Zach Industries Income Statement for the Year Ended December 31, 2012 Sales revenue $160,000 Less: Cost of goods sold 106,000 Gross profits $ 54,000 Less: Operating expenses Selling expense $ 16,000 General and administrative expenses 10,000 Lease expense 1,000 Depreciation expense 10,000 Total operating expense $ 37,000 $ 17,000 6,100 Operating profits Less: Interest expense Net profits before taxes Less: Taxes Net profits after taxes $ 10,900 4,360 $ 6,540 ments and Ratio Analysis 107 Zach Industries Balance Sheet December 31, 2012 Assets Cash Marketable securities Accounts receivable Inventories Total current assets Land Buildings and equipment Less: Accumulated depreciation Net fixed assets Total assets Liabilities and Stockholders' Equity Accounts payable $ 500 1,000 25,000 45,500 $ 72,000 $ 26,000 90,000 38,000 $ 78,000 $150,000 $ 22,000 Notes payable 47,000 Total current liabilities $ 69,000 Long-term debt 22,950 Common stock 31,500 Retained earnings 26,550 Total liabilities and stockholders' equity $150,000 The firm's 3,000 outstanding shares of common stock closed 2012 at a price of $25 per share. a. Use the preceding financial statements to complete the following table. Assume the industry averages given in the table are applicable for both 2011 and 2012. Ratio Industry average Actual 2011 Actual 2012 Current ratio 1.80 1.84 Quick ratio 0.70 0.78 Inventory turnover 2.50 2.59 Average collection period Debt ratio 37.5 days 36.5 days 65% 67% Times interest earned ratio 3.8 4.0 Gross profit margin 38% 40% Net profit margin 3.5% 3.6% Return on total assets 4.0% 4.0% Return on common equity 9.5% 8.0% Market/book ratio 1.1 1.2 "Based on a 365-day year and on end-of-year figures. b. Analyze Zach Industries' financial condition as it is related to (1) liquidity, (2) activity, (3) debt, (4) profitability, and (5) market. Summarize the company's overall financial condition.