QUESTION 1

Using the income statement for the sports care tire company, compute (show formula + calculations) the following ratios: the interest coverage the fixed charge coverage The total assets for this company equal $40,000. Set up the formula for the Dupont system of ratio analysis, and compute profit margin total asset turnover return on assets (investment)

The Sports Car Company

Sales .....................................$20,000

Less: Cost of goods sold 9,000

Gross profit 11,000

Less: Selling and

administrative expense 4,000

Less: Lease expense $1,000

Operating profit

(equals income before interest

and taxes) 6,000

Less: Interest expense 500

Earnings before taxes 5,500

Less: taxes (40%) 2,200

Earnings after taxes $3,300

QUESTION 2

Explain how the DuPont system of analysis breaks down ROA. Also explain how it breaks down return on shareholders equity.