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 follows Industry Average Ratios Current ratio2Fixed assets turnover5Debt to capital ratio17 Total assets turnover3Times interest earned5Profit margin3 50 EBITDA coverage6Return on total assets10 50 Inventory turnover9Return on common equity16 30 Days sales outstanding a 20daysReturn on invested capital16 40 a Calculation is based on a 365 day year Balance Sheet as of December 31, 2021 (millions of dollars) Cash and equivalents$66Accounts payable$41Accounts receivables57Other current liabilities8Inventories123Notes payable45Total current assets$246Total current liabilities$94Long term debt16Total liabilities$110Gross fixed assets185Common stock111Less depreciation21Retained earnings189Net fixed assets$164Total stockholders' equity$300Total assets$410Total liabilities and equity$410 Income Statement for Year Ended December 31, 2021 (millions of dollars) Net sales$745 00Cost of goods sold610 00Gross profit$135 00Selling expenses72 50EBITDA$62 50Depreciation expense12 00Earnings before interest and taxes (EBIT)$50 50Interest expense6 50Earnings before taxes (EBT)$44 00Taxes (25 )11 00Net income$33 00 Calculate the following ratios Do not round intermediate calculations Round your answers to two decimal places Firm Industry Average Current ratio2Debt to total capital 17 Times interest earned5EBITDA coverage6Inventory turnover9Days sales outstandingdays20daysFixed assets turnover5Total assets turnover3Profit margin 3 50 Return on total assets 10 50 Return on common equity 16 30 Return on invested capital 16 40 Construct a DuPont equation, and the industry Do not round intermediate calculations Round your answers to two decimal places Firm Industry Profit margin 3 50 Total assets turnover3Equity multiplier Do the balance sheet accounts or the income statement figures seem to be primarily responsible for the low profits Analysis of the extended Du Pont equation and the set of ratios shows that most of the Asset Management ratios are below the averages Either assets should be higher given the present level of sales, or the firm is carrying less assets than it needs to support its sales The low ROE for the firm is due to the fact that the firm is utilizing more debt than the average firm in the industry and the low ROA is mainly a result of an excess investment in assets The low ROE for the firm is due to the fact that the firm is utilizing less debt than the average firm in the industry and the low ROA is mainly a result of an lower than average investment in assets 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 higher given the present level of assets, or the firm is carrying more assets than it needs to support its sales 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 lower given the present level of assets, or the firm is carrying less assets than it needs to support its sales Which specific accounts seem to be most out of line relative to other firms in the industry The accounts which seem to be most out of line include the following ratios Inventory Turnover, Days Sales Outstanding, Total Asset Turnover, Return on Assets, and Return on Equity The accounts which seem to be most out of line include the following ratios Current, EBITDA Coverage, Inventory Turnover, Days Sales Outstanding, and Return on Equity The accounts which seem to be most out of line include the following ratios Debt to Total Capital, Inventory Turnover, Total Asset Turnover, Return on Assets, and Profit Margin The accounts which seem to be most out of line include the following ratios Times Interest Earned, Total Asset Turnover, Profit Margin, Return on Assets, and Return on Equity The accounts which seem to be most out of line include the following ratios Inventory Turnover, Days Sales Outstanding, Fixed Asset Turnover, Profit Margin, and Return on Equity 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 If the firm had sharp seasonal sales patterns, or if it grew rapidly during the year, many ratios would most likely be distorted It is more important to adjust the debt ratio than the inventory turnover ratio to account for any seasonal fluctuations Seasonal sales patterns would most likely affect the profitability ratios, with little effect on asset management ratios Rapid growth would not substantially affect your analysis 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 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 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 group It is possible to correct for such problems by insuring that all firms in the same industry group are using the same accounting techniques It is possible to correct for such problems by using average rather than end of period financial statement information It is possible to correct for such problems by comparing the calculated ratios to the ratios of firms in a different line of business It is possible to correct for such problems by comparing the calculated ratios to the ratios of firms in the same industry group over an extended period

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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

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 follows:

Industry Average RatiosCurrent ratio2Fixed assets turnover5Debt-to-capital ratio17%Total assets turnover3Times interest earned5Profit margin3.50%EBITDA coverage6Return on total assets10.50%Inventory turnover9Return on common equity16.30%Days sales outstanding^a20daysReturn on invested capital16.40%^aCalculation is based on a 365-day year.Balance Sheet as of December 31, 2021 (millions of dollars)Cash and equivalents$66Accounts payable$41Accounts receivables57Other current liabilities8Inventories123Notes payable45Total current assets$246Total current liabilities$94Long-term debt16Total liabilities$110Gross fixed assets185Common stock111Less depreciation21Retained earnings189Net fixed assets$164Total stockholders' equity$300Total assets$410Total liabilities and equity$410

Income Statement for Year Ended December 31, 2021 (millions of dollars)Net sales$745.00Cost of goods sold610.00Gross profit$135.00Selling expenses72.50EBITDA$62.50Depreciation expense12.00Earnings before interest and taxes (EBIT)$50.50Interest expense6.50Earnings before taxes (EBT)$44.00Taxes (25%)11.00Net income$33.00

Calculate the following ratios. Do not round intermediate calculations. Round your answers to two decimal places.

FirmIndustry AverageCurrent ratio2Debt to total capital%17%Times interest earned5EBITDA coverage6Inventory turnover9Days sales outstandingdays20daysFixed assets turnover5Total assets turnover3Profit margin%3.50%Return on total assets%10.50%Return on common equity%16.30%Return on invested capital%16.40%

Construct a DuPont equation, and the industry. Do not round intermediate calculations. Round your answers to two decimal places.

FirmIndustryProfit margin%3.50%Total assets turnover3Equity multiplier

Do the balance sheet accounts or the income statement figures seem to be primarily responsible for the low profits?
1. Analysis of the extended Du Pont equation and the set of ratios shows that most of the Asset Management ratios are below the averages. Either assets should be higher given the present level of sales, or the firm is carrying less assets than it needs to support its sales.
2. The low ROE for the firm is due to the fact that the firm is utilizing more debt than the average firm in the industry and the low ROA is mainly a result of an excess investment in assets.
3. The low ROE for the firm is due to the fact that the firm is utilizing less debt than the average firm in the industry and the low ROA is mainly a result of an lower than average investment in assets.
4. 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 higher given the present level of assets, or the firm is carrying more assets than it needs to support its sales.
5. 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 lower given the present level of assets, or the firm is carrying less assets than it needs to support its sales.
Which specific accounts seem to be most out of line relative to other firms in the industry?
1. The accounts which seem to be most out of line include the following ratios: Inventory Turnover, Days Sales Outstanding, Total Asset Turnover, Return on Assets, and Return on Equity.
2. The accounts which seem to be most out of line include the following ratios: Current, EBITDA Coverage, Inventory Turnover, Days Sales Outstanding, and Return on Equity.
3. The accounts which seem to be most out of line include the following ratios: Debt to Total Capital, Inventory Turnover, Total Asset Turnover, Return on Assets, and Profit Margin.
4. The accounts which seem to be most out of line include the following ratios: Times Interest Earned, Total Asset Turnover, Profit Margin, Return on Assets, and Return on Equity.
5. The accounts which seem to be most out of line include the following ratios: Inventory Turnover, Days Sales Outstanding, Fixed Asset Turnover, Profit Margin, and Return on Equity.
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. If the firm had sharp seasonal sales patterns, or if it grew rapidly during the year, many ratios would most likely be distorted.
2. It is more important to adjust the debt ratio than the inventory turnover ratio to account for any seasonal fluctuations.
3. Seasonal sales patterns would most likely affect the profitability ratios, with little effect on asset management ratios. Rapid growth would not substantially affect your analysis.
4. 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.
5. 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.
6. 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 group.
7. It is possible to correct for such problems by insuring that all firms in the same industry group are using the same accounting techniques.
8. It is possible to correct for such problems by using average rather than end-of-period financial statement information.
9. It is possible to correct for such problems by comparing the calculated ratios to the ratios of firms in a different line of business.
10. It is possible to correct for such problems by comparing the calculated ratios to the ratios of firms in the same industry group over an extended period.