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plz solve step by step with formulas A firm has been experiencing low profitability in recent years. Perform an analysis of the firm's financial position
plz solve step by step with formulas
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 Ferri's financial statements, are as follows: INDUSTRY AVERAGE RATIOS 3% Current ratio Debt/total assets Times interest earned EBITDA coverage Sales/inventory Days sales outstandinge Sales/fixed assets 30% Sales/total assets 7 Profit margin on sales Return on total assets 10 Return on common equity 24 days 9% 12.86% Calculation is based on a 365-day year. PROBLEM Ch4/Q23 Balance Sheet as of December 31, 2001 (Millions of Dollars) $ 45 45 Cash Net receivables Inventories Total current assets $78 66 159 $303 21 $111 24 Accounts payable Notes payable Other current liabilities Total current liabilities Long-term debt Total liabilities Common stock Retained earnings Total stockholders' equity Total liabilities and equity $135 225 78 Gross fixed assets Less depreciation Net fixed assets Total assets 114 - 201 $147 $450 $315 $450 Income Statement for Year Ended December 31, 2001 (Millions of Dollars) $795.0 660.0 $135.0 73.5 $ 61.5 Net sales Cost of goods sold Gross profit Selling expenses EBITDA Depreciation expense Earnings before interest and taxes (EBIT) Interest expense Earnings before taxes (EBT) Taxes (40%) Net income 12.0 $ 49.5 4.5 $ 45.0 18.0 $ 27.0 PROBLEM Ch4/Q23 a. Calculate those ratios that you think would be useful in this analysis. b. Construct a DuPont equation and compare the company's ratios to the industry average ratios. c. Do the balance sheet accounts or the income statement figures seem to be primarily responsible for the low profits? d. Which specific accounts seem to be most out of line in relative to other firms in the industry? 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 analysis? How might you correct for such potential problems Step by Step Solution
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