Question 2 Key Ratios for ABC, Inc. and Its Industry ABC, Inc. 1994 Ratios Industry Average Ratios in 1994 Current ratio 1.2 1.4 Acid test ratio 0.89 0.94 Average collection period 30 days 25 days Inventory turnover 18.1 20.3 Fixed assets turnover 4.1 4.8 Total asset turnover 2.78 2.8 Debt ratio 50% 60% Times-interest-earned 5.5% 4.5% Net profit margin 1.15% 1.5% Return on equity 5.21% 7.32% ABC, Inc. Income Statement (in thousands) December 31, 1995 Sales (all credit) $200,000 Cost of goods sold 140,000 Gross profit on sales 60,000 Operating expenses 56,000 Operating income 4,000 Interest expense 1,000 Earnings before tax 3,000 Income tax 1,050 Net income available to common stockholders $1,950 ABC, Inc. Balance Sheet (in thousands) December 31, 1995 Assets Cash $2,000 Accounts receivable 17,800 Inventories 8,700 Total current assets 28,500 Gross fixed assets 70,000 Accumulated depreciation 26,500 cNet fixed assets 43,500 Total assets $72,000 Liabilities and Equity Accounts payable $18,000 Accruals 13,350 Total current liabilities 31,350 Long-term debt 8,250 Total liabilities 39,600 Common stock (par value and paid in capital) 2,000 Retained earnings 30,400 Total stockholders' equity 32,400 Total liabilities and equity $72,000 Required: Since 2013, ABC's liquidity has Ol deteriorated. improved. remained the same. O been variable across components of the liquidity measures. Question 2 Key Ratios for ABC, Inc. and Its Industry ABC, Inc. 1994 Ratios Industry Average Ratios in 1994 Current ratio 1.2 1.4 Acid test ratio 0.89 0.94 Average collection period 30 days 25 days Inventory turnover 18.1 20.3 Fixed assets turnover 4.1 4.8 Total asset turnover 2.78 2.8 Debt ratio 50% 60% Times-interest-earned 5.5% 4.5% Net profit margin 1.15% 1.5% Return on equity 5.21% 7.32% ABC, Inc. Income Statement (in thousands) December 31, 1995 Sales (all credit) $200,000 Cost of goods sold 140,000 Gross profit on sales 60,000 Operating expenses 56,000 Operating income 4,000 Interest expense 1,000 Earnings before tax 3,000 Income tax 1,050 Net income available to common stockholders $1,950 ABC, Inc. Balance Sheet (in thousands) December 31, 1995 Assets Cash $2,000 Accounts receivable 17,800 Inventories 8,700 Total current assets 28,500 Gross fixed assets 70,000 Accumulated depreciation 26,500 cNet fixed assets 43,500 Total assets $72,000 Liabilities and Equity Accounts payable $18,000 Accruals 13,350 Total current liabilities 31,350 Long-term debt 8,250 Total liabilities 39,600 Common stock (par value and paid in capital) 2,000 Retained earnings 30,400 Total stockholders' equity 32,400 Total liabilities and equity $72,000 Required: Since 2013, ABC's liquidity has Ol deteriorated. improved. remained the same. O been variable across components of the liquidity measures
