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: a Calculation is based on a 365-day year. Balance Sheet as of December 31, 2021 (millions of dollars) c. Do the balance sheet accounts or the income statement figures seem to be primarily responsible for the low profits? I. 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. II. 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 hiqher qiven the present level of sales, or the firm is carryina less assets than it needs to support its sales. III. 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. IV. 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 an lower than average investment in assets. 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. 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 Turnover, Days Sales Outstand Margin, and Return on Equity. II. 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. III. 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. IV. 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. V. The accounts which seem to be most out of line include the following ratios: Times Interest Earned, Total Asset Turnover, Profit Margin, Return on and Return on Equity. 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 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 inventory turnover ratio to account for any seasonal fluctuations. affect your analysis. affect your analysis. 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: a Calculation is based on a 365-day year. Balance Sheet as of December 31, 2021 (millions of dollars) c. Do the balance sheet accounts or the income statement figures seem to be primarily responsible for the low profits? I. 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. II. 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 hiqher qiven the present level of sales, or the firm is carryina less assets than it needs to support its sales. III. 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. IV. 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 an lower than average investment in assets. 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. 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 Turnover, Days Sales Outstand Margin, and Return on Equity. II. 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. III. 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. IV. 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. V. The accounts which seem to be most out of line include the following ratios: Times Interest Earned, Total Asset Turnover, Profit Margin, Return on and Return on Equity. 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 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 inventory turnover ratio to account for any seasonal fluctuations. affect your analysis. affect your analysis