Analysis of Financial Statements: Tying the Ratios Together

The DuPont equation shows the relationships among asset management, debt management, and -Select-liquiditymarketprofitabilityCorrect 1 of Item 1 ratios. Management can use the DuPont equation to analyze ways of improving the firm's performance. Its equation is:

Ratio analysis is important to understand and interpret financial statements; however, sound financial analysis involves more than just calculating and interpreting numbers. -Select-QuantitativeQualitativeForeignCorrect 2 of Item 1 factors also need to be considered.

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Quantitative Problem: Rosnan Industries' 2018 and 2017 balance sheets and income statements are shown below.

Balance Sheets:
	2018	2017
Cash and equivalents	$60	$45
Accounts receivable	275	300
Inventories	375	350
Total current assets	$710	$695
Net plant and equipment	2,000	1,490
Total assets	$2,710	$2,185
Accounts payable	$150	$85
Accruals	75	50
Notes payable	110	135
Total current liabilities	$335	$270
Long-term debt	450	290
Common stock	1,225	1,225
Retained earnings	700	400
Total liabilities and equity	$2,710	$2,185

Income Statements:
	2018	2017
Sales	$2,000	$1,500
Operating costs excluding depreciation	1,250	1,000
EBITDA	$750	$500
Depreciation and amortization	100	75
EBIT	$650	$425
Interest	62	45
EBT	$588	$380
Taxes (40%)	235	152
Net income	$353	$228
Dividends paid	$53	$48
Addition to retained earnings	$300	$180
Shares outstanding	100	100
Price	$25.00	$22.50
WACC	10.00%

What is the firms 2018 current ratio?

If the industry average debt-to-total-assets ratio is 30%, then Rosnans creditors have a -Select-smallerbiggerCorrect 1 of Item 3 cushion than indicated by the industry average. What is the firms 2018 net profit margin? %

If the industry average profit margin is 12%, then Rosnans lower than average debt-to-total-assets ratio might be one reason for its high profit margin. -Select-TrueFalseCorrect 1 of Item 4

What is the firms 2018 price/earnings ratio? Round your answer to two decimal places.

Using the DuPont equation, what is the firms 2018 ROE? Round your answer to two decimal places.