Analysis of Financial Statements: Tying the RatiosTogether

The DuPont equation shows the relationships among assetmanagement, debt management, and-Select-liquiditymarketprofitabilityCorrect 1 of Item1  ratios. Management can use the DuPont equation toanalyze ways of improving the firm's performance.

Ratio analysis is important to understand and interpretfinancial statements; however, sound financial analysis involvesmore than just calculating and interpreting numbers.

-Select-QuantitativeQualitativeForeignCorrect 2 of Item1  

factors also need to be considered.

Quantitative Problem: Rosnan Industries' 2018and 2017 balance sheets and income statements are shown below.

Balance Sheets:
	2018	2017
Cash and equivalents	$80	$65
Accounts receivable	275	300
Inventories	375	350
Total current assets	$730	$715
Net plant and equipment	2,000	1,490
Total assets	$2,730	$2,205
Accounts payable	$150	$85
Accruals	75	50
Notes payable	130	155
Total currentliabilities	$355	$290
Long-term debt	450	290
Common stock	1,225	1,225
Retained earnings	700	400
Total liabilities and equity	$2,730	$2,205

Income Statements:
	2018	2017
Sales	$2,000	$1,500
Operating costs excluding depreciation	1,250	1,000
EBITDA	$750	$500
Depreciation and amortization	100	75
EBIT	$650	$425
Interest	62	45
EBT	$588	$380
Taxes (40%)	235	152
Net income	$353	$228
Dividends paid	$53	$48
Addition to retained earnings	$300	$180
Shares outstanding	100	100
Price	$25.00	$22.50
WACC	10.00%

What is the firm’s 2018 current ratio? Round your answer to twodecimal places.

If the industry average debt-to-total-assets ratio is 30%, thenRosnan’s creditors have a -Select-smallerbiggerCorrect 1 of Item3  cushion than indicated by the industry average.

What is the firm’s 2018 net profit margin? Round your answer tofour decimal places.
%

If the industry average profit margin is 12%, then Rosnan’slower than average debt-to-total-assets ratio might be one reasonfor its high profit margin.
-Select-TrueFalseCorrect 1 of Item 4

What is the firm’s 2018 price/earnings ratio? Round your answerto two decimal places.

Using the DuPont equation, what is the firm’s 2018 ROE? Roundyour answer to two decimal places.
%