Reference no: EM133176830

Question - At the end of 2021, ACME Corporation faced increasing competition leading to a build up of inventory and declining profitability and liquidity. In an effort to generate more revenue and improve the company's financial position, the management team determined that the best course was to reduce prices and extend generous credit terms that would generate higher sales and cash flow. The results of the initiative are shown in the following table:

Ratio	2021	2022	Industry
Profit Margin	10%	7%	12%
Gross Profit Margin	54%	51%	56%
Debt to Assets	68%	67%	72%
Times Interest Earned	6.1	3.5	4.3
Current Ratio	2.0	1.7	2.2
Accounts Receivable Turnover	8.1	5.2	6.0
Inventory Turnover	3.2	6.5	5.0
Free Cash Flow (thousands)*	$125	$97	$127

*Capital expenditures remained unchanged and no dividends were declared.

Using the above information to support your answer, complete the following analysis:

1. Discuss ACME Corporation's liquidity.

2. Discuss ACME Corporation's profitability.

3. Discuss ACME Corporation's solvency.

4. Conclude on the success of management's initiative and explain the reason for your conclusion.

5. Recommend two actions based on your analysis and conclusion.