The Elite Mutual Fund associate director intends to invest in the stock of ABC Company. ABC Company is a merchandiser buying and selling mobile phones. ABC Company also provides mobile phones repairing services. Around 50% of the companys revenues come from the sale of mobile phones. The remaining companys revenues come from mobile phones repairing services.

The following are financial ratios for ABC Company and comparative ratios for ABC Companys industry. Computations of the financial ratios for ABC Company are based on the information from ABC Companys financial statements.

Aspect of financial ratios	Industry average	ABC Company
(i) Market measures
Price-to-book	9.1	8.9
Dividend payout rate	2.1%	0%
Dividend yield	0.6%	0%
Earnings yield	8%	8.2%
Price-to-earnings ratio	29.1	27.9
(ii) Asset utilization
Total assets turnover	4	3.95
Fixed asset turnover	15.65	15.4
Working capital turnover	9.81	8.6
Sales to inventory	28.8	30
Accounts receivable turnover	8.25	7
Cash turnover	39	40.9
(iii) Operating performance
Net profit margin	8.1%	8.3%
Pre-tax profit margin	14.55%	15%
Operating profit margin	16%	16.8%
Gross profit margin	34.4%	36.1%
(iv) Return on investment
Return on common equity	50.1%	52.7%
Return on assets	30.1%	31.5%

(v) Capital structure and solvency
Times interest earned	9.99	9.3
Long-term debt to equity	0.401	0.369
Total debt to equity	0.691	0.675
(vi) Liquidity ratios
Days to sell inventory	18.39	18.48
Collection period	36.7	42.29
Acid-test ratio	1.95	2.68
Current ratio	3.2	3.55

Required:

1. You are required to interpret the ratios of ABC Company. From your interpretation, draw relevant inferences regarding ABC Companys financial condition and financial performance. (Note: Ignore the industry average ratios.) (10 marks)

2. You are required to repeat the analysis in (a) with full knowledge and understanding of the industry average ratios. (10 marks)

3. Show which financial ratios you may consider to deviate from the industry average norms. For each of the ABC Companys financial ratio that deviates from the industry average norms, give suggestions for two possible explanations. (10 marks)