I have already calculated the ratios, but I having difficulty expressing and understanding what does theses ratios mean for the company. Can you explain each ratio's in relation to the company above.

Profit Margin

• 2012: 20%

• 2013: 26.9%

  Return on Equity

• 2012: 24.2%

• 2013: 29.8%

  Return on Assets

• 2012: 12.1%

• 2013: 14.9%

  Earnings per share

• 2012: $2.50

• 2013: $3.50

  Price to earnings ratio

• 2012:5.2

• 2013: 4

  Current Ratio

• 2012:1.25

• 2013: 1.73

  Quick Ratio

• 2012: 0.833

• 2013:1.1

  Receivables turnover ratio

• 2012: 9.26

• 2013: 8.6

  Days in Receivable turnover ratio

365/9.26 = 39.4

365/8.6=42

Inventory turnover ratio

• 2012: 6.94

• 2013: 3.71

Debt to assets

• 2012: 0.5

• 2013: 0.5

  Debt to Equity

• 2012: 1

• 2013: 1

• Times interest earned

• 2012: 9.33

• 2013: 12.67

Consider the following balance sheet of October Blues, 1970's clothing retailer. The following information is on their performance in the previous two (2) financial years: Sales 2012: $125,000 2013: $130,000 The cost of goods sold (COGS) margin in both years was 50% of revenues. Profits 2012: $25,000 2013: 35,000 The tax rate is 40% and the interest expense was $5,000 each year. The company has had ten thousand shares on issues since 2011, with a share price of $13 on 30 June 2012 and $14 on 30 June 2013. Assume all 2011 balance sheet figures are 80% of the equivalent 2012 figure. October Blues Pty Ltd Statement of Financial Position as at 30 June 2013 Statement of Financial Position as at 30 June 2012 Current Assets Cash Short term Investments Accounts Receivable Inventory Prepaid Rent 25,000 20,000 15,000 25,000 10,000 95,000 13,000 22,000 15,000 10,000 15,000 75,000 Non-Current Assets (Net of Depreciation) Motor Vehicle Plant & Equipment Land 15,000 45,000 85,000 145,000 240,000 20,000 50,000 85,000 155,000 230,000 55,000 60,000 65,000 120,000 Total Assets Current Liabilities Accounts Payable Non Current Liabilities Bank Loan Total Liabilities Equity Owner's Equity Retained Earnings Total Equity Total Liabilities & Equity 55,000 115,000 85,000 35,000 120,000 240,000 70,000 45,000 115,000 230,000 Required: a. Calculate three profitability ratios and comment on October Blues performance. b. Comment on the liquidity and solvency of October Blues in 2012 compared to 2013