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
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
![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 Ratios
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
Days sales
outstandinga
aCalculation is based on a 365-day year.
Balance Sheet as of December 31, 2021 (millions of dollars)
$78
Accounts payable
Other current liabilities
Net fixed assets
Total assets
Gross profit
Selling expenses
EBITDA
2x
15%
5x
10x
9x
25days
Taxes (25%)
Net income
74
147
$299
216
55
$161
$460
Depreciation expense
Earnings before interest and taxes (EBIT)
Interest expense
Earnings before taxes (EBT)
Fixed assets turnover
Total assets turnover
Profit margin
Return on total assets.
Return on common
equity
Return on invested
capital
Profit margin
Total assets turnover
Equity multiplier
Current ratio
Debt to total capital
Times interest earned
EBITDA coverage
Inventory turnover
Days sales outstanding
Fixed assets turnover
Total assets turnover
Profit margin
Return on total assets
Return on common equity
Return on invested capital
Notes payable
Total current liabilities
Long-term debt
Total liabilities
Common stock
Retained earnings
Total stockholders' equity
Total liabilities and equity
Income Statement for Year Ended December 31, 2021 (millions of dollars)
Net sales
$815.00
Cost of goods sold
2.93 x
0.27 %
9.55 x
12.09 x
6x
3x
3.75%
11.25%
15.70%
4.56 X
33.14 days
5.06 x
1.77 x
4.33 %
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.
Firm
Industry Average
$ 37
28
37
$
$102
23
$125
124
211
$335
$460
670.00
145.00
78.50
66.50
14.00
52.50
5.50
47.00
11.75
35.25
2x
15%
5x
10x
9x
b. Construct a DuPont equation, and the industry. Do not round intermediate calculations. Round your answers to two decimal places.
Industry.
Firm
%
3.75%
3x
25days
6x
3x
3.75%
11.25%
15.70%
14.60%
X](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F5d7c6df9-9072-40bc-ad85-7ace55fd8504%2F165ddf6b-ea1a-4638-b491-a0993a281d41%2Fpkxvhj_processed.png&w=3840&q=75)
Transcribed Image Text: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 Ratios
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
Days sales
outstandinga
aCalculation is based on a 365-day year.
Balance Sheet as of December 31, 2021 (millions of dollars)
$78
Accounts payable
Other current liabilities
Net fixed assets
Total assets
Gross profit
Selling expenses
EBITDA
2x
15%
5x
10x
9x
25days
Taxes (25%)
Net income
74
147
$299
216
55
$161
$460
Depreciation expense
Earnings before interest and taxes (EBIT)
Interest expense
Earnings before taxes (EBT)
Fixed assets turnover
Total assets turnover
Profit margin
Return on total assets.
Return on common
equity
Return on invested
capital
Profit margin
Total assets turnover
Equity multiplier
Current ratio
Debt to total capital
Times interest earned
EBITDA coverage
Inventory turnover
Days sales outstanding
Fixed assets turnover
Total assets turnover
Profit margin
Return on total assets
Return on common equity
Return on invested capital
Notes payable
Total current liabilities
Long-term debt
Total liabilities
Common stock
Retained earnings
Total stockholders' equity
Total liabilities and equity
Income Statement for Year Ended December 31, 2021 (millions of dollars)
Net sales
$815.00
Cost of goods sold
2.93 x
0.27 %
9.55 x
12.09 x
6x
3x
3.75%
11.25%
15.70%
4.56 X
33.14 days
5.06 x
1.77 x
4.33 %
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.
Firm
Industry Average
$ 37
28
37
$
$102
23
$125
124
211
$335
$460
670.00
145.00
78.50
66.50
14.00
52.50
5.50
47.00
11.75
35.25
2x
15%
5x
10x
9x
b. Construct a DuPont equation, and the industry. Do not round intermediate calculations. Round your answers to two decimal places.
Industry.
Firm
%
3.75%
3x
25days
6x
3x
3.75%
11.25%
15.70%
14.60%
X
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