Problem 4.24 Question 24 of 24 Check My Work 4.8: Potential Misuses of ROE DuPont Analysis 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 $1 million sinking fund payment on its debt. The most recent industry average ratios and the firm's financial statements are as follows: Industry Average Ratios 3.08% 5.86% Current ratio Debt/total assets Times interest earned 2.75 16.20x 4.26% Fixed assets tumover Total assets turnover Profit margin Return on total assets Return on common equity Retum on invested capital 11.71% 18.43% EBITDA coverage 15.46x Inventory turnover 12.17 Days sales outstanding 41 days Calculation is based on a 365 day year 11.50% Balance Sheet as of December 31, 2014 (Millions of Dollars) Cash and equivalents $35 Accounts payable $21 Accounts receivables 29 Other current liabilities 10 Inventories 64 Notes payable 21 Total current assets $128 Total current liabilities $52 Long-term debt 14 Total liabilities $66 Gross fixed assets 100 Common stock 51 Less depreciation 23 Retained earnings 88 Net fixed assets $77 Total stockholders' equity $139 Total assets $205 Total liabilities and equity $205 Income Statement for Year Ended December 31, 2014 (Millions of Dollars) Net sales $410.0 Cost of goods sold 319.8 Gross profit $90.2 Selling expenses 45.1 EBITDA $45.1 Depreciation expense 5.7 Earnings before interest and taxes (EBIT) $39.4 Interest expense 1.8 Earnings before taxes (EBT) $37.6 Taxes (40%) 15.0 Net income $22.6 a. Calculate those ratios that you think would be useful in this analysis. Do not round intermediate steps. Round your answers to two decimal places. Firm Industry Average Current ratio 3.08x Debt to total capital % 36.43% Times interest earned 16.20x EBITDA coverage 15.46x Inventory turnover 12.17x DSO days 41days F.A. turnover 5.86x T.A. turnover 2.75x Profit margin % 4.26% Return on total assets % 11.71% Return on common equity % 18.43% Return on invested capital % 11.50% b. Construct aa Du Pont equation, and compare the company's ratios to the industry average ratios. Do not round intermediate steps. Round your answers to two decimal places. Firm Industry Profit margin 4.26% % Total assets turnover 2.75x Equity multiplier