E$23\mathrm{.}5($LO $6)($Analysis of Given Ratios$)$ Picasso Company is a wholesale distributor of packag$-$ing equipment and supplies. The company$$s sales have averaged about $$900,000$ annually for the $3-$year period $20232025.$ The firm$$s total assets at the end of $2025$ amounted to $$850,000.$ The president of Picasso Company has asked the controller to prepare a report that summarizes the

financial aspects of the company$$s operations for the past $3$ years. This report will be presented to the board of directors at their next meeting. In addition to comparative financial statements, the controller has decided to present a number of

relevant financial ratios which can assist in the identification and interpretation of trends. At the request of the controller, the accounting staff has calculated the following ratios for the $3-$year period $20232025.2023$

$2024$ Current ratio Acid$-$test $($quick$)$ ratio

Accounts receivable turnover Inventory turnover

Debt to assets ratio Long$-$term debt to assets ratio

Sales to fixed assets $($fixed asset turnover$)$ Sales as a percent of $2023$ sales Gross margin percentage

Net income to sales Return on assets

Return on common stockholders$$ equity

$1\mathrm{.}801\mathrm{.}048\mathrm{.}754\mathrm{.}91$

$51\mathrm{.}0\%31\mathrm{.}0\%1\mathrm{.}581\mathrm{.}00$

$36\mathrm{.}0\%6\mathrm{.}9\%7\mathrm{.}7\%$

$13\mathrm{.}6\%$

$1\mathrm{.}890\mathrm{.}997\mathrm{.}714\mathrm{.}32$

$46\mathrm{.}0\%27\mathrm{.}0\%1\mathrm{.}691\mathrm{.}03$

$35\mathrm{.}1\%7\mathrm{.}0\%7\mathrm{.}7\%$

$13\mathrm{.}1\%$

$20251\mathrm{.}960\mathrm{.}876\mathrm{.}423\mathrm{.}42$

$41\mathrm{.}0\%24\mathrm{.}0\%1\mathrm{.}791\mathrm{.}07$

$34\mathrm{.}6\%7\mathrm{.}2\%7\mathrm{.}8\%$

$12\mathrm{.}7\%$ In preparation of the report, the controller has decided first to examine the financial ratios independent

of any other data to determine if the ratios themselves reveal any significant trends over the $3-$year period. Instructions

a$.$ The current ratio is increasing while the acid$-$test $($quick$)$ ratio is decreasing. Using the ratios pro$-$vided, identify and explain the contributing factor$($s$)$ for this apparently divergent trend.

b$.$ In terms of the ratios provided, what conclusion$($s$)$ can be drawn regarding the company$$s use of financial leverage during the $20232025$ period?

c$.$ Using the ratios provided, what conclusion$($s$)$ can be drawn regarding the company$$s net investment in plant and equipment?