Use the following information to answer the following questions.

ABC, Inc. Income Statement (in thousands)

December 31, 2014

Sales 200,000 Cost of goods sold 140,000 Gross profit on sales 60,000 Operating expenses 56,000 Operating income (EBIT) 4,000 Interest expense 1,000 Earnings before tax 3,000 Income tax 1,050 Net income available to common stockholders 1,950

Number of shares outstanding 1,500

Market price per share 22

ABC, Inc. Balance Sheet (in thousands)

December 31, 2014

Assets 2,000 Cash 17,800 Accounts receivable Inventories 8700 Total current assets 28,500 Gross fixed assets 70,000

Accumulated depreciation 26,500

Net 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

Industry Key Ratios

Industry Average Ratios Current ratio 1.1

Quick ratio 0.60

Days Sales Outstanding (DSO) 25 Fixed assets turnover 5.8

Total asset turnover 2.95

Liabilities-to-assets ratio 65%

Times-interest-earned 3.2 Net profit margin 1.3%

Return on equity 7.32%

Price/earnings ratio 20.38

Market/book ratio 3.19

1. Calculate current ratio and acid test ratio for the firm.

2. Calculate DSO, fixed assets turnover, and total asset turnover for the firm.

3. Calculate liabilities-to-assets ratio and times-interest-earned ratio for the firm.

4. Calculate net profit margin and return on equity for the firm.

5. Evaluate the performance of the firm in the following areas:

Liquidity management

Asset management

Debt management

Profitability management

When you explain the firms strength or weakness in each area, you must support your arguments through the evaluative reasoning process by providing reasons, methods, criteria, or assumptions behind the claims made.

6. Deductive reasoning starts with a general principle and deduces that it applies to a specific case. Deductive reasoning moves with exacting precision from the assumed truth of a set of premises to a conclusion which cannot be false if those premises are true. Explain the deductive reasoning process applied to analyze the firms performance.