A firm has been experiencing low profitability in recent years. Perform an analysis of the firm's...

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Finance

A firm has been experiencing low profitability in recent years.Perform an analysis of the firm's financial position using theDuPont equation. The firm has no lease payments but has a $3million sinking fund payment on its debt. The most recent industryaverage ratios and the firm's financial statements are asfollows:
Industry Average Ratios
Current ratio 3.62x Fixed assets turnover 5.36x
Debt-to-capital ratio 16.99% Total assets turnover 3.02x
Times interest earned 28.62x Profit margin 8.80%
EBITDA coverage 18.64x Return on total assets 26.00%
Inventory turnover 9.28x Return on common equity 38.44%
Days sales outstanding^a 23.12 days Return on invested capital 30.63%
^aCalculation is based on a 365-day year.
Balance Sheet as of December 31, 2016(Millions of Dollars)
Cash and equivalents $59 Accounts payable $31
Accounts receivables 45 Other current liabilities 10
Inventories 125 Notes payable 35
   Total current assets $229    Total current liabilities $76
Long-term debt 17
   Total liabilities $93
Gross fixed assets 157 Common stock 97
    Less depreciation 38 Retained earnings 158
Net fixed assets $119    Total stockholders' equity $255
Total assets $348 Total liabilities and equity $348
Income Statement for Year Ended December31, 2016 (Millions of Dollars)
Net sales $580.0
Cost of goods sold 411.8
  Gross profit $168.2
Selling expenses 52.2
EBITDA $116.0
Depreciation expense 16.8
  Earnings before interest and taxes (EBIT) $99.2
Interest expense 2.6
  Earnings before taxes (EBT) $96.6
Taxes (40%) 38.6
Net income $58.0
Calculate the following ratios. Do not round intermediatesteps. Round your answers to two decimal places.
Firm Industry Average
Current ratio x 3.62x
Debt to total capital % 16.99%
Times interest earned x 28.62x
EBITDA coverage x 18.64x
Inventory turnover x 9.28x
Days sales outstanding days 23.12days
Fixed assets turnover x 5.36x
Total assets turnover x 3.02x
Profit margin % 8.80%
Return on total assets % 26.00%
Return on common equity % 38.44%
Return on invested capital % 30.63%
Construct a DuPont equation for the firm and the industry. Donot round intermediate steps. Round your answers to two decimalplaces.
Firm Industry
Profit margin % 8.80%
Total assets turnover x 3.02x
Equity multiplier x x

Answer & Explanation Solved by verified expert

4.4 Ratings (697 Votes)

a i Current ratio Current assets Current liabilities Current ratio 229 76 301 ii Debt to total capital Interest bearing liabilities Interest bearing liabilities Shareholders equity Interest bearing liabilities Long term debt Notes payable 17 35 52 Stockholders equity 255 Now Debt to total capital 52 52 255 01694 or 1694 iii Times interest earned EBIT Interest Times interest earned 9920 260 3815 iv EBITDA coverage EBITDA Lease See Answer

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A firm has been experiencing low profitability in recent years.Perform an analysis of the firm's financial position using theDuPont equation. The firm has no lease payments but has a $3million sinking fund payment on its debt. The most recent industryaverage ratios and the firm's financial statements are asfollows:Industry Average RatiosCurrent ratio3.62xFixed assets turnover5.36xDebt-to-capital ratio16.99%Total assets turnover3.02xTimes interest earned28.62xProfit margin8.80%EBITDA coverage18.64xReturn on total assets26.00%Inventory turnover9.28xReturn on common equity38.44%Days sales outstandinga23.12 daysReturn on invested capital30.63%aCalculation is based on a 365-day year.Balance Sheet as of December 31, 2016(Millions of Dollars)Cash and equivalents$59Accounts payable$31Accounts receivables45Other current liabilities10Inventories125Notes payable35 Total current assets$229 Total current liabilities$76Long-term debt17 Total liabilities$93Gross fixed assets157Common stock97 Less depreciation38Retained earnings158Net fixed assets$119 Total stockholders' equity$255Total assets$348Total liabilities and equity$348Income Statement for Year Ended December31, 2016 (Millions of Dollars)Net sales$580.0Cost of goods sold411.8 Gross profit$168.2Selling expenses52.2EBITDA$116.0Depreciation expense16.8 Earnings before interest and taxes (EBIT)$99.2Interest expense2.6 Earnings before taxes (EBT)$96.6Taxes (40%)38.6Net income$58.0Calculate the following ratios. Do not round intermediatesteps. Round your answers to two decimal places.FirmIndustry AverageCurrent ratiox3.62xDebt to total capital%16.99%Times interest earnedx28.62xEBITDA coveragex18.64xInventory turnoverx9.28xDays sales outstandingdays23.12daysFixed assets turnoverx5.36xTotal assets turnoverx3.02xProfit margin%8.80%Return on total assets%26.00%Return on common equity%38.44%Return on invested capital%30.63%Construct a DuPont equation for the firm and the industry. Donot round intermediate steps. Round your answers to two decimalplaces.FirmIndustryProfit margin%8.80%Total assets turnoverx3.02xEquity multiplierxx

Industry Average Ratios

Current ratio	3.62x	Fixed assets turnover	5.36x
Debt-to-capital ratio	16.99%	Total assets turnover	3.02x
Times interest earned	28.62x	Profit margin	8.80%
EBITDA coverage	18.64x	Return on total assets	26.00%
Inventory turnover	9.28x	Return on common equity	38.44%
Days sales outstanding^a	23.12 days	Return on invested capital	30.63%

Balance Sheet as of December 31, 2016(Millions of Dollars)

Cash and equivalents	$59	Accounts payable	$31
Accounts receivables	45	Other current liabilities	10
Inventories	125	Notes payable	35
Total current assets	$229	Total current liabilities	$76
		Long-term debt	17
		Total liabilities	$93
Gross fixed assets	157	Common stock	97
Less depreciation	38	Retained earnings	158
Net fixed assets	$119	Total stockholders' equity	$255
Total assets	$348	Total liabilities and equity	$348

Income Statement for Year Ended December31, 2016 (Millions of Dollars)

Net sales	$580.0
Cost of goods sold	411.8
Gross profit	$168.2
Selling expenses	52.2
EBITDA	$116.0
Depreciation expense	16.8
Earnings before interest and taxes (EBIT)	$99.2
Interest expense	2.6
Earnings before taxes (EBT)	$96.6
Taxes (40%)	38.6
Net income	$58.0

	Firm	Industry Average
Current ratio	x	3.62x
Debt to total capital	%	16.99%
Times interest earned	x	28.62x
EBITDA coverage	x	18.64x
Inventory turnover	x	9.28x
Days sales outstanding	days	23.12days
Fixed assets turnover	x	5.36x
Total assets turnover	x	3.02x
Profit margin	%	8.80%
Return on total assets	%	26.00%
Return on common equity	%	38.44%
Return on invested capital	%	30.63%

	Firm	Industry
Profit margin	%	8.80%
Total assets turnover	x	3.02x
Equity multiplier	x	x