Problem 3-13 Comprehensive Ratio Analysis

Data for Lozano Chip Company and its industry averages follow.

Lozano Chip Company: Balance Sheet as of December 31, 2016 (Thousands of Dollars)

Cash	$ 225,000		Accounts payable	$601,866
Receivables	1,575,000		Notes payable	326,634
Inventories	1,125,000		Other current liabilities	525,000
Total current assets	$2,925,000		Total current liabilities	$1,453,500
Net fixed assets	1,350,000		Long-term debt	1,068,750
			Common equity	1,752,750
Total assets	$4,275,000		Total liabilities and equity	$4,275,000

Lozano Chip Company: Income Statement for Year Ended December 31, 2016 (Thousands of Dollars)

Sales	$7,500,000
Cost of goods sold	6,375,000
Selling, general, and administrative expenses	825,000
Earnings before interest and taxes (EBIT)	$ 300,000
Interest expense	111,631
Earnings before taxes (EBT)	$ 188,369
Federal and state income taxes (40%)	75,348
Net income	$ 113,022

Calculate the indicated ratios for Lozano. Round your answers to two decimal places.

Ratio	Lozano	Industry Average
Current assets/Current liabilities		2.0
Days sales outstanding*	days	35.0 days
COGS/Inventory		6.7
Sales/Fixed assets		12.1
Sales/Total assets		3.0
Net income/Sales	%	1.2%
Net income/Total assets	%	3.6%
Net income/Common equity	%	9.0%
Total debt/Total assets	%	30.0%
Total liabilities/Total assets	%	60.0%
*Calculation is based on a 365-day year.

Construct the extended Du Pont equation for both Lozano and the industry. Round your answers to two decimal places.

For the firm, ROE is	%
For the industry, ROE is	%

Outline Lozano's strengths and weaknesses as revealed by your analysis