DuPONT 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 $2 million sinking fund payment on its debt. The most recent industry average ratios and the firm's financial statements are as follows:

Industry Average Ratios
Current ratio	4.08x		Fixed assets turnover	7.36x
Debt-to-capital ratio	20.46%		Total assets turnover	3.03x
Times interest earned	17.84x		Profit margin	10.29%
EBITDA coverage	20.15x		Return on total assets	30.12%
Inventory turnover	8.82x		Return on common equity	43.89%
Days sales outstandinga	30.96 days		Return on invested capital	40%

^aCalculation is based on a 365-day year.

Balance Sheet as of December 31, 2016 (Millions of Dollars)
Cash and equivalents	$78		Accounts payable	$35
Accounts receivables	66		Other current liabilities	12
Inventories	140		Notes payable	47
Total current assets	$284		Total current liabilities	$94
			Long-term debt	23
			Total liabilities	$117
Gross fixed assets	191		Common stock	90
Less depreciation	85		Retained earnings	183
Net fixed assets	$106		Total stockholders' equity	$273
Total assets	$390		Total liabilities and equity	$390

Income Statement for Year Ended December 31, 2016 (Millions of Dollars)
Net sales	$650.0
Cost of goods sold	429.0
Gross profit	$221.0
Selling expenses	71.5
EBITDA	$149.5
Depreciation expense	15.0
Earnings before interest and taxes (EBIT)	$134.5
Interest expense	4.9
Earnings before taxes (EBT)	$129.6
Taxes (40%)	51.8
Net income	$77.8

Calculate the following ratios. Do not round intermediate steps. Round your answers to two decimal places.

	Firm	Industry Average
Current ratio	x	4.08x
Debt to total capital	%	20.46%
Times interest earned	x	17.84x
EBITDA coverage	x	20.15x
Inventory turnover	x	8.82x
Days sales outstanding	days	30.96days
Fixed assets turnover	x	7.36x
Total assets turnover	x	3.03x
Profit margin	%	10.29%
Return on total assets	%	30.12%
Return on common equity	%	43.89%
Return on invested capital	%	40.00%

Construct a DuPont equation for the firm and the industry. Do not round intermediate steps. Round your answers to two decimal places.

	Firm	Industry
Profit margin	%	10.29%
Total assets turnover	x	3.03x
Equity multiplier	x	x

Do the balance sheet accounts or the income statement figures seem to be primarily responsible for the low profits?