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All the financial metrics that determine the business position by comparing various line items of the financial statement are known as financial ratios. It depicts the business entity's profitability, solvency, liquidity, and efficiency.

(1) Current ratio at December 31

$\begin{array}{rcl}\mathrm{Current}\mathrm{ratio}& =& \frac{\mathrm{Current}\mathrm{assets}}{\mathrm{Current}\mathrm{liabilities}}\\ & =& \frac{\$773,000}{\$240,000}\\ & =& 3.22\mathrm{times}\end{array}$

(2) Acid-test ratio at December 31

$\begin{array}{rcl}\mathrm{Acid}-\mathrm{test}\mathrm{ratio}& =& \frac{\mathrm{Current}\mathrm{assets}-\mathrm{Inventory}-\mathrm{Prepaid}\mathrm{expenses}}{\mathrm{Current}\mathrm{liabilities}}\\ & =& \frac{\$773,000-\$440,000-\$3,000}{\$240,000}\\ & =& 1.375\mathrm{times}\end{array}$

(3) Accounts receivable turnover

$\begin{array}{rcl}\mathrm{Accounts}\mathrm{receivable}\mathrm{turnover}\mathrm{ratio}& =& \frac{\mathrm{Net}\mathrm{sales}}{\mathrm{Average}\mathrm{accounts}\mathrm{receivables}}\\ & =& \frac{\$1,640,000}{{\displaystyle \frac{\$198,000+\$80,000}{2}}}\\ & =& \frac{\$1,640,000}{\$139,000}\\ & =& 11.80\mathrm{times}\end{array}$

(4) Inventory turnover

$\begin{array}{rcl}\mathrm{Inventory}\mathrm{turnover}\mathrm{ratio}& =& \frac{\mathrm{Cost}\mathrm{of}\mathrm{goods}\mathrm{sold}}{\mathrm{Average}\mathrm{Inventory}}\\ & =& \frac{\$800,000}{{\displaystyle \frac{\$440,000+\$360,000}{2}}}\\ & =& \frac{\$800,000}{\$400,000}\\ & =& 2\mathrm{times}\end{array}$

(5) Return on assets

$\begin{array}{rcl}\mathrm{Return}\mathrm{on}\mathrm{assets}& =& \frac{\mathrm{Net}\mathrm{income}}{\mathrm{Average}\mathrm{total}\mathrm{assets}}×100\\ & =& \frac{\$360,000}{{\displaystyle \frac{\$1,630,000+\$1,400,000}{2}}}×100\\ & =& \frac{\$360,000}{\$1,515,000}×100\\ & =& 23.76\%\end{array}$

(6) Profit margin on sales

$\begin{array}{rcl}\mathrm{Profit}\mathrm{margin}\mathrm{on}\mathrm{sales}& =& \frac{\mathrm{Net}\mathrm{margin}}{\mathrm{Sales}}×100\\ & =& \frac{\$360,000}{\$1,640,000}×100\\ & =& 21.95\%\end{array}$

According to the financial ratios calculated above, it can be stated that the business entity is performing well in terms of profitability because the return on asset and profit margin ratio reflects that the business can use its assets efficiently.

From a short-term point of view, the inventory turnover ratio is developing a concern because it is relatively low than the usual inventory turnover ratio.