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4-24 DUPONT ANALYSIS Afirm 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: 6% 3x Industry Average Ratios 3x Foxed assets tumover 201 Total assets turnover 7x 9X Return on total assets 10% Return on common equity 24 days Return on invested capital Current ratio Debt-to-capital catio Times interest eamed EBITDA coverage Inventory turnover Days sales outstanding Cications based on a 365 day year Profit margin 94 1286 11509 Mimar Sheet December 31, 2018 ( Mons of Dollars Acounts payable Chaden 06 Other current abilities Acce 159 Notes payable Taumentaret 530 Total current abilities Long term debt Totalbanties Crocodants 225 Common stock Lei depreciation 78 Retained earnings Netfondant $147 Toulsockholders equity Totalt $450 Total Tibilities and equity $135 114 201 $315 $450 Income Statement for Year Ended December 31, 2018 (Millions of Dollars) $7950 Net sales 6600 Cost of goods sold $1350 Grow profit 735 Selling expenses EBITDA 5615 Depreciation expense 12.0 Earnings before interest and acces BTT $ 495 Interest expense 45 Earnings before taxes IE87) 450 Taxes 04 180 Net income 5270 a. Calculate the ratios you think would be useful in this analysis b. Construct a DuPont equation, and compare the company's ratios to the industry aver rage ratios c. Do the balance sheet accounts or the income statement figures mem to be primarily responsible for the low profits? d. Which specific accounts em to be most out of Tine relative to other tims in the industry? . If the firm had a pronounced seasonal sales pattern wit it grow rapidly during the year, how might that affect the validity of your valia analys How might you correct for such potential problema Comprehensive/Spreadsheet Dual 11 Balance Sheets of December 31, 2018 (Millions of dollars) Cash and equivalents $78 Acounts payable 06 Accounts receivable Other current buities Invertories 199 Notes payable Total comentaneti 5305 Total current bites Long-term debt Total abilities Grous fed et 225 Common stock Les deprecation 78 Retained earnings Net fredes $10 Total stockholders' equity Totalt $450 Totalities and equity $ as 50 $135 114 201 $315 $450 Income Statement for Year Ended December 31, 2018 Millions of Dollars) Net sales 5795.0 6600 Cost of goods sold Grow profit 51350 735 Selling expenses EBITDA 5 615 Depreciation expense 120 Earnings before interest and ET 5495 Interest expense Earnings before taxe 5.450 Ta HON TRO Net income 1270 Calculate the ratio you think would be useful in this analysis b. Construct a DuPont equation, and compare the company's ratios to the industry ave Tage ratios c. Do the balance sheet accounts or the income atenent figures seem to be primarily responsible for the low profit d. Which specifice accounts seem to be most out of relative to other time in the industry? . If the firm had a pronounced sinal sales pittum or if it grow rapidly during the your, how might that affect the validity of your ratio analyse? How might your correct for such potential problem? Cannab
