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The director of GadgetsCom Pty, Ltd. has asked you to provide him with some ratio analysis based on the Income Statement you prepared earlier (see below additional information.) and the partial component of the Balance Sheet provided below. He also provides you with the following additional Information.

GadgetsCom Pty, Ltd.
Current Assets and Current Liabilities components of Balance Sheets as at 30 June 20X1
				($000)
Current assets
Cash at bank				168
Accounts receivable				450
Inventory				600
Total current assets					1,218
Current Liabilities
Accounts payable				900
Notes payable				250
Total current liabilities					1,150

Additional Information

Previous year Ending Inventory balance is $450,000.

Some previous years and its industry ratio averages that commonly calculated by the company are provided below:

		Previous Year (2016)	Industry Average
	Current ratio	0.9	1.1
	Quick ratio	0.75	1
	Rate of return on assets	3.2%	4.5%
	Inventory turnover ratio	5 times	6 times

Below is a list of ratio formula commonly used by the company.

Ratio	Method of calculation
Inventory Turnover (Times)	Cost of Goods Sold Average Inventory
Current Ratio	Current assets Current liabilities
Quick Ratio	Quick Assets Current liabilities
Return on Assets	Net Profit (loss) After Tax Average total assets

Required:

Using the information and the appropriate ratio/s from the additional information provided:

a. Choose and calculate the appropriate ratio for you to provide comment on the entitys Operating capability

b. Use both current and Quick ratios for you to provide comment on the entitys Liquidity

Additional Information:

Income statement

GadgetsCom Pty Ltd Income Statement For the year ended 20X1 Sales $5,500 $2,100 $3,400 $460 Cost of goods sold Gross profit Less: Expenses Selling expense Sales salaries expense Sales utilities expense Total Selling expense Office expenses Office salaries expense Office utilities expense Total Office expenses Depreciation Total Expenses Income before interest and tax Les: Finance cost Income before tax Less: Tax Net profit $950 $100 $1,510 $1,890 $250 $1,640 $492 $1,148

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