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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Income Statement Sales revenue Cost of goods sold Gross profit Operating expenses (including interest on bonds) Pretax income Income tax Net income Balance Sheet Cash Accounts receivable (net) Merchandise inventory Prepaid expenses Property and equipment (net) Total assets Accounts payable Income taxes payable Bonds payable (interest rate: 10%) Common stock ($10 par value, 10,000 shares outstanding) Retained earnings Total liabilities and stockholders' equity Year 2 $453,000 250,000 203,000 167,000 36,000 10,800 $ 25,200 $ 6,800 42,000 25,000 200 130,000 $204,000 $ 17,000 1,000 70,000 100,000 16,000 $204,000 Year 1 $447,000 241,000 206,000 168,000 38,000 11,400 $ 26,600 $ 3,900 29,000 18,000 100 120,000 $171,000 $ 18,000 1,000 50,000 100,000 2,000 $171,000 Required: Interpret each element of the ratio analysis separately. Ensure accuracy by analyzing each ratio individually!
Return on Assets Calculate the company's return on assets for 2020 and compare the result to the industry average.
Debt to Equity Total Debt Ratio Times Interest Earned
The comparative accounts payable and long-term debt balances for a company follow. Current Year Previous Year Accounts payable $47,481 $39,900 Long-term debt 44,650 47,000 Based on this information, what is the amount and percentage of increase or decrease that would be shown on a balance sheet with horizontal analysis? Enter all answers as positive numbers. Amount of Change Increase/Decrease Percentage Accounts payable $fill in the blank 1 IncreaseDecrease fill in the blank 3 % Long-term debt $fill in the blank 4 IncreaseDecrease fill in the blank 6 %
Calculate Debt-to-equity Times interest earned Return on Financial leverage
Interpret the results: • Return on equity • Return on assets • Gross profit margin • Operating profit margin • Net profit margin
Effect of transactions on current position analysis Data pertaining to the current position of Forte Company follow: Cash $412,500 Marketable securities 187,500 Accounts and notes receivable (net) 300,000 Inventories 700,000 Prepaid expenses 50,000 Accounts payable 200,000 Notes payable (short-term) 250,000 Accrued expenses 300,000 1. Compute (a) the working capital, (b) the current ratio, and (c) the quick ratio. Round to one decimal place. Working Capital: $fill in the blank 1 Current Ratio: fill in the blank 2 Quick Ratio: fill in the blank 3 2. Compute the working capital, the current ratio, and the quick ratio after each of the following transactions, and record the results in the appropriate columns. Consider each transaction separately and assume that only that transaction affects the data given. Round to one decimal place. a. Sold marketable securities at no gain or loss, $70,000. b. Paid accounts payable, $125,000. c. Purchased goods on account, $110,000.…