Analysis of Financial Statements: Tying the Ratios Together ratios. Management can use the DuPont equation to analyze ways The DuPont equation shows the relationships among asset management, debt management, and -Select- of improving the firm's performance. Its equation is: ROE = Profit margin Total assets turnover Equity multiplier Ratio analysis is important to understand and interpret financial statements; however, sound financial analysis involves more than just calculating and interpreting numbers. -Select- factors also need to be considered. Quantitative Problem: Rosnan Industries' 2020 and 2019 balance sheets and income statements are shown below. Balance Sheets 2020 2019 Assets Cash and equivalents Accounts receivable Inventories Total current assets Net plant and equipment Total assets Liabilities and Equity Accounts payable Accruals Notes payable Total current liabilities Long-term debt Total liabilities Common stock Retained earnings Total common equity Total liabilities and equity $110 275 375 $760 2,000 $2,760 $150 75 160 $385 450 $835 1,225 700 $1,925 $2,760 $95 300 350 $745 1,490 $2,235 $85 50 185 $320 290 $610 1,225 400 $1,625 $2,235 Income Statements Sales Operating costs excluding depreciation and amortization EBITDA Depreciation and amortization EBIT Interest EBT Taxes (40%) Net income Dividends paid Addition to retained earnings Shares outstanding Price WACC 2020 $2,000 1,250 $750 100 $650 62 $588 235 $353 $53 $300 100 $25.00 10.00% 2019 $1,500 1,000 $500 75 $425 45 $380 152 $228 $48 $180 100 $22.50 What is the firm's 2020 current ratio? Do not round intermediate calculations. Round your answer to two decimal places. If the industry average debt-to-assets ratio is 30%, then Rosnan's creditors have a [-Select- cushion than indicated by the industry average. What is the firm's 2020 net profit margin? Do not round intermediate calculations. Round your answer to two decimal places. % If the industry average profit margin is 12%, then Rosnan's lower than average debt-to-assets ratio might be one reason for its high profit margin. -Select- V What is the firm's 2020 price/earnings ratio? Do not round intermediate calculations. Round your answer to two decimal places. Using the DuPont equation, what is the firm's 2020 ROE? Do not round intermediate calculations. Round your answer to two decimal places. % Analysis of Financial Statements: Tying the Ratios Together ratios. Management can use the DuPont equation to analyze ways The DuPont equation shows the relationships among asset management, debt management, and -Select- of improving the firm's performance. Its equation is: ROE = Profit margin Total assets turnover Equity multiplier Ratio analysis is important to understand and interpret financial statements; however, sound financial analysis involves more than just calculating and interpreting numbers. -Select- factors also need to be considered. Quantitative Problem: Rosnan Industries' 2020 and 2019 balance sheets and income statements are shown below. Balance Sheets 2020 2019 Assets Cash and equivalents Accounts receivable Inventories Total current assets Net plant and equipment Total assets Liabilities and Equity Accounts payable Accruals Notes payable Total current liabilities Long-term debt Total liabilities Common stock Retained earnings Total common equity Total liabilities and equity $110 275 375 $760 2,000 $2,760 $150 75 160 $385 450 $835 1,225 700 $1,925 $2,760 $95 300 350 $745 1,490 $2,235 $85 50 185 $320 290 $610 1,225 400 $1,625 $2,235 Income Statements Sales Operating costs excluding depreciation and amortization EBITDA Depreciation and amortization EBIT Interest EBT Taxes (40%) Net income Dividends paid Addition to retained earnings Shares outstanding Price WACC 2020 $2,000 1,250 $750 100 $650 62 $588 235 $353 $53 $300 100 $25.00 10.00% 2019 $1,500 1,000 $500 75 $425 45 $380 152 $228 $48 $180 100 $22.50 What is the firm's 2020 current ratio? Do not round intermediate calculations. Round your answer to two decimal places. If the industry average debt-to-assets ratio is 30%, then Rosnan's creditors have a [-Select- cushion than indicated by the industry average. What is the firm's 2020 net profit margin? Do not round intermediate calculations. Round your answer to two decimal places. % If the industry average profit margin is 12%, then Rosnan's lower than average debt-to-assets ratio might be one reason for its high profit margin. -Select- V What is the firm's 2020 price/earnings ratio? Do not round intermediate calculations. Round your answer to two decimal places. Using the DuPont equation, what is the firm's 2020 ROE? Do not round intermediate calculations. Round your answer to two decimal places. %
