The DuPont equation shows the relationships among asset management, debt management, and profitability ratios. Management can use the DuPont equation to analyze ways of improving the firm's performance. Its equation is: ROE = Profit margin x Total assets turnover x Equity multiplier Ratio analysis is important to understand and interpret financial statements; however, sound financial analysis involves more than just calculating and Interpreting numbers. Qualitative factors also need to be considered. Quantitative Problem: Rosnan Industries' 2019 and 2018 balance sheets and income statements are shown below. Balance Sheets: 2019 2018 $ 70 $ 55 275 375 Cash and equivalents Accounts receivable Inventories Total current assets Net plant and equipment Total assets $ 720 2,000 300 350 $ 705 1,490 $2,195 $2,720 $ 150 $ 85 50 75 120 145 $ 345 Accounts payable Accruals Notes payable Total current liabilities Long-term debt Common stock Retained earnings Total liabilities and equity $ 280 290 450 1,225 700 1,225 400 $2,720 $2,195 Income Statements: 2019 2018 $1,885 1,250 Sales Operating costs excluding depreciation EBITDA Depreciation and amortization $1,425 1,000 $ 425 $ 635 100 75 EBIT $ 535 $ 350 63 46 $ 472 $ 304 Interest EBT Taxes (25%) Net income 118 76 $ 354 $ 228 $ 54 $ 48 Dividends paid Addition to retained earnings $ 300 $ 180 100 100 Shares outstanding Price $25.00 $22.50 10.00 % WACC What is the firm's 2019 current ratio? Round your answer to two decimal places. 2.09 The 2019 current ratio indicates that Rosnan has sufficient current assets to meet its current obligations as they come due. What is the firm's 2019 total assets turnover ratio? Round your answer to four decimal places. 1.36 Given the 2019 current and total assets turnover ratios calculated above, if Rosnan's 2019 quick ratio is 1.0 then an analyst might conclude that Rosnan's fixed assets are managed -Select- What is the firm's 2019 debt-to-capital ratio? Round your answer to two decimal places. 18.9 % If the industry average debt-to-capital ratio is 30%, then Rosnan's creditors have a Select cushion than indicated by the industry average. What is the firm's 2019 profit margin? Round your answer to two decimal places. If the industry average profit margin is 12%, then Rosnan's lower than average debt-to-capital ratio might be one reason for its high profit margin. -Select- What is the firm's 2019 price/earnings ratio? Round your answer to two decimal places. Using the DuPont equation, what is the firm's 2019 ROE? Round your answer to two decimal places. %
