Data for Lozano Chip Company and its industry averages follow.   Lozano Chip Company: Balance Sheet as of December 31, 2019 (Thousands of Dollars) Cash $   230,000   Accounts payable $   600,000 Receivables 1,575,000   Notes payable 100,000 Inventories 1,115,000   Other current liabilities 530,000   Total current assets $2,920,000     Total current liabilities $1,230,000 Net fixed assets 1,345,000   Long-term debt 400,000       Common equity 2,635,000 Total assets $4,265,000   Total liabilities and equity $4,265,000     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 923,000   Earnings before interest and taxes (EBIT) $   202,000 Interest expense 40,000   Earnings before taxes (EBT) $   162,000 Federal and state income taxes (25%) 40,500 Net income $   121,500     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 %   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  %. 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 credit or enforce a stringent collection policy. The total assets turnover ratio is well the industry average so sales should be , assets , or both. While the company's profit margin is than the industry average, its other profitability ratios are compared to the industry - net income should be given the amount of equity and assets.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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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 $   230,000   Accounts payable $   600,000
Receivables 1,575,000   Notes payable 100,000
Inventories 1,115,000   Other current liabilities 530,000
  Total current assets $2,920,000     Total current liabilities $1,230,000
Net fixed assets 1,345,000   Long-term debt 400,000
      Common equity 2,635,000
Total assets $4,265,000   Total liabilities and equity $4,265,000

 

 

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 923,000
  Earnings before interest and taxes (EBIT) $   202,000
Interest expense 40,000
  Earnings before taxes (EBT) $   162,000
Federal and state income taxes (25%) 40,500
Net income $   121,500

 

 

  1. 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 %

     

  2. 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  %.

  3. 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

credit or enforce a

stringent collection policy.

The total assets turnover ratio is well

the industry average so sales should be , assets

, or both.

While the company's profit margin is

than the industry average, its other profitability ratios are compared to the industry - net income should be given the amount of equity and assets.

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