1.Consider the following information:

Skeleton Lake Corporation

Balance Sheet

December 31, 2016

($000,000s)

AssetsLiabilities

Current assetsCurrent liabilities

Cash6Accounts payable40

Short-term investments 12Accrued liabilities 25

Accounts receivable 42Total current liabilities65

Inventory 60Deferred income taxes20

Other current assets 10Long-term debt125 145

Total current assets 130Total liabilities210

Long-term assetsStockholders' equity

Net PPE80Common stock 80

Goodwill 120200Retained earnings 40

Total stockholders' equity 120

Total assets330 Total liabilities and equity330

Skeleton Lake Corporation

Income Statement

For the Year Ended December 31, 2016

($000,000s)

Net sales400

Cost of goods sold325

Gross profit75

Operating expenses 60

Operating profit 15

Interest expense 5

Earnings before taxes 10

Income tax expense 4

Net income6

Required:

a. Calculate the DuPont system ratio.

b. Interpret the results. Assume the following other information:

2016 2015

NPMTATFLNPMTATFL

Skeleton Lake Corp. .0113

Industry average.018 1.21.6 .021.21.4