Profit Margin and Debt Ratio

Assume you are given the following relationships for the Haslam Corporation:

Sales/total assets	1.8
Return on assets (ROA)	4%
Return on equity (ROE)	7%

Calculate Haslam's profit margin and liabilities-to-assets ratio. Do not round intermediate calculations. Round your answers to two decimal places.

Profit margin: %

Liabilities-to-assets ratio: %

Suppose half of its liabilities are in the form of debt. Calculate the debt-to-assets ratio. Do not round intermediate calculations. Round your answer to two decimal places.

%

4.

Current and Quick Ratios

The Nelson Company has $1,430,000 in current assets and $550,000 in current liabilities. Its initial inventory level is $415,000, and it will raise funds as additional notes payable and use them to increase inventory. How much can Nelson's short-term debt (notes payable) increase without pushing its current ratio below 2.0? Do not round intermediate calculations. Round your answer to the nearest dollar.

$

What will be the firm's quick ratio after Nelson has raised the maximum amount of short-term funds? Do not round intermediate calculations. Round your answer to two decimal places.

5.

Times-Interest-Earned Ratio

The Morrit Corporation has $960,000 of debt outstanding, and it pays an interest rate of 10% annually. Morrit's annual sales are $6 million, its average tax rate is 25%, and its net profit margin on sales is 4%. If the company does not maintain a TIE ratio of at least 5 to 1, then its bank will refuse to renew the loan, and bankruptcy will result. What is Morrit's TIE ratio? Do not round intermediate calculations. Round your answer to two decimal places.

6.

Balance Sheet Analysis

Complete the balance sheet and sales information in the table that follows for J. White Industries using the following financial data:

Total assets turnover: 1.2 Gross profit margin on sales: (Sales - Cost of goods sold)/Sales = 25% Total liabilities-to-assets ratio: 45% Quick ratio: 1.20 Days' sales outstanding (based on 365-day year): 36.5 days Inventory turnover ratio: 3.50

Do not round intermediate calculations. Round your answers to the nearest whole dollar.

Partial Income Statement Information
Sales	$
Cost of goods sold

Balance Sheet
Assets				Liabilities and Equity
Cash	$			Accounts payable	$
Accounts receivable				Long-term debt		50,000
Inventories				Common stock
Fixed assets				Retained earnings		100,000
Total assets	$	400,000		Total liabilities and equity	$

7.

Comprehensive Ratio Analysis

Data for Lozano Chip Company and its industry averages follow.

Lozano Chip Company: Balance Sheet as of December 31, 2019 (Thousands of Dollars)
Cash	$ 240,000		Accounts payable	$ 600,000
Receivables	1,575,000		Notes payable	100,000
Inventories	1,115,000		Other current liabilities	555,000
Total current assets	$2,930,000		Total current liabilities	$1,255,000
Net fixed assets	1,350,000		Long-term debt	400,000
			Common equity	2,625,000
Total assets	$4,280,000		Total liabilities and equity	$4,280,000

Lozano Chip Company: Income Statement for Year Ended December 31, 2019 (Thousands of Dollars)
Sales	$7,500,000
Cost of goods sold	6,375,000
Selling, general, and administrative expenses	931,000
Earnings before interest and taxes (EBIT)	$ 194,000
Interest expense	40,000
Earnings before taxes (EBT)	$ 154,000
Federal and state income taxes (25%)	38,500
Net income	$ 115,500

1. Calculate the indicated ratios for Lozano. Do not round intermediate calculations. Round your answers to two decimal places.

   Ratio	Lozano	Industry Average
   Current assets/Current liabilities		2.0
   Days sales outstanding (365-day year)	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	%	10.0	%
   Total liabilities/Total assets	%	60.0	%

2. Use the extended DuPont equation to calculate ROE for both Lozano and the industry. Do not round intermediate calculations. Round your answers to two decimal places.

   For the firm, ROE is %.

   For the industry, ROE is %.

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

   The firm's days sales outstanding is more than twice as long as the industry average, indicating that the firm should -Select-slackentightenItem 13 credit or enforce a -Select-morelessItem 14 stringent collection policy.

   The total assets turnover ratio is well -Select-abovebelowItem 15 the industry average so sales should be -Select-decreasedincreasedItem 16 , assets -Select-decreasedincreasedItem 17 , or both.

   While the company's profit margin is -Select-higherlowerItem 18 than the industry average, its other profitability ratios are -Select-highlowItem 19 compared to the industry - net income should be -Select-higherlowerItem 20 given the amount of equity and assets.