Summer Corporation has just completed its comparative statements for the year ended December 31, 2015. At this point, certain analytical and interpretive procedures are to be undertaken. The completed statements (summarized) are as follows:

Required:
1. Compute appropriate ratios for 2015 and explain the meaning of each.
2. Answer the following for 2015:
a. Evaluate the financial leverage percentage. Explain its meaning by using the computed amount(s).
b. Evaluate the net profit margin ratio and explain how a shareholder might use it.
c. Explain to a shareholder why the current ratio and the quick ratio are different. Do you observe any liquidity problems? Explain.
d. Assuming that credit terms are 1/10, n/30, do you perceive an unfavourable situation for the company related to credit sales? Explain.
e. By how much should the balance of trade receivables decrease if the company wishes to reduce its average collection period to 30 days?

2015 2014 Statement of Earnings Sales revenue Cost of sales Gross margin Operating expenses (including interest on bonds) Pretax earnings Income tax expense Net earnings Statement of Financial Position Cash Trade receivables (net) Merchandise inventory Prepayments Property, plant, and equipment (net) $960.000* 540,000 420,000 342.000 $840,000a 460,000 380.000 336,000 44,000 12.000 $ 32,000 78,000 24,000 $54,000 $ 13,600 84.000 50,000 400 260,000 $408,000 $ 7,800 56,000 40,000 200 240,000 $344,000 Trade payables Income taxes payable Bonds payable (5% interest rate) Common shares (40,000 shares) Retained earnings 2.000 140,000* 200,000 32.000 $408,000 4.000 100,000 200,000 4,000 $344,000 Credit sales totalled 40 percent of total sales. $40,000 of bonds were issued on January 2, 2015 The market price of the stock at the end of 2015 was $18 per shane During 2015, the company declared and paid a cash dividend of $26,000.