FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Comprehensive Ratio Analysis
Data for Lozano Chip Company and its industry averages follow.
| Lozano Chip Company: (Thousands of Dollars) |
||||
| Cash | $ 215,000 | Accounts payable | $ 600,000 | |
| Receivables | 1,575,000 | Notes payable | 100,000 | |
| Inventories | 1,120,000 | Other current liabilities | 520,000 | |
| Total current assets | $2,910,000 | Total current liabilities | $1,220,000 | |
| Net fixed assets | 1,350,000 | Long-term debt | 400,000 | |
| Common equity | 2,640,000 | |||
| Total assets | $4,260,000 | Total liabilities and equity | $4,260,000 |
| Lozano Chip Company: Income Statement for Year Ended December 31, 2019 (Thousands of Dollars) |
|
| Sales | $7,500,000 |
| Cost of goods sold | 6,375,000 |
| Selling, general, and administrative expenses | 919,000 |
| Earnings before interest and taxes (EBIT) | $ 206,000 |
| Interest expense | 40,000 |
| Earnings before taxes (EBT) | $ 166,000 |
| Federal and state income taxes (25%) | 41,500 |
| Net income | $ 124,500 |
- Calculate the indicated ratios for Lozano. Do not round intermediate calculations. Round your answers to two decimal places.
Ratio Lozano Industry Average Current assets/Current liabilities 2.0 Days sales outstanding (365-day year) days 35.0 days COGS/Inventory 6.7 Sales/Fixed assets 12.1 Sales/Total assets 3.0 Net income/Sales % 1.2 % Net income/Total assets % 3.6 % Net income/Common equity % 9.0 % Total debt/Total assets % 10.0 % Total liabilities/Total assets % 60.0 % - Use the extended DuPont equation to calculate ROE for both Lozano and the industry. Do not round intermediate calculations. Round your answers to two decimal places.
For the firm, ROE is %.
For the industry, ROE is %.
-
Outline Lozano's strengths and weaknesses as revealed by your analysis.
The firm's days sales outstanding is more than twice as long as the industry average, indicating that the firm should credit or enforce a stringent collection policy.
The total assets turnover ratio is well the industry average so sales should be , assets , or both.
While the company's profit margin is than the industry average, its other profitability ratios are compared to the industry - net income should be given the amount of equity and assets.
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