HOMEWORK PROBLEM

Financial Statements for Sundown Ski Wear, Inc. for 2019 were as follows:

Sundown Ski Wear

Balance Sheet as of December 31, 2019 (Millions)

Cash	$ 20		Accounts Payable	80
Accounts Receivable	50		Accrued Liabilities	30
Inventory	160		Notes Payable	90
Total Current Assets	$230		Total Current Liabilities	$200
Gross Fixed Assets	400		Long-term Debt	150
less Accum. Depreciation	140		Common Stock	80
Net Fixed Assets	$260		Retained Earnings	60
			Total Stockholders Equity	140
Total Assets	$490		Total Liabilities and Equity	$490

Sundown Ski Wear

Income Statement for the year Ended December 31, 2019 (Millions)

Net Sales	$1,500
Cost of Goods Sold	1,230
Gross Profit	270
Selling and Administrative Expenses	150
Depreciation Expense	30
Operating Earnings (EBIT)	90
Interest Expense	30
Earnings Before Taxes (EBT)	60
Taxes (25%)	15
Net Income	$ 45

Industry Average Ratios

Current Ratio	2.0 X		Gross Profit Margin	18.0%
Quick Ratio	0.8 X		Operating (EBIT) Margin	5.8%
Times Interest Earned	7.0 X		Net Profit Margin	3.7%
Cash Coverage	9.0 X		Return on Assets (ROA)	10.1%
COGS / Inventory	8.2 X		Return on Equity (ROE)	15.9%
Average Collection Period	24 days		Total Debt / Total Assets	30.0%
Sales / Fixed Assets	6.0 X
Sales / Total Assets	3.0 X

1. Do a complete comparative ratio analysis of Sundown Ski Wear vs. its industry. This should consist of the components enumerated below. [10 points]

a. Extended DuPont Model. Explain why Sundowns ROE differed from its industry. What are the implications of the three determinants of Sundowns ROE?

b. Assess Sundowns liquidity relative to the industry using relevant ratios.

c. Use a common-size income statement to examine why Sundowns net profit margin differed from the industry. Note: this means you should construct a detailed common-size income statement for the industry as well as Sundown; enough information is provided for you to do so.

d. Assess Sundowns asset management relative to the industry using relevant ratios.

e. Assess Sundowns debt management relative to the industry using relevant ratios.

f. Summarize Sundowns financial strengths and weaknesses as they are revealed by your analysis in parts a-e.