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  The financial manager of Company ABC is analyzing its financial statements for the year ended December 31st, 20XX. The income statement shows total revenues of $1,200,000 and total expenses of $800,000, resulting in net income of $400,000. The balance sheet reveals total assets of $2,500,000, total liabilities of $1,000,000, and total stockholders' equity of $1,500,000.

  Requirements:

  • Compute the gross profit margin and net profit margin for Company ABC.
  • Assess the liquidity position by calculating the current ratio and quick ratio.
  • Analyze the return on equity (ROE) for Company ABC.
  • Provide recommendations for improving profitability and financial stability based on the analysis.