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:

4-24 DuPON'I' ANALYSIS A rm has been experiencing low protability in recent years. Perform an analysis of the rm's nancial position using the DuPont equation. The rm 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 nancial statements are as follows: Industry Average Ratios Current ratio 3 x Fixed assets turnover Debt-to-capital ratio 20% Total assets turnover Times interest earned 7x Prot margin EBITDA coverage 9x Return on total assets Inventory turnover 10x Return on common equity Days sales outstandinga 24 days Return on irwested capital \"Calculation is based on a 365-day year. Balance Sheet: of December 31 . 2018 (\"lions of Del-rs] Cash and equivalents $ 78 Accounts receivable 66 Inventories E Total current assets $303 Gross xed assets 225 [as depreciation _78 Net fixed assets M Total assets Accounts payable Other current liabilities Notes payable Total current liabilities Long-term debt Total liabilities Common stock Total stockholders' equity Total liabilities and equity $45 11 29 $55 $135 114 E w $450 Income Statement for Year Ended Muha- 31. 201B [Billions of Dollars] Net sales $795.0 Cost of goods sold Gross prot $135.0 Semnsexpmses EBITDA $ 61.5 Depredaon mac FamingsbefomimerectandtamsEBH') $ 49.5 Interest expense i Earnings before taxes (EBT) $ 45.0 Taxes (40%) 18.0 Net income 5 27.0 Part: 2 Fundamental Concepts in Financial Management a. b. C. d. Calculate the ratios you think would be useful in this analysis. Construct a DuPont equation, and compare the company's ratios to the industry average ratios. Do the balance sheet accounts or the income statement gures seem to be primarily responsible for the low prots? Whichspecicaocountsseemtobemostoutoflinerelativetootherrmsinthe industry? Ifthe Embed a pronounced seasonal sales pattern or if it grew rapidly during the year, how might that affect the validity of your ratio analysis? How might you correct for such potential problems