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 $1 million sinking fund payment on its debt. The most recent industry average ratios and the firm's financial statements are as follows:Industry Average RatiosCurrent ratioDebt-to-capital ratioTimes interest earnedEBITDA coverageInventory turnoverCash and equivalentsAccounts receivablesInventoriesTotal current assetsGross fixed assetsLess depreciationDays salesoutstandingaaCalculation is based on a 365-day year.Balance Sheet as of December 31, 2021 (millions of dollars)$78Accounts payableOther current liabilitiesNet fixed assetsTotal assetsGross profitSelling expensesEBITDA2x15%5x10x9x25daysTaxes (25%)Net income74147$29921655$161$460Depreciation expenseEarnings before interest and taxes (EBIT)Interest expenseEarnings before taxes (EBT)Fixed assets turnoverTotal assets turnoverProfit marginReturn on total assets.Return on commonequityReturn on investedcapitalProfit marginTotal assets turnoverEquity multiplierCurrent ratioDebt to total capitalTimes interest earnedEBITDA coverageInventory turnoverDays sales outstandingFixed assets turnoverTotal assets turnoverProfit marginReturn on total assetsReturn on common equityReturn on invested capitalNotes payableTotal current liabilitiesLong-term debtTotal liabilitiesCommon stockRetained earningsTotal stockholders' equityTotal liabilities and equityIncome Statement for Year Ended December 31, 2021 (millions of dollars)Net sales$815.00Cost of goods sold2.93 x0.27 %9.55 x12.09 x6x3x3.75%11.25%15.70%4.56 X33.14 days5.06 x1.77 x4.33 %7.66 %10.52 %9.85 %14.60%X$$$a. Calculate the following ratios. Do not round intermediate calculations. Round your answers to two decimal places.FirmIndustry Average$ 372837$$10223$125124211$335$460670.00145.0078.5066.5014.0052.505.5047.0011.7535.252x15%5x10x9xb. Construct a DuPont equation, and the industry. Do not round intermediate calculations. Round your answers to two decimal places.Industry.Firm%3.75%3x25days6x3x3.75%11.25%15.70%14.60%X

Ratio Analysis: Ratio analysis is the process of looking at or assessing the line items that are…

Current ratio Debt-to-capital ratio Times interest earned EBITDA coverage Inventory turnover Cash and equivalents Accounts receivables Inventories Total current assets Gross fixed assets Less depreciation Net fixed assets Total assets Industry Average Ratios 2x 15% 5x 10x Days sales outstanding *Calculation is based on a 365-day year. Balance Sheet as of December 31, 2021 (millions of dollars) $78 Accounts payable Taxes (25%) Net income Return on common equity 25days Return on invested capital 74 147 $299 Fixed assets turnover Total assets turnover 216 55 Profit margin Return on total assets $161 $460 Other current liabilities Notes payable Total current liabilities Long-term debt Total liabilities Common stock Retained earnings Total stockholders' equity Total liabilities and equity 3x 3.75% 11.25% 15.70% Depreciation expense Earnings before interest and taxes (EBIT) Interest expense Earnings before taxes (EBT) 14.60% $ 37 28 37 Income Statement for Year Ended December 31, 2021 (millions of dollars) Net sales $815.00 Cost of goods sold 670.00 Gross profit $145.00 78.50 Selling expenses EBITDA $ 66.50 14.00 52.50 5.50 $102 $ 23 $125 124 211 $335 $460 $ 47.00 11.75 35.25

Current ratio Debt-to-capital ratio Times interest earned EBITDA coverage Inventory turnover Cash and equivalents Accounts receivables Inventories Total current assets Gross fixed assets Less depreciation Net fixed assets Total assets Industry Average Ratios 2x 15% 5x 10x Days sales outstanding *Calculation is based on a 365-day year. Balance Sheet as of December 31, 2021 (millions of dollars) $78 Accounts payable Taxes (25%) Net income Return on common equity 25days Return on invested capital 74 147 $299 Fixed assets turnover Total assets turnover 216 55 Profit margin Return on total assets $161 $460 Other current liabilities Notes payable Total current liabilities Long-term debt Total liabilities Common stock Retained earnings Total stockholders' equity Total liabilities and equity 3x 3.75% 11.25% 15.70% Depreciation expense Earnings before interest and taxes (EBIT) Interest expense Earnings before taxes (EBT) 14.60% $ 37 28 37 Income Statement for Year Ended December 31, 2021 (millions of dollars) Net sales $815.00 Cost of goods sold 670.00 Gross profit $145.00 78.50 Selling expenses EBITDA $ 66.50 14.00 52.50 5.50 $102 $ 23 $125 124 211 $335 $460 $ 47.00 11.75 35.25

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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