Hand-in Assignment QuestionXYZ Ltd is a group of doctors, dentists, professional sports players and celebrities with excess funds who wish to find small companies with great innovative ideas and invest in them. Several of the small companies present their idea to XYZ under a televised show broadcasted on national TV.The following information has been derived from the past three years’ financial statements of ABC Ltd, one of the small companies looking for investment from XYZ.Balance sheets, December 31 2012 2011 2010Current assets Cash 50,000 45,000 94,000Account receivable, net 130,000 120,000 110,000Merchandise inventories 250,000 230,000 195,000Other current assets 45,000 53,000 42,000Total current assets 475,000 448,000 441,000 Property plant and equipment, net 196,000 191,000 175,000 Total assets 671,000 639,000 616,000 Current liabilities Accounts payable 175,000 195,000 185,000Accrued liabilities 1,000 6,500 21,000Total current liabilities 176,000 201,500 206,000 Long-term liabilities 230,000 250,000 295,000Total liabilities 406,000 451,500 501,000 Shareholders’ equity Common shares 110,000 95,000 65,000Preferred shares, note 5 25,000 25,000 25,000Retained earnings 130,000 67,500 25,000Total shareholders’ equity 265,000 187,500 115,000Total liabilities and shareholders’ equity 671,000 639,000 616,000Income statements 2012 2011 Net sales £723,700 £694,000Cost of goods sold 347,350 344,500Gross margin 376,350 349,500 Operating expenses 183,500 179,750 Income from operations 192,850 169,750Interest expense 37,525 39,450Income before income tax 155,325 130,300Income tax expense 38,831 32,575 Net income £116,494 £97,725Additional information:1. The common shares are traded on the stock exchange. At the end of 2012, the value of the share was £15.00, and at the end of 2011, the value per share was £14.00.2. The number of shares outstanding on the market is as follows:a. 2012: 25,000b. 2011: 15,000c. 2010: 10,0003. All sales are made on credit.4. The company’s income tax rate is 25%.5. The preferred shares are cumulative; no par value, £2.50; 10,000 Shares authorised; 2,000 shares issued and outstanding.Complete the following:You, the consultant, have been hired by XYZ to assist in the analysis of the financial statements and provide a recommendation as to whether XYZ should invest or not invest in this company. You should justify your recommendation based on the calculation of the following financial ratios: Current ratio (Liquidity) Operating profit margin (Profitability) Return on Ordinary Shareholders’ Funds (ROSF) (Profitability) Average settlement period for trade receivables (Efficiency) Earnings per share (Investment)