(i) Current ratio = Current assets / Current liabilities

For 2021:

Current assets = Cash + accounts receivable + inventory

Current assets = $215 + $310 + $328 = $853

Current liabilities = Accounts payable + Notes payable

Current liabilities = $298 + $1427 = $1725

Now, putting these values in the current ratio formula, we get,

Current ratio = $853 / $1725 = 0.49

For 2022:

Current assets = Cash + accounts receivable + inventory

Current assets = $210 + $355 + $507 = $1072

Current liabilities = Accounts payable + Notes payable

Current liabilities = $207 + $1715 = $1922

Now, putting these values in the current ratio formula, we get,

Current ratio = $1072 / $1922 = 0.56

(ii) Quick ratio = Current assets Inventories Prepaid expenses / Current liabilities

For 2021:

Current assets = $853, inventory = $328

Current liabilities = $1725

Now, putting these values in the quick ratio formula, we get,

Quick ratio = $853 - $328 / $1725

Quick ratio = $525 / $1725 = 0.30

For 2022:

Current assets = $1072, inventory = $507

Current liabilities = $1922

Now, putting these values in the quick ratio formula, we get,

Quick ratio = $1072 - $507 / $1922

Quick ratio = $565 / $1922 = 0.29

(iii) Operating Profit margin = Operating profit / Sales * 100

where, Operating profit = Earnings before tax + Interest expense

For 2021:

Earnings before tax = $900, Interest expense = $400, Sales = $5000

Putting the values in the above formula, we get,

Operating Profit margin = ($900 + $400) / $5000 * 100

Operating Profit margin = $1300 / $5000 * 100

Operating Profit margin = 26%

For 2022:

Earnings before tax = $370, Interest expense = $300, Sales = $4050

Putting the values in the above formula, we get,

Operating Profit margin = ($370 + $300) / $4050 * 100

Operating Profit margin = $670 / $4050 * 100

Operating Profit margin = 16.54%

(iv) Net Profit margin = Net income / Sales * 100

For 2021:

Net income = $630, Sales = $5000

Putting the values in the above formula, we get,

Net Profit margin = $630 / $5000 * 100

Net Profit margin = 12.6%

For 2022:

Net income = $259, Sales = $4050

Putting the values in the above formula, we get,

Net Profit margin = $259 / $4050 * 100

Net Profit margin = 6.4%

b. Based on your computation in part (a) interpret the performance of HPB for the year 2022 compared to the year 2021 based on the following categories of ratio: 1. Liquidity (2 Marks) ii. Profitability (2 Marks)