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 firm’s 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.