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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 Ratios | ||||
Current ratio | 3.62x | Fixed assets turnover | 5.36x | |
Debt-to-capital ratio | 16.99% | Total assets turnover | 3.02x | |
Times interest earned | 28.62x | Profit margin | 8.80% | |
EBITDA coverage | 18.64x | Return on total assets | 26.00% | |
Inventory turnover | 9.28x | Return on common equity | 38.44% | |
Days sales outstandinga | 23.12 days | Return on invested capital | 30.63% |
aCalculation is based on a 365-day year.
Balance Sheet as of December 31, 2016 (Millions of Dollars) | ||||
Cash and equivalents | $59 | Accounts payable | $31 | |
Accounts receivables | 45 | Other current liabilities | 10 | |
Inventories | 125 | Notes payable | 35 | |
Total current assets | $229 | Total current liabilities | $76 | |
Long-term debt | 17 | |||
Total liabilities | $93 | |||
Gross fixed assets | 157 | Common stock | 97 | |
Less depreciation | 38 | Retained earnings | 158 | |
Net fixed assets | $119 | Total stockholders' equity | $255 | |
Total assets | $348 | Total liabilities and equity | $348 |
Income Statement for Year Ended December 31, 2016 (Millions of Dollars) | |
Net sales | $580.0 |
Cost of goods sold | 411.8 |
Gross profit | $168.2 |
Selling expenses | 52.2 |
EBITDA | $116.0 |
Depreciation expense | 16.8 |
Earnings before interest and taxes (EBIT) | $99.2 |
Interest expense | 2.6 |
Earnings before taxes (EBT) | $96.6 |
Taxes (40%) | 38.6 |
Net income | $58.0 |
- Calculate the following ratios. Do not round intermediate steps. Round your answers to two decimal places.
Firm Industry Average Current ratio x 3.62x Debt to total capital % 16.99% Times interest earned x 28.62x EBITDA coverage x 18.64x Inventory turnover x 9.28x Days sales outstanding days 23.12days Fixed assets turnover x 5.36x Total assets turnover x 3.02x Profit margin % 8.80% Return on total assets % 26.00% Return on common equity % 38.44%
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