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 $3 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 Current ratio 2 × Fixed assets turnover 6 × Debt-to-capital ratio 19 % Total assets turnover 3 × Times interest earned 7 × Profit margin 5.75 % EBITDA coverage 9 × Return on total assets 17.25 % Inventory turnover 7 × Return on common equity 19.40 % Days sales outstandinga 23 days Return on invested capital 17.30 % aCalculation is based on a 365-day year. Balance Sheet as of December 31, 2021 (millions of dollars) Cash and equivalents $ 77 Accounts payable $ 48 Accounts receivables 72 Other current liabilities 29 Inventories 178 Notes payable 58 Total current assets $ 327 Total current liabilities $ 135 Long-term debt 19 Total liabilities $ 154 Gross fixed assets 245 Common stock 120 Less depreciation 92 Retained earnings 206 Net fixed assets $ 153 Total stockholders' equity $ 326 Total assets $ 480 Total liabilities and equity $ 480 Income Statement for Year Ended December 31, 2021 (millions of dollars) Net sales $ 815.00 Cost of goods sold 640.00 Gross profit $ 175.00 Selling expenses 93.50 EBITDA $ 81.50 Depreciation expense 16.00 Earnings before interest and taxes (EBIT) $ 65.50 Interest expense 5.50 Earnings before taxes (EBT) $ 60.00 Taxes (25%) 15.00 Net income $ 45.00 Calculate the following ratios. Do not round intermediate calculations. Round your answers to two decimal places. Firm Industry Average Current ratio × 2 × Debt to total capital % 19 % Times interest earned × 7 × EBITDA coverage × 9 × Inventory turnover × 7 × Days sales outstanding days 23 days Fixed assets turnover × 6 × Total assets turnover × 3 × Profit margin % 5.75 % Return on total assets % 17.25 % Return on common equity % 19.40 % Return on invested capital % 17.30 %Construct a DuPont equation, and the industry. Do not round intermediate calculations. Round your answers to two decimal places. Firm Industry Profit margin % 5.75% Total assets turnover × 3× Equity multiplier × ×

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 $3 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 Current ratio 2 × Fixed assets turnover 6 × Debt-to-capital ratio 19 % Total assets turnover 3 × Times interest earned 7 × Profit margin 5.75 % EBITDA coverage 9 × Return on total assets 17.25 % Inventory turnover 7 × Return on common equity 19.40 % Days sales outstandinga 23 days Return on invested capital 17.30 % aCalculation is based on a 365-day year. Balance Sheet as of December 31, 2021 (millions of dollars) Cash and equivalents $ 77 Accounts payable $ 48 Accounts receivables 72 Other current liabilities 29 Inventories 178 Notes payable 58 Total current assets $ 327 Total current liabilities $ 135 Long-term debt 19 Total liabilities $ 154 Gross fixed assets 245 Common stock 120 Less depreciation 92 Retained earnings 206 Net fixed assets $ 153 Total stockholders' equity $ 326 Total assets $ 480 Total liabilities and equity $ 480 Income Statement for Year Ended December 31, 2021 (millions of dollars) Net sales $ 815.00 Cost of goods sold 640.00 Gross profit $ 175.00 Selling expenses 93.50 EBITDA $ 81.50 Depreciation expense 16.00 Earnings before interest and taxes (EBIT) $ 65.50 Interest expense 5.50 Earnings before taxes (EBT) $ 60.00 Taxes (25%) 15.00 Net income $ 45.00 Calculate the following ratios. Do not round intermediate calculations. Round your answers to two decimal places. Firm Industry Average Current ratio × 2 × Debt to total capital % 19 % Times interest earned × 7 × EBITDA coverage × 9 × Inventory turnover × 7 × Days sales outstanding days 23 days Fixed assets turnover × 6 × Total assets turnover × 3 × Profit margin % 5.75 % Return on total assets % 17.25 % Return on common equity % 19.40 % Return on invested capital % 17.30 %Construct a DuPont equation, and the industry. Do not round intermediate calculations. Round your answers to two decimal places. Firm Industry Profit margin % 5.75% Total assets turnover × 3× Equity multiplier × ×

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter3: Evaluation Of Financial Performance

Section: Chapter Questions

Problem 10P

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Question

Industry Average Ratios

Current ratio	2	×	Fixed assets turnover	6	×
Debt-to-capital ratio	19	%	Total assets turnover	3	×
Times interest earned	7	×	Profit margin	5.75	%
EBITDA coverage	9	×	Return on total assets	17.25	%
Inventory turnover	7	×	Return on common equity	19.40	%
Days sales outstanding^a	23	days	Return on invested capital	17.30	%
^aCalculation is based on a 365-day year.

Balance Sheet as of December 31, 2021 (millions of dollars)

Cash and equivalents	$	77	Accounts payable	$	48
Accounts receivables		72	Other current liabilities		29
Inventories		178	Notes payable		58
Total current assets	$	327	Total current liabilities	$	135
			Long-term debt		19
			Total liabilities	$	154
Gross fixed assets		245	Common stock		120
Less depreciation		92	Retained earnings		206
Net fixed assets	$	153	Total stockholders' equity	$	326
Total assets	$	480	Total liabilities and equity	$	480

Income Statement for Year Ended December 31, 2021 (millions of dollars)

Net sales	$	815.00
Cost of goods sold		640.00
Gross profit	$	175.00
Selling expenses		93.50
EBITDA	$	81.50
Depreciation expense		16.00
Earnings before interest and taxes (EBIT)	$	65.50
Interest expense		5.50
Earnings before taxes (EBT)	$	60.00
Taxes (25%)		15.00
Net income	$	45.00

Calculate the following ratios. Do not round intermediate calculations. Round your answers to two decimal places.

	Firm	Industry Average
Current ratio	×	2	×
Debt to total capital	%	19	%
Times interest earned	×	7	×
EBITDA coverage	×	9	×
Inventory turnover	×	7	×
Days sales outstanding	days	23	days
Fixed assets turnover	×	6	×
Total assets turnover	×	3	×
Profit margin	%	5.75	%
Return on total assets	%	17.25	%
Return on common equity	%	19.40	%
Return on invested capital	%	17.30	%

Construct a DuPont equation, and the industry. Do not round intermediate calculations. Round your answers to two decimal places.

	Firm	Industry
Profit margin	%	5.75%
Total assets turnover	×	3×
Equity multiplier	×	×

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