Reference no: EM132784881

The purpose of this assignment is to apply ratio analysis to assess the financial health of ABC Company. Use the income statement presented in the case during this module to compute general or overall profitability ratios. Compute three ratios using at least one of the income statement accounts for each ratio. Some profitability ratios include both income and balance sheet accounts. M1 and m2.

ABC Company
Income Statement
For the Period Ending December 31, 20XX

Revenues 525,000
Cost of sales 200,000
Gross profit 325,000
Operating expenses
Salaries 100,000
Lease for office 30,000
Advertising and promotion 24,000
Utiliies 12,750
Property taxes 18,000
Payroll taxes 11,500
Insurance 8,000
Depreciation 20,000
Miscellaneous expenses 9,000
Total operating expenses 233,250
Operating income 91,750
Interest income 250
Interest expense 15,000
Net interest expense 14,750
Net income 77,000

• Assume that ABC Company is a small specialty retail store. Ratios are relevant when assessed over time or across companies. IBIS is a comprehensive resource containing market research and statistics, which can be used to compare ABC Company to the industry and leaders in the industry.

Question 1: Show the computation of the three ratios.

Question 2: Comment on the purpose and information conveyed by each ratio.

Question 3: What did you learn about ABC Company by reviewing the three ratios?

Question 4: What is your conclusion about the profitability of the company?

Question 5: How successful is ABC Company relative to the industry average and leaders in the small specialty retail store industry? Write two paragraphs or more. Include ratios found in the IBIS database to support your conclusion.