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 oayments but has a 33 milion sinking fund payment on its debt. The most recent industry average ratios and the firm's financial statements are as follows: "Calculation is based on a 365 -day year, Balance sheet as of December 31,2021 (millions of dollars) Income Statement for Year Ended December 31,2021 (millions of dollars) Income Statement for Year Ended December 31. 2021 (millions of dollars) a. Calculate the following ratios. Do not round intermediate calculations. Round your answers to two decimal places. b. Construct a Dupont equation, and the industry. Do not round intermediate calculations. Round your answers to two decimal places. Firm Industry Profit margin 5.75% c. 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. Elther assets should be higher given the present level of sales, or the firm is carrying less assets than it needs to support its sales. 11. 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. IIt. The low ROE for the firm is due to the fact that the firm is utiliaing less debt than the average firm in the industry and the low roA is mainly a rasult of an lower than average ifvestment in assets. IV. 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, of the firm is carrying more assets than it needs to support its sales. V. Analysis of the extended Du Pont equation and the set of ratios shows that the turnover ratio of sales to assets is quite low; hewever, its profit margin compares. favorably with the industry averege. Either sales should be lower given the present level of assets, or the firm is carrying less assets than it needs to support its salet. d. 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. II. The accounts which seem to be most out of line include the following ratios; Current, EBrrDA Coverage, Inventory Turnover, Davs Saies Outstanding. and Return on Equity. III. 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 Assats, and Profit Margin. IV. The accounts which seem to be most out of line include the following ratios: Times Interest Farned, Total Asset Turnover, Profit Margin, Return on Assets, and Return on Equity. V. The accounts which seem to be most out of line include the following ratios; Inventory Turnover, Days Sales Outstanding, Fixed Asset Turnover, Profi Margin, and Return on Equity. e. If the firm had a pronounced seasonal sales pattern or if it grew rapidiy during the year, how might that affect the valid ty 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. If. It is mere important to adjust the debt ratio than the inventory turnover ratio to account for any seasonal fluctuations. IIt. Seasonal sales patterns would most likely affect the profitability ratios, with littie effect on asset management ratios. Rapid growth would not substantially affect your analysis. IV, Ropid growth would most likely affect the coverage ratios, with littie effect on asset management ratios. Seasonal sales parterns wiguld not substantially affoet
