4.24 Dupoint Analysis

C. Bo the balance sheet accounts or the income statement fioures seem to be primarily responsible for the low profits? 1. The low ROE for the firm is due to the fact that the firm is utiliang less debt than the average firm in the industry and the low ROA is mainly a result of an lower than average investrnent in assets. II. Analysis of the extended Du Pont equation and the set of ratios shows that the turnover ratio of sales to assets is guite low; however, its profit margin compares favorably with the industry average. Either sales should be higher given the present level of assets, or the firm is carrying more assets than it needs to support its sales. III. Analysis of the extended Du Pont equation and the set of ratios shows that the turnover ratio of sales to assets is quite low; however, its profit margin compares favorably with the industry average. Either sales should be lawer given the present level of assets, or the firm is carrving less. assets than it needs to support its sales. TV. Analysis of the extended Du Pont equation and the set of ratios shows that most of the Asset Management ratios are below the averages. Ether assets should be higher given the present level of sales; or the firm is carrying less assets than it needs to support its sales. V. The low ROE for the firm is due to the fact that the firm is citiling more debt than the average firm in the industry and the low R. A is mainly a result of an excess investrient in assets. d. Which specific accounts seem to be most out of line relative to other firms in the industry? I. The accounts which seem to be most out of line include the following ratios: Inventory Tumover, Davs Sales Outstanding, Fixed Asset Turnover, Proft Marofin, and Retiom on Equlty. 11. The accounts which seem to be most out of Ilne include the following ratios: Inventory Tumover, Days Sales Outstanding, Total Asset Tumprer; Return on Assets, and fetum on Equity. III. The accounts which seem to be most out of line include the following ratios; Current, fartoA Coverage, Inventory Turnover, Oavs Sales Outstanding, and Retum on Equity. IV. The accounts which seem to be moot out of line indude the following ratios: Debt to Total Capital, Inventory Turnover, Total Asset Furnover, fleturn on Assets, and Profit Margin. V. The accounts which seem to be nost out of line include the following ratios; Times Interest Earned, Total Asset Tarnever, Profit Margin, Return on 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? 1. Seasonal sales patterns would most likely affect the liquidity ratios, with little effect on asset management ratios. Rapid growth would not substantially affect your analysis. II. If the firm had sharp seasonal sales patterns, or if it grew rapidly during the year, many ratios would most likely be distorted. III. It is more important to adjust the debt ratio than the imventory turnover ratio to account for any seasonal fluctuations. IV. Seasonal sales patterns would most likely affect the profitability ratios, with little effect on asset management ratios, Rapid orowth would not substantially affect your analysis. V. Rapid growth would most likely affect the coverage ratios, with little effect on asset management ratios, Seasonal sales patterns would not substantially affect your analysis. How might you correct for such potential problems? 1. It is possible to correct for such problems by comparing the calculated ratios to the ratios of firms in a different line of business. II. It is possible to correct for such problems by comparing the calculated ratios to the ratios of firms in the same industry oroup over an extended period. III. There is no need to correct for these potential problems since you are comparing the calculated ratios to the ratios of firms in the same industry oroup. IV. It is possble to correct for such problems by insuring that all firms in the same industry groop are using the same accountino techniques. V. It is possible to correct for such problems by usiog average rather than end-of-period financial statement information. Th 04-End-of-Chapter Problems - Analysis of Financial Statements 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 fellows: a. Calculate the following ratios. Do not round intermediate calculations. Round your answers to two decimal places. \begin{tabular}{|cc} \hline Firm & Industrv Average \\ \hlinex & 2x \\ % & 20% \\ x & 6x \\ x & 7x \\ x & 9x \\ days & 27 days \\ x & 5x \\ x & 3x \\ % & 2.50% \\ % & 7.50% \\ % & 14.30% \\ % & 13.30% \end{tabular} Current ratio Debt to total capital Times interest earned EBHDA coverage Inventory turnover Days sales outstanding Fixed assets turnover Total assets turnover Profit margin Return on total assets Return on common equity Return on invested capital \begin{tabular}{|c|c|c|} \hlinex \\ % \\ x \\ x \\ x \\ days \\ x \\ x \\ %6 \\ % \\ %6 \\ % \\ \hline \end{tabular} Industry Average 2x 20% 6x 7x 9x 27day5 5x 3x .50% .50% .30% 30% b. Construct a DuPont equation, and the industry. Do not round intermediate calculations. Round your answers to two decimal places. Firm Profit margin Total assets turnever Equity multiplier Industry 2,50% Net sales for Year Ended December 31, 2021 (millions of dollars) Cost of goods sold Gross profit Selling expenses EBITDA Depreciation expense Earnings before interest and taxes (EBM) $895.00 Interest expense Earnings before taxes (EBT) $125.00770.00 $69.50 543.5012.00 Taxes (25%) $4.5039.00 Net income $29.259.75 a. Calculate the following ratio5. Do not round intermediate calculations, Round your answers to two decimal places