Davis Industries, a manufacturing firm, has experienced modest sales growth over the past three years but has had difficulty translating the expansion of sales into improved profitability. Using three years' financial statements, you have developed the following ratio calculations and industry comparisons. 

1.     Show the breakout of the ROE (3-factor DuPont Identity) for both Davis and the industry. 

 2.     Based on the above breakout, in conjunction with any other ratios given, explain what major issues are contributing to Davis declining profitability and ROE.  

Current ratio Average collection period Inventory turnover Fixed asset turnover Total asset turnover Debt ratio Times interest earned Fixed charge coverage Gross profit margin Operating profit margin Net profit margin Return on total assets Return on equity 2015 2.2X 47 days 8.1X 3.3X Industry Averages 2016 2017 2017 2.3X 2.3X 2.1% 46 days 45 days 50 days 8.2X 8.3X 8.3X 3.0X 2.7X 3.5X 1.3X 1.2X 1.1X 1.5X 50% 50% 50% 54% 8.1X 8.2X 8.1X 7.2X 5.5X 4.5X 4.0X 5.1X 43% 43% 43% 40% 8.0% 7.2% 6.3% 7.5% 4.3% 4.0% 3.5% 4.2% 5.7% 5.0% 3.7% 6.4% 11.4% 9.9% 7.4% 11.8%