Assume you are a mid-level executive at Automotive Solutions Inc., and you have been assigned to analyze the company's financial statements for 20Y7 and 20Y8 and prepare a report for upper-level organizational leaders.

The following tables show the comparative financial statements for Automotive Solutions Inc. The market price of Automotive Solutions Inc. common stock was $119 on December 31, 20Y8. The market price of Automotive Solutions Inc. common stock was $103 on December 31, 20Y7.

AUTOMOTIVE SOLUTIONS INC.
Comparative Statement of Stockholders' Equity
For the Years Ended December 31, 20Y8 and 20Y7
	20Y8		20Y7
	Preferred stock	Common stock	Retained Earnings		Preferred stock	Common stock	Retained Earnings
Balances, Jan. 1	$500,000	$500,000	$5,375,000		$500,000	$500,000	$4,545,000
Net income			900,000				925,000
Dividends:
Preferred stock			(45,000)				(45,000)
Common stock	_______	_______	(50,000)		________	_______	(50,000)
Balances, Dec. 31	$500,000	$500,000	$6,180,000		$500,000	$500,000	$5,375,000

AUTOMOTIVE SOLUTIONS INC.
Comparative Income Statement
For the Years Ended December 31, 2018 and 20Y7
	20Y8	20Y7
Sales	$10,000,000	$ 9,400,000
Cost of goods sold	(5,350,000)	4,950,000)
Gross profit	$ 4,650,000	$ 4,450,000
Selling expenses	$(2,000,000)	$(1,880,000)
Administrative expenses	(1,500,000)	(1,410,000)
Total operating expenses	$ (3,500,000)	$(3,290,000)
Operating income	$ 1,150,000	$ 1,160,000
Other revenue and expense:
Other revenue	150,000	140,000
Other expense (interest)	(170,000)	(150,000)
Income before income tax	$ 1,130,000	$ 1,150,000
Income tax expense	(230,000)	(225,000)
Net income	$ 900,000	$ 925,000

Make a liquidity analysis by computing and using the appropriate ratios to assess liquidity.

• Compute a minimum of three liquidity ratios for the years ended Dec 31, 20Y8 and Dec. 31, 20Y7 and show your supporting calculations. Use the same three liquidity ratios for both years.
• Analyze the ratios computed and discuss any insights or conclusions that can be drawn from your analysis.
• Make a solvency analysis by computing and using the appropriate ratios to assess solvency.
  • Compute a minimum of three solvency ratios for the years ended Dec 31, 20Y8 and Dec. 31, 20Y7 and show your supporting calculations. Use the same three solvency ratios for both years.
  • Analyze the ratios computed and discuss any insights or conclusions that can be drawn from your analysis.
• Make a profitability analysis by computing and using the appropriate ratios to assess profitability.
  • Compute a minimum of three profitability ratios for the years ended Dec 31, 20Y8 and Dec. 31, 20Y7 and show your supporting calculations. Use the same three profitability ratios for both years.
  • Analyze the ratios computed and discuss any insights or conclusions that can be drawn from your analysis.
• Draft a summary of what the financial statements indicate about the company's overall financial health and performance, strengths and weaknesses of the company, as well as any identified positive or negative trends and the risk of investing in the company.

AUTOMOTIVE SOLUTIONS INC.
Comparative Balance Sheet
December 31, 20Y8 and 20Y7
	Dec. 31, 20Y8	Dec. 31, 20Y7
Assets
Current assets:
Cash	$ 500,000	$ 400,000
Marketable securities	1,010,000	1,000,000
Accounts receivable (net)	740,000	510,000
Inventories	1,190,000	950,000
Prepaid expenses	2,50,000	229,000
Total current assets	$3,690,000	$3,089,000
Long-term investments	2,350,000	2,300,000
Property, plant, and equipment (net)	3,740,000	3,366,000
Total assets	$9,780,000	$8,755,000
Liabilities
Current liabilities	$ 900,000	$ 880,000
Long-term liabilities:
Mortgage note payable, 10%	$ 200,000	$ 0
Bonds payable, 10%	1,500,000	1,500,000
Total long-term liabilities	$1,700,000	$1,500,000
Total liabilities	$2,600,000	$2,380,000
Stockholders' Equity
Preferred $0.90 stock, $10 par	$ 500,000	$ 500,000
Common stock, $5 par	500,000	500,000
Retained earnings	6,180,000	5,375,500
Total stockholders' equity	$7,180,000	$6,375,000
Total liabilities and stockholders' equity	$9,780,000	$8,755,000

Answer rating: 100% (QA)

Liquidity Analysis To assess the liquidity of Automotive Solutions Inc I will compute the following three liquidity ratios for the years ended Decembe... View the full answer