Waterloo Chip Ltd.’s financial statements for the year ended December 31, 2020, are shown below:

Required

1. Perform a horizontal analysis of the comparative balance sheets. Round all calculations to one decimal place. Comment on the analysis.

2. Perform a vertical analysis of the income statement. Round all calculations to one decimal place. The industry standards are gross margin of 35 percent and net income of 12 percent. Comment on the results.

3. Calculate each of the following ratios for the year ended December 31, 2020. Round answers to two decimal places. The industry standards are provided in parentheses for some of the ratios.

a. Current ratio (3.14)

b. Acid-test ratio

c. Inventory turnover

d. Days’ sales in inventory

e. Accounts receivable turnover

f. Days’ sales in receivables

g. Debt ratio (0.50)

h. Debt/equity ratio

i. Times-interest-earned ratio

j. Return on sales

k. Return on assets

l. Return on common shareholders’ equity

m. Price–earnings ratio—the market price per share is $30.00 at year-end, when dividends were paid (5.00)

n. Dividend yield (5.12%)

4. Comment on your calculations for Waterloo Chip Ltd. in Requirement 3. Include comments for those ratios for which industry standards were provided.

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WATERLOO CHIP LTD. Income Statement For the Year Ended December 31, 2020 Net sales $945,000 Cost of goods sold 610,000 Gross margin 335,000 Operating expenses Selling expenses $128,200 Administrative expenses 78,000 Interest expense 22,000 Total operating expenses 228,200 Operating income 106,800 Income taxes (25%) 26,700 Net income $ 80,100