Question

A firm has been experiencing low profitability in recent years. Perform an analysis of the firm's financial position using the DuPont equation. The firm has no lease payments but has a $1 million sinking fund payment on its debt. The most recent industry average ratios and the firm's financial statements are as follows: Industry Average Ratios 6 x 3 x 3.75 % 00 w 11.25 % 16.10% Current ratio 2x Fixed assets turnover Debt-to-capital ratio 23% Total assets turnover Times interest earned Profit margin EBITDA coverage Return on total assets Inventory turnover Return on common equity Days sales 22 days Return on invested outstandinga capital Calculation is based on a 365-day year. Balance Sheet as of December 31, 2019 (Millions of Dollars) 0 14.90 % $ 108 $ 54 70 Cash and equivalents Accounts receivables Inventories Total current assets 211 Accounts payable Other current liabilities Notes payable Total current liabilities Long-term debt Total liabilities $ 389 $ 151 38 $ 189 275 151 124 200 Gross fixed assets Less depreciation Net fixed assets Total assets Common stock Retained earnings Total stockholders' equity Total liabilities and equity $ 151 $ 351 $ 540 $ 540

Answer 1

ANSWER-

RATIOS Current Ratio Debt to total capital Times Interest Earned EBITDA Coverage Inventory Turnover Days Sales Outstanding Fixed Assets Turnover Total Assets Turnover Profit Margin Return on Total Assets Return on Common Equity Return on Invested Capital FIRM 2.576 10% 7.667 9.533 3.555 28.226 5.993 1.676 17% 11% 11% 7% NOTES 389/151 38/(38+351) | 57.50/7.50 71.50/7.50 750/211 70/2.48 905/151 905/540 155/905 17 Asset 57.50/540 A turnover=sales/average total asset 37.50/351 so. 3=x/Average assets 37.50/540 %* Profit Margin = Net Income/Revenue so, 3.75=Net income/x INDUSTRY 112Therefore; 3 average 3.75% assets=Income/3.75; * average asset=Income/11.25 *Equity multiplier =average 0.014 asset/ shareholders equity= ROE/11.25 (ROE=Income/Shareholders equity) T itre DuPoint Equation Profit Margin Total Asset Turnover Equity Multiplier FIRM 17% 1.676 1.538 3