The following information comes from the accounting records of Hercep Ltd. for the first three years of its existence:

Required

a. Based on above information, analyze and comment on the changes in the company’s profitability and liquidity, in addition to the management of accounts receivable and inventory from 2018 to 2020.

b. Based on the above information, analyze and comment on the company’s use of leverage from 2018 to 2020.

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2018 2019 2020 Statement of Financial Position Assets $ 20,000 $ 22,500 $ 25,000 Cash Accounts receivable 67,500 50,000 145,000 Inventory 110,000 220,000 130,000 450,000 500,000 Capital assets (net) 430,000 Other assets 232,000 210,000 266,400 $862,000 $860,000 $1,156,400 Liabilities and equity $ 50,000 $ 100,000 Accounts payable $100,000 Long-term debt 200,000 250,000 500,000 Common shares 525,000 525,000 525,000 31,400 Retained earnings 37,000 35,000 $1,156,400 $862,000 $860,000 Statement of Earnings $ 900,000 Sales $700,000 $800,000 Cost of goods sold (420,000) (540,000) (630,000) Other expenses (170,000) (220,000) (218,000) 110,000 40,000 52,000 (33,000) Income tax (12,000) (15,600) $ 77,000 $ 28,000 Net income 2$ 36,400