareholders' equity amortization) 348,800 Other non- 220,000 Capital stock Retained earnings 120,000 100,000 308,800 220,000 current assets 85,000 100,000 Total liabilities and Total assets $738,800 $510,000 shareholders' equity $738,800 $510,000