Tinkerbell Industries, a manufacturing firm, has experienced modest sales growth over the past three years but has had difficulty translating the expansion of sales into improved profitability. Using three years financial statements, you have developed the following ratio calculations and industry comparisons.

1. Show the breakout of the ROE (3-factor DuPont Identity) for both Tinkerbell and the industry.

2. Based on the above breakout, in conjunction with any other ratios given, explain what major issues are contributing to Tinkerbells declining profitability and ROE.

Industry Averages 2018 2019 2020 2020 Current ratio 2.2X 2.3X 2.3X 2.1% Average collection period 47 days 46 days 45 days 50 days Inventory turnover 8.1X 8.2X 8.3X 8.3X Fixed asset turnover 3.3X 3.0X 2.7X 3.5X Total asset turnover 1.3X 1.2x 1.1X 1.5X Debt ratio 50% 50% 50% 54% Times interest earned 8.1X 8.2x 8.1X 7.2x Fixed charge coverage 5.5X 4.5X 4.0X 5.1X Gross profit margin 43% 43% 43% 40% Operating profit margin 8.0% 7.2% 6.3% 7.5% Net profit margin 4.3% 4.0% 3.5% 4.2% Return on total assets 5.7% 5.0% 3.7% 6.4% Return on equity 11.4% 9.9% 7.4% 11.8%