Data for Lozano Chip Company and its industry averages follow. Lozano Chip Company: Balance Sheet as of December 31, 2019 (Thousands of Dollars) Cash Receivables Inventories Total current assets Net fixed assets $ 220,000 1,575,000 1,120,000 $2,915,000 1,340,000 $4,255,000 Earnings before taxes (EBT) Federal and state income taxes (25%) Net income Sales/Fixed assets Sales/Total assets Total assets Lozano Chip Company: Income Statement for Year Ended December 31, 2019 (Thousands of Dollars) Sales Cost of goods sold Selling, general, and administrative expenses Earnings before interest and taxes (EBIT) Interest expense Accounts payable Notes payable Other current liabilities Total current liabilities Long-term debt Common equity Total liabilities and equity Net income/Sales Net income/Total assets $ 600,000 100,000 540,000 $1,240,000 400,000 days 2,615,000 $4,255,000 % % a. Calculate the indicated ratios for Lozano. Do not round intermediate calculations. Round your answers to two decimal places. Ratio Lozano Industry Average Current assets/Current liabilities 2.0 Days sales outstanding (365-day year) 35.0 days COGS/Inventory 6.7 12.1 3.0 1.2% 3.6% $7,500,000 6,375,000 917,000 $ 208,000 40,000 $ 168,000 42,000 $ 126,000 a. Calculate the indicated ratios for Lozano. Do not round intermediate calculations. Round your answers to two decimal places. Ratio Lozano Industry Average Current assets/Current liabilities 2.0 35.0 days 6.7 12.1 3.0 1.2% 3.6% 9.0% 10.0% 60.0% Days sales outstanding (365-day year) COGS/Inventory Sales/Fixed assets Sales/Total assets days Net income/Sales Net income/Total assets Net income/Common equity Total debt/Total assets Total liabilities/Total assets % b. Use the extended DuPont equation to calculate ROE for both Lozano and the industry. Do not round intermediate calculations. Round your answers to two decimal places. For the firm, ROE is %. % % % % For the industry, ROE is %. c. Outline Lozano's strengths and weaknesses as revealed by your analysis. The firm's days sales outstanding is more than twice as long as the industry average, indicating that the firm should -Select- The total assets turnover ratio is well -Select- the industry average so sales should be -Select- , assets -Select- While the company's profit margin is-Select-than the industry average, its other profitability ratios are -Select- equity and assets. credit or enforce a -Select-stringent collection policy. , or both. compared to the industry - net income should be -Select- given the amount of
