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2DUPONT ANALYSIs A firm has been experiencing low profitability in recent ysis of the firm's financial position using the DuPont equation. The firm has no

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2DUPONT ANALYSIs A firm has been experiencing low profitability in recent ysis of the firm's financial position using the DuPont equation. The firm has no debt. The most recent lease payments but has a $2 million sinking fund payment on its industry average ratios and the firm's financial statements are as Industry Average Ratios Current ratio Debt-to-capital ratio Times interest earned EBITDA coverage Inventory turmover Days sales outstanding Calculation is based on a 365-day year Fixed assets turnover Total assets turnover Profit margin Return on total assets Return on common equity Return on invested capital 20% 3x 12.8696 1150% 10x 24 days Balance Sheet as of December 31, 2014 (Millions of Dollars) s 45 Cash and equivalents Accounts receivable $ 78 Accounts payable 66 Other current Eabilities Notes payable 29 5 85 50 $135 114 201 199 $303 Total current liabilities Long-term debt Total current assets Total liabilities Common stock Retained earnings Gross fixed assets 225 Less depreciation78 147 5450 Net fixed assets Total assets Total stockholders' equity Total liabilities and equity 315 $450 Income Statement for Year Ended December 31, 2014 (Millions of Dollars) Net sales $795.0 Cost of goods sold $135.0 735 s 615 12.0 5 49.5 45 s 45.0 18.0 27.0 Gross profit Selling expenses Depreciation expense Earnings before interest and taxes (EBm Interest expense Earnings before taxes (EBT) Taxes (40%) Net income Calculate the ratios you think would be useful in this analysis Construct a DuPont equation and compare the company's ratios to the industry average ratios. Do the balance sheet accounts or the income statement figures seem to be primarily responsible for the low profits? Which specific accounts seem to be most out of line relative to other firms in the industry? 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? a. b. c. d. e

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