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 $2 million sinking fund payment on its debt. The most recent industry average ratios and the firm€™s financial statements are as follows:

a. Calculate the ratios you think would be useful in this analysis.
b. Construct a DuPont equation, and compare the company€™s ratios to the industry average ratios.
c. Do the balance sheet accounts or the income statement figures seem to be primarily responsible for the low profits?
d. Which specific accounts seem to be most out of line relative to other firms in the industry?
e. If the firm had a pronounced seasonal sales pattern or if it grew rapidly during the year, how might that affect the validity of your ratio analysis? How might you correct for such potential problems?

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Industry Average Ratios Current ratio Debt-to-capital ratio Times interest earned EBITDA coverage Inventory turnover Days sales outstanding" *Calculation is based on a 365-day year. Fixed assets turnover 6x Зx 20% Total assets turnover Зx Profit margin Return on total assets Return on common equity Return on invested capital 7x 9x 10x 12.86% 11.50% 24 days on. Balance Sheet as of December 31, 2016 (Millions of Dollars) Cash and equivalents $ 78 Accounts payable $ 45 Accounts receivable 66 Other current liabilities 11 Inventories 159 Notes payable 29 Total current assets $303 Total current liabilities $ 85 Long-term debt 50 Total liabilities $135 Gross fixed assets 225 Common stock 114 Less depreciation 78 Retained earnings 201 Total stockholders' equity Total liabilities and equity Net fixed assets $147 $315 Total assets $450 $450