Use the Following Information to Answer the Following Question(s)

question 60

Multiple Choice

Use the following information to answer the following question(s) .
Key Ratios for ABC,Inc.and Its Industry
ABC,Inc.2013 Ratios Industry Average Ratios in 2013
Current ratio 1.2 1.4
Acid test ratio 0.89 0.94
Average collection period 30 days 25 days
Inventory turnover 18.1 20.3
Fixed assets turnover 4.1 4.8
Total asset turnover 2.78 2.8
Debt ratio 50% 60%
Times-interest-earned 5.5% 4.5%
Net profit margin 1.15% 1.5%
Return on equity 5.21% 7.32%
ABC,Inc.Income Statement (in thousands)
December 31,2014
Sales (all credit) $200,000
Cost of goods sold 140,000
Gross profit on sales 60,000
Operating expenses 56,000
Operating income 4,000
Interest expense 1,000
Earnings before tax 3,000
Income tax 1,050
Net income available to common stockholders $1,950
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
-In 2014,the improvement in ABC's return on equity occurred because

• A)ABC used more debt than in 1994.
• B)ABC lowered its expenses in 1995 and was,therefore,more profitable.
• C)ABC utilized its total assets more efficiently in 1995.
• D)None of the above explain the improvement in ABC's return on equity.

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Definitions:

Snowfall

Precipitation in the form of flakes of crystalline water ice, falling from clouds.

Z

A statistical value representing the number of standard deviations a data point is from the mean in a standard normal distribution.

Percentage

A proportion or share expressed as a fraction of 100, denoting part of a whole.

Normal Model

A bell-shaped probability distribution characterized by its mean and standard deviation, often used to describe naturally occurring phenomena.