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 $ 240,000 Accounts payable $ 600,000 Receivables 1,575,000 Notes payable 100,000 Inventories 1,135,000 Other current liabilities 520,000 Total current assets $2,950,000 Total current liabilities $1,220,000 Net fixed assets 1,325,000 Long-term debt 400,000 Common equity 2,655,000 Total assets $4,275,000 Total liabilities and equity $4,275,000
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 $ 240,000 Accounts payable $ 600,000 Receivables 1,575,000 Notes payable 100,000 Inventories 1,135,000 Other current liabilities 520,000 Total current assets $2,950,000 Total current liabilities $1,220,000 Net fixed assets 1,325,000 Long-term debt 400,000 Common equity 2,655,000 Total assets $4,275,000 Total liabilities and equity $4,275,000
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Comprehensive Ratio Analysis
Data for Lozano Chip Company and its industry averages follow.
| Lozano Chip Company: (Thousands of Dollars) |
||||
| Cash | $ 240,000 | Accounts payable | $ 600,000 | |
| Receivables | 1,575,000 | Notes payable | 100,000 | |
| Inventories | 1,135,000 | Other current liabilities | 520,000 | |
| Total current assets | $2,950,000 | Total current liabilities | $1,220,000 | |
| Net fixed assets | 1,325,000 | Long-term debt | 400,000 | |
| Common equity | 2,655,000 | |||
| Total assets | $4,275,000 | Total liabilities and equity | $4,275,000 |
| 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 | 921,000 |
| Earnings before interest and taxes (EBIT) | $ 204,000 |
| Interest expense | 40,000 |
| Earnings before taxes (EBT) | $ 164,000 |
| Federal and state income taxes (25%) | 41,000 |
| Net income | $ 123,000 |
Transcribed Image Text:a. 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%
b. 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
%.
c. 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 -Select- v credit or enforce a
-Select- v stringent collection policy.
The total assets turnover ratio is well -Select-
While the company's profit margin is -Select- v than the industry average, its other profitability ratios are -Select- v compared to the industry - net
income should be(-Select- v given the amount of equity and assets.
| the industry average so sales should be -Select-
, assets -Select-
or both.
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