The company's leverage is steadily decreasing. Which of the following is the best explanation? OThe company is paying down its long term debt by $400,000 per year while a portion of net income is being retained. OThe company's gross profit margin is steadily increasing and so is the net profit margin The company's total liabilitiess are steadily decreasing, and net income is steadily increasing. OMost of the liabilities that are increasing are current, and they don't affect the leverage calculation Light Touch Balance Sheets (in $000s) As At December 31 20Y3 20Y2 201 ASSETS Current assets Cash 600 0 0 Accounts receivable 2,454 2,158 1,440 Inventory 3,480 3,168 2,500 Prepaid expenses 416 240 302 Other current assets 224 180 400 Total current assets 6,574 5,746 5,242 Fixed assets 2,030 1,542 1,470 Other noncurrent assets 640 420 428 $ $ $ TOTAL ASSETS 9,244 7,708 7,140 LIABILITIES AND EQUITY Current liabilities $ Short-term debt 604 20 0 Current portion-LTD 400 400 400 Accounts payable Accrued expenses Dividends payable 1,426 1,672 890 412 384 340 90 0 0 Taxes payable 216 138 128 152 Other current liabilities 60 32 3,454 1,910 Total current liabilities 2,400 2,384 Longterm debt 1,984 2,784 Deferred taxes 120 116 108 Stockholder's equity Paid-in capital Retained earnings 2,306 2,000 2,000 1,380 808 338 3,686 Total stockholders' equity 2,808 2,338 TOTAL LIABILITIES AND EQUITY $ 9,244 7,708 7,140 3,516 Working investment 3,850 2,710 Part B Light Touch Light Touch Income Statements (in $000s) Years Ended December 31 203 202 201 21,420 18,000 Sales 15,000 Depreciation expense 206 162 150 14,694 Cash cost of goods sold 12,498 10,490 5,340 4,360 Gross profit 6,520 3,988 3,218 Operating expenses 2,454 286 Interest expense 260 252 1,870 1,620 Income before taxes 2,272 Taxes 1,128 892 648 $ $ Net income $ 1,144 978 972 Dividends 572 508 388 Retained earnings $ 470 $ 572 584