Question: Question: Deductive reasoning starts with a general principle and deduces that it applies to a specific case. Deductive reasoning moves with exacting precision from the
Question: 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 firm's performance.
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
Cash $2,000
Accounts receivable 17,800
Inventories 8,700
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 days
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
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