Industry Average Ratios 2x Current ratio Fixed assets turnover 6x Debt-to-capital ratio 17% Total assets turnover 3x Times interest earned 7x Profit margin 3.25% EBITDA coverage 9x Return on total assets 9.75% Inventory turnover 9x Return on common 15.30% equity Days sales 32days Return on invested 13.40% outstanding capital Calculation is based on a 365-day year. Balance Sheet as of December 31, 2019 (Millions of Dollars) Cash and equivalents $115 Accounts payable $ 58 Accounts receivables 98 Other current liabilities 35 Inventories 184 Notes payable 46 Total current assets $397 Total current liabilities $139 Long-term debt 35 Total liabilities $174 Gross fixed assets 305 Common stock 150 Less depreciation 127 Retained earnings 251 Net fixed assets $178 Total stockholders' equity $401 Total assets $575 Total liabilities and equity $575 $ Income Statement for Year Ended December 31, 2019 (Millions of dollars) Net sales $ 905.00 Cost of goods sold 750.00 Gross profit $ 155.00 Selling expenses 82.50 EBITDA $ 72.50 Depreciation expense 14.00 Earnings before interest and taxes (EBIT) $ 58.50 Interest expense 5.50 Earnings before taxes (EBT) S 53.00 Taxes (25%) 13.25 Net Income 39.75 a. Calculate the following raties. Do not run X X X a. Calculate the following ratios. Do not round intermediate calculations. Round your answers to two decimal places. Firm Industry Average Current ratio 2x Debt to total capital % 17% Times interest earned X 7x EBITDA coverage 9x Inventory turnover 9X Days sales outstanding days 32days Fixed assets turnover 6X Total assets turnover 3x Profit margin 3.25% Return on total assets 9.75% Return on common equity % 15.30% Return on invested capital 13.40% b. Construct a DuPont equation for the firm and the industry. Do not round intermediate calculations. Round your answers to two decim Firm Industry Profit margin 96 3.25% Total assets turnover 3x Equity multiplier C. Do the balance sheet armuts or the income statomi X 9 % the the income to be the on 1. The low to the form is to be the last them is in more than the form is that the II. The other but to the fact that the single then there is their wwwOA Www.ro All oftended ou portation and the what the ratio of test www.its growie wave of the form Crying more than two IV. Analysis of the end en in and the strate that the level of the site www.itsprawy with en velfor the firm is carrying less than it needs V. Analysis of the canded Du Pontiand the wet of rats what to the use Management we ew the verhoud is here the same that needs to portals win specificato e mostrative to the fees is the industry 1. The accounts which seem to be most out of neindade the following to Detto Total Capital Invertory Tower, Tots At Tower, The accounts wmta be most istinindute the timestane, Teatr Tunever. Martenstand for 1. The counts which em to be minute the instrumentary Turow, Dass Outside mer, unge, som TV. The which em to be most of line indude the following is very rew, Dar es de um in W. The accounts when to be most out of fine include the following me ENTDACHT, Osades, maced on the way dringt es, with the validity at your own 1. It start to the one to than the ventory tuneration for my futur 1. Setter way affect the great with effect on the IL Rapid growth would affect the coverage with inte effect on meni Seminary at our 1. Seasonal at the site offer man det V. If the firm has starptautem, it growdy during the way to testo might come for such poslu L.The ed to come to the problem since y con the date the theme for pubby that is the same industry into III post for by weather than and of randamentum IV. to conform the other busine Wome for such co the taste them in the same verander in assets c. Do the balance sheet accounts or the income statement figures seem to be primarily responsible for the low profits? 1. The low Rot for the firm is due to the fact that the firm is utilizing more debt than the average firm in the industry and the low ROA is mainly a result of a cometne 11. The low Roe for the firm is due to the fact that the firm is utilizing less debt than the average firm in the industry and the low RON is mainly a result of an tower than were investment in assets IIL. Analysis of the extended Du Pont equation and the set of ratios shows that the turnover ratio of sales to assets is quite low; however, its profit margir compares favorably with the industry average. Either sales should be higher given the present level of assets, or the firm is carrying more assets than it needs to support is see IV. Analysis of the extended Du Pont equation and the set of ratios shows that the turnover ratio of sales to assets is quite low, however, its profit margin compares favoruty with the industry average. Either sales should be lower given the present level of assets, or the firm carrying less assets than it needs to support itales V. Analysis of the extended Du Pont equation and the set of ratios shows that most of the Asset Management ratios are below the average Tither shot be here the present level of sales, or the firm is carrying less assets than it needs to support its sales d. Whicly specific accounts seem to be most out of line relative to other forms in the industry? 1. The accounts which seem to be most out of line include the following ratios Debt to Total Capital Inventory Turnover, Total Asset Tuna, Return on Assets, and Prot Margin II. The accounts which seem to be most out of line include the following ratios Times Interest Eamed, Total Asset Turnover Profit Margin, turn on Assets and Return Equity m. The accounts which seem to be most out of line include the following ratio: Inventory Turnover, Days Sales Outstanding, Fred Asset Turnovec Prat Margin, and to Equity TV. The accounts which seem to be most out of line include the following ratios: Inventory Tumover, Days Sales Outstanding. Total Asset Turnover, Return on Asses, and Return on Equity V. The accounts which seem to be most out of line include the following ratiost Current, EBITDA Coverage Inventory Turnover, Days Sales Outstanding and Return on quity Select Sed e. If the firm had a pronounced seasonal sales pattern or if it grew rapidly during the year, how might that affect the validity of your ratio analys 1. It is more important to adjust the debt ratio than the inventory turnover ratio to account for any seasonal fluctuations 11. Seasonal sales patterns would most likely affect the profitability ratios, with little effect on asset management ratios. Rapid growth would not substantially for your analysis, TIL Rapid growth would most likely affect the coverage ratios, with little effect on asset management ratios. Seasonal sales patterns would not substantially affect your na IV. Seasonal sales patterns would most likely affect the liquidity ratios, with little effect on asset management ratios. Rapid growth would not substantially let your name V. If the firm had sharp seasonal sales patterns, or if it grew rapidly during the year, many ratios would most likely be distorted. Select How might you correct for such potential problems? 1. There is no need to correct for these potential problems since you are comparing the calculated ratios to the ratio of farms in the same industry to 11. It is possible to correct for such problems by insuring that all firms in the same industry group are using the same accounting techniques III. It is possible to correct for such problems by using average rather than end of period financial statement information IV. It is possible to correct for such problems by comparing the calculated ratios to the ratio of firms in a different line of business V. It is possible to correct for such problems by comparing the calculated ratios to the ratio of firms in the same industry group over an extended period Select