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 $2 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	2			Fixed assets turnover	6
Debt-to-capital ratio	20	%		Total assets turnover	3
Times interest earned	4			Profit margin	2.75	%
EBITDA coverage	6			Return on total assets	8.25	%
Inventory turnover	13			Return on common equity	15.30	%
Days sales outstandinga	18	days		Return on invested capital	14.00	%
aCalculation is based on a 365-day year.

Balance Sheet as of December 31, 2019 (Millions of Dollars)
Cash and equivalents	$	79		Accounts payable	$	37
Accounts receivables		58		Other current liabilities		25
Inventories		125		Notes payable		50
Total current assets	$	262		Total current liabilities	$	112
				Long-term debt		21
				Total liabilities	$	133
Gross fixed assets		220		Common stock		91
Less depreciation		67		Retained earnings		191
Net fixed assets	$	153		Total stockholders' equity	$	282
Total assets	$	415		Total liabilities and equity	$	415

Income Statement for Year Ended December 31, 2019 (Millions of Dollars)
Net sales	$	805.00
Cost of goods sold		690.00
Gross profit	$	115.00
Selling expenses		63.50
EBITDA	$	51.50
Depreciation expense		10.00
Earnings before interest and taxes (EBIT)	$	41.50
Interest expense		5.50
Earnings before taxes (EBT)	$	36.00
Taxes (25%)		9.00
Net income	$	27.00

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

   	Firm	Industry Average
   Current ratio		2
   Debt to total capital	%	20	%
   Times interest earned		4
   EBITDA coverage		6
   Inventory turnover		13
   Days sales outstanding	days	18	days
   Fixed assets turnover		6
   Total assets turnover		3
   Profit margin	%	2.75	%
   Return on total assets	%	8.25	%
   Return on common equity	%	15.30	%
   Return on invested capital	%	14.00	%

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

   	Firm	Industry
   Profit margin	%	2.75%
   Total assets turnover		3
   Equity multiplier

3. 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 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.
   2. 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.
   3. 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.
   4. 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.
   5. 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.