A firm has been experiencing low profitability in recent years. Perform an analysis of the firm's financial position using the DuPont equation. The firm has no lease payments but has a $3 million sinking fund payment on its debt. The most recent industry average ratios and the firm's financial statements are as follows: Industry Average Ratios   Current ratio 2 ×   Fixed assets turnover 6 × Debt-to-capital ratio 19 %   Total assets turnover 3 × Times interest earned 7 ×   Profit margin 5.75 % EBITDA coverage 9 ×   Return on total assets 17.25 % Inventory turnover 7 ×   Return on common equity 19.40 % Days sales outstandinga 23 days   Return on invested capital 17.30 % aCalculation is based on a 365-day year. Balance Sheet as of December 31, 2021 (millions of dollars)   Cash and equivalents $ 77   Accounts payable $ 48 Accounts receivables   72   Other current liabilities   29 Inventories   178   Notes payable   58    Total current assets $ 327      Total current liabilities $ 135         Long-term debt   19            Total liabilities $ 154 Gross fixed assets   245   Common stock   120     Less depreciation   92   Retained earnings   206 Net fixed assets $ 153      Total stockholders' equity $ 326 Total assets $ 480   Total liabilities and equity $ 480   Income Statement for Year Ended December 31, 2021 (millions of dollars)   Net sales $ 815.00 Cost of goods sold   640.00   Gross profit $ 175.00 Selling expenses   93.50 EBITDA $ 81.50 Depreciation expense   16.00   Earnings before interest and taxes (EBIT) $ 65.50 Interest expense   5.50   Earnings before taxes (EBT) $ 60.00 Taxes (25%)   15.00 Net income $ 45.00     Calculate the following ratios. Do not round intermediate calculations. Round your answers to two decimal places.   Firm Industry Average Current ratio  × 2 × Debt to total capital   % 19 % Times interest earned  × 7 × EBITDA coverage  × 9 × Inventory turnover  × 7 × Days sales outstanding  days 23 days Fixed assets turnover  × 6 × Total assets turnover  × 3 × Profit margin   % 5.75 % Return on total assets   % 17.25 % Return on common equity   % 19.40 % Return on invested capital   % 17.30 %Construct a DuPont equation, and the industry. Do not round intermediate calculations. Round your answers to two decimal places.   Firm Industry Profit margin   % 5.75% Total assets turnover  × 3× Equity multiplier  ×  ×

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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A firm has been experiencing low profitability in recent years. Perform an analysis of the firm's financial position using the DuPont equation. The firm has no lease payments but has a $3 million sinking fund payment on its debt. The most recent industry average ratios and the firm's financial statements are as follows:

Industry Average Ratios
 
Current ratio 2 ×   Fixed assets turnover 6 ×
Debt-to-capital ratio 19 %   Total assets turnover 3 ×
Times interest earned 7 ×   Profit margin 5.75 %
EBITDA coverage 9 ×   Return on total assets 17.25 %
Inventory turnover 7 ×   Return on common equity 19.40 %
Days sales outstandinga 23 days   Return on invested capital 17.30 %
aCalculation is based on a 365-day year.
Balance Sheet as of December 31, 2021 (millions of dollars)
 
Cash and equivalents $ 77   Accounts payable $ 48
Accounts receivables   72   Other current liabilities   29
Inventories   178   Notes payable   58
   Total current assets $ 327      Total current liabilities $ 135
        Long-term debt   19
           Total liabilities $ 154
Gross fixed assets   245   Common stock   120
    Less depreciation   92   Retained earnings   206
Net fixed assets $ 153      Total stockholders' equity $ 326
Total assets $ 480   Total liabilities and equity $ 480

 

Income Statement for Year Ended December 31, 2021 (millions of dollars)
 
Net sales $ 815.00
Cost of goods sold   640.00
  Gross profit $ 175.00
Selling expenses   93.50
EBITDA $ 81.50
Depreciation expense   16.00
  Earnings before interest and taxes (EBIT) $ 65.50
Interest expense   5.50
  Earnings before taxes (EBT) $ 60.00
Taxes (25%)   15.00
Net income $ 45.00
  1.  
  2.  
  3. Calculate the following ratios. Do not round intermediate calculations. Round your answers to two decimal places.
      Firm Industry Average
    Current ratio  × 2 ×
    Debt to total capital   % 19 %
    Times interest earned  × 7 ×
    EBITDA coverage  × 9 ×
    Inventory turnover  × 7 ×
    Days sales outstanding  days 23 days
    Fixed assets turnover  × 6 ×
    Total assets turnover  × 3 ×
    Profit margin   % 5.75 %
    Return on total assets   % 17.25 %
    Return on common equity   % 19.40 %
    Return on invested capital   % 17.30 %
    Construct a DuPont equation, and the industry. Do not round intermediate calculations. Round your answers to two decimal places.
      Firm Industry
    Profit margin   % 5.75%
    Total assets turnover  ×
    Equity multiplier  ×  ×
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