The following is the assumption made.

 The Highland Malt's Scottish location did not affect using USD to represent transactions.
 The Bank obtained a loan on January 1st, 2018, and given that the case mentioned its "extension in 2019," it is assumed that
the total principal sum will be reimbursed on January 1st, 2020.
 Although some consumers invested in whiskey, they did not receive it until 12 years later (they were considered collector
investors). Nonetheless, whiskey sales were accounted for as revenue instead of a liability or deferred revenue.
 Dividends remained unpaid throughout 2018 and 2019.
 It is presumed that the Highland Malt distributed 10,000 shares valued at $75/share for equity in 2018 concerning EPS.
 All expenses enumerated in Exhibit 4 were deemed as unalterable and operational costs that belong to Selling, General, and
administrative expenses (SG&A) and hence were not included in the calculation of the cost of goods sold (COGS).
 In 2018, the initial manufacturing was carried out using loaned apparatus at zero expense for a year to evaluate its ability to
produce the intended whiskey for this enterprise.
 As the tax was not mentioned in the case study, we have omitted it from the income statement.
 The First-In-First-Out (FIFO) approach was employed to compute the cost of goods sold (COGS).

Financial Ratio Analysis

 Liquidity Ratios
1. Current Ratio – Current ratio shows that Highland Malt can pay off its current liability with its total current asset for
both years with a ratio of 15.9:1 and 16.9:1, respectively.
2. Quick/Acid-test Ratio – Highland Malt appears to be able to settle its short-term obligations with its most liquid
asset in 2018, with a ratio of 3.4:1 with little quick cash, $170,000; however, in 2019, it was able to generate more
cash of 470,000 to settle its short-term obligations with a ratio of 9.4:1.
 Leverage Ratios
1. The Debt-to-Equity Ratio - The slight decrease from 0.067 to 0.063 suggests that Highland Malt reduced its reliance
on debt financing in 2019.
2. Debt-to-Assets ratio - A ratio of 0.063 for 2018 indicates that 6.3% of Highland Malt's assets were financed by debt,
while a ratio of 0.059 for 2019 indicates that 5.9% of Highland Malt's assets were financed by debt. A decreasing
ratio could mean that Highland Malt relies less on debt to finance its operations.
 Profitability Ratios
1. The Return on Assets ratio - An ROA of 0.63% in 2018 suggests that Highland Malt generated a profit of 0.63 cents
for every dollar of assets. However, the ROA increased to 5.92% in 2019, indicating improved profitability and
efficiency in utilizing Highland Malt's assets. This trend suggests positive growth and performance in the Highland
Malt.
2. The Return on Equity Ratio (ROE) - A negative ROE in 2018 of -0.67:1 could signal to investors that the Highland
Malt may face financial challenges and not be a good investment choice. However, the positive ROE of 6.29 in 2019
suggests that the Highland Malt has improved its profitability, and investors may see this as a positive sign. In
addition, a rising ROE can also indicate that Highland Malt is effectively using its shareholder equity to generate
profits, which could make it more appealing to potential investors.
3. The Gross Margin - A gross profit margin of 32% in 2019 means that for every dollar of revenue earned, Highland
Malt had a gross profit of 32 cents
4. The Net Profit Margin - It could be that Highland Malt's net profit in 2019 was equal to 2% of its total revenue. In
other words, for every dollar in revenue earned by Highland Malt in 2019, it made a net profit of 2 cents.
 Efficiency Ratios
1. The Assets Turnover Ratio - A ratio of 3.05 in 2019 indicates that the Highland Malt is generating revenue at a rate
of over three times its asset value, which could be seen as a positive sign for investors.
2. The Inventory Turnover Ratio - The Inventory Turnover Ratio for 2019 was 3.4" It could be that Highland Malt sold
and replaced its inventory 3.4 times during 2019. This means that the Highland Malt's inventory was turned over
every 107 days (365 days divided by 3.4), indicating that the Highland Malt is managing its inventory efficiently.

Recommendations to improve the financial health of the Highland Malt:

1. The current agreement between Highland Malt and Spencer Spirits, Inc. has limited the former's potential. To overcome this,
we suggest that Highland Malt consider renegotiating its commission contract with Spencer Spirits to lower its selling, general,
and administrative expenses.
2. Expanding the range of offerings by exploring alternative distribution channels like DTC Direct to Consumer Brand or
establishing proprietary e-commerce and marketing platforms, thereby cutting out intermediaries and improving profit
margins. As an illustration, the premium product line could include aged whiskies with an extended maturation process.
3. In order to decrease SG&A costs, prioritize negotiations of sales commissions through a tiered structure that incentivizes higher
sales performance. Implement a commission plan offering 8% for total sales of 1 to 100 barrels, followed by an additional 1%
for every 100 barrels sold. The commission rate will be capped at 10% and reset annually.
4. Raising the cost of a barrel to USD 11,000 in 2020
 5. The corporation needs to formulate an improved strategy to handle its outstanding receivables from Spencer Spirits Inc. This
could involve establishing more evident payment conditions and consequences for surpassing the designated payment period.

Workings

Cash
Inventory - As per the case study
2018: January 50 barrels X $6,000 = $300,000
July 50 barrels X $6,500 = $325,000

Retained Earnings
Sales Revenues
COGS
Operating Expenses.