Ratios Problem

Financial Statements

Here are the financial statements for InnovateTech Solutions Inc. (all figures in thousands).

	PY 3	PY2	PY1	CY
Assets
Cash	1500	1800	2200	2500
Accounts Receivable	3000	3500	4000	4200
Inventory	2500	2800	3200	3000
Total Current Assets	7000	8100	9400	9700
Property,Plant, & Equipment	10000	11000	12000	13000
Total Assets	17000	19100	21400	22700
Liabilities & Equity
Accounts Payable	2000	2300	2500	2700
Short Term Debt	1000	1200	1500	1300
Total Current Liabilities	3000	3500	4000	4000
Long Term Debt	5000	5500	6000	6500
Total Liabilities	8000	9000	10000	10500
Equity
Common Stock	4000	4000	4000	4000
Retained Earnings	5000	6100	7400	8200
Total Equity	9000	10100	11400	12200
Total Liabilities & Equity	17000	19100	21400	22700

	PY 2	PY 1	CY
Revenue	25000	28000	30000
Cost Of Goods Sold	15000	16500	17000
Gross Profit	10000	11500	13000
Operating Expenses	7000	7500	8000
Operating Income	3000	4000	5000
Interest Expense	500	600	700
Earnings Before Tax	2500	3400	4300
Income Tax Expense	625	850	1075
Net Income	1875	2550	3225

Your task is to calculate several key financial ratios for InnovateTech Solutions Inc. for the three. These ratios will help in understanding the company's liquidity, solvency, profitability, and efficiency.

Current Ratio

The Current Ratio measures a company's ability to pay off its short-term liabilities with its short-term assets. It is calculated as Current Assets divided by Current Liabilities.

Formula: Current Ratio = Current Assets / Current Liabilities

Debt-to-Equity

The Debt-to-Equity Ratio indicates the proportion of equity and debt used to finance a company's assets. It is calculated as Total Liabilities divided by Shareholder's Equity.

Formula: Debt-to-Equity Ratio = Total Liabilities / Shareholder's Equity

Gross Profit Margin

The Gross Profit Margin indicates the percentage of revenue left after deducting the cost of goods sold. It is calculated as Gross Profit divided by Revenue.

Formula: Gross Profit Margin = Gross Profit / Revenue

Net Profit Margin

The Net Profit Margin represents the percentage of revenue that translates into net income after all expenses, including taxes and interest, have been deducted. It is calculated as Net Income divided by Revenue.

Formula: Net Profit Margin = Net Income / Revenue

Return on Assets

Return on Assets (ROA) indicates how efficiently a company is using its assets to generate earnings. It is calculated as Net Income divided by Average Total Assets. Average Total Assets are calculated as (Beginning Total Assets + Ending Total Assets) / 2.

Formula: ROA = Net Income / Average Total Assets

Inventory Turnover

Formula: Inventory Turnover = Cost of Goods Sold / Average Inventory

Inventory Turnover measures how many times a company's inventory is sold and replaced over a period. It is calculated as Cost of Goods Sold (COGS) divided by Average Inventory.[5] Average Inventory is calculated as (Beginning Inventory + Ending Inventory) / 2.