1, DuPont Analysis
Gardial & Son has an ROA of 11%, a 4% profit margin, and a return on equity equal to 17%. What is the company’s total assets turnover? What is the firm’s equity multiplier? Do not round intermediate calculations. Round your answers to two decimal places.
Total assets turnover:
Equity multiplier:
2, Current and Quick Ratios
Ace Industries has current assets equal to $3 million. The company’s current ratio is 1.5, and its quick ratio is 1.1. What is the firm’s level of current liabilities? What is the firm’s level of inventories? Do not round intermediate calculations. Round your answers to the nearest dollar.
Current liabilities: $
Inventories: $
3, 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) 3%
Return on equity (ROE) 5%
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 $1,330,000 in current assets and $475,000 in current liabilities. Its initial inventory level is $320,000, 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 $510,000 of debt outstanding, and it pays an interest rate of 9% annually. Morrit’s annual sales are $3 million, its average tax rate is 25%, and its net profit margin on sales is 3%. If the company does not maintain a TIE ratio of at least 3 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: 1.9
Gross profit margin on sales: (Sales – Cost of goods sold)/Sales = 30%
Total liabilities-to-assets ratio: 35%
Quick ratio: 1.10
Days’ sales outstanding (based on 365-day year): 36.5 days
Inventory turnover ratio: 3.25
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 $ 235,000 Accounts payable $ 600,000
Receivables 1,575,000 Notes payable 100,000
Inventories 1,130,000 Other current liabilities 560,000
Total current assets $2,940,000 Total current liabilities $1,260,000
Net fixed assets 1,330,000 Long-term debt 400,000
Common equity 2,610,000
Total assets $4,270,000 Total liabilities and equity $4,270,000
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 935,000
Earnings before interest and taxes (EBIT) $ 190,000
Interest expense 40,000
Earnings before taxes (EBT) $ 150,000
Federal and state income taxes (25%) 37,500
Net income $ 112,500
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 %
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 %.
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 credit or enforce a stringent collection policy.
The total assets turnover ratio is well the industry average so sales should be , assets , or both.
While the company’s profit margin is than the industry average, its other profitability ratios are compared to the industry – net income should be given the amount of equity and assets