Terri Spiro, an experienced budget analyst at Martin Manufacturing Company, has been charged with assessing the firms financial performance during 2018 and its financial position at year-end 2018. To complete this assignment, she gathered the firms 2018 financial statements, shown below. In addition, Terri obtained the firms ratio values for 2016 and 2017, along with the 2018 industry average ratios (also applicable to 2016 and 2017). These are presented in the Historical Ratios table on the next page. Income Statement Martin Manufacturing Company for the year ended December 31, 2018 Sales revenue $5,075,000 Less: Cost of goods sold 3,704,000 Gross margin $1,371,000 Less: Operating expenses Selling expense $650,000 General and administrative expenses 416,000 Amortization expense 152,000 Total operating expense 1,218,000 Operating earnings (EBIT) $ 153,000 Less: Interest expense 93,000 Earnings before taxes $1,160,000 Less: Taxes (rate = 40%) 24,000 Net income after taxes $ 36,000 Balance Sheets Martin Manufacturing Company December 31 . Assets 2017 2018 . Current assets Cash $1,124,100 $1,125,000 Accounts receivable 763,900 805,556 Inventories 763,445 700,625 Total current assets $1,551,445 $1,531,181 Gross fixed assets (at cost) $1,691,707 $2,093,819 Less: Accumulated amortization 348,000 500,000 Net fixed assets $1,343,707 $1,593,819 Total assets $2,895,152 $3,125,000 Liabilities and shareholders equity . Current liabilities Accounts payable $1, 400,500 $1,230,000 Line of credit 370,000 311,000 Accruals 100,902 75,000 Total current liabilities $1,871,402 $1,616,000 Long-term debt $ 700,000 $1,165,250 Total liabilities $1,571,402 $1,781,250 Shareholders equity Preferred shares $1,150,000 $1,,,50,000 Common shares 293,750 293,750 Retained earnings 980,000 1,000,000 Total shareholders equity Total liabilities and shareholders equity $2,895,152 $3,125,000 Historical Ratios Martin Manufacturing Company Actual Actual Actual Industry average Ratio 2016 2017 2018 2018 Current ratio 1.7 1.8 ______ 1.5 Quick ratio 1.0 0.9 ______ 1.2 Average age of inventory 70.2 days 73 days ______ 35.8 days Average collection period 50 days 55 days ______ 46 days Total asset turnover (times) 1.5 1.5 ______ 2.0 Debt ratio 45.8% 54.3% ______ 24.5% Times interest earned ratio 2.2 1.9 ______ 2.5 Gross margin 27.5% 28.0% ______ 26.0% Profit margin 1.1% 1.0% ______ 1.2% Return on total assets (ROA) 1.7% 1.5% ______ 2.4% Return on equity (ROE) 3.1% 3.3% ______ 3.2% Required a. Calculate the firms 2018 financial ratios, and then complete the ratio table. b. Analyze the firms current financial position from both a cross-sectional and a time-series viewpoint. Break your analysis into an evaluation of the firms liquidity, activity, leverage, and profitability. Use a common-size analysis for profitability. Use the DuPont model to fully analyze why ROE changed over the three-year period and is different than the industry average. Based on your analysis of all the data available, provide a detailed discussion of the firms overall financial position. In your discussion, be sure to comment on the companys financial strengths and weaknesses. Provide your analysis in five sections: one for each of the four categories of ratios, and one for an overall evaluation.