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A firm has been experiencing low profitability in recent years

DuPONT ANALYSIS

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 $2 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 2.69x   Fixed assets turnover 7.08x
Debt-to-capital ratio 21.33%   Total assets turnover 3.44x
Times interest earned 14.90x   Profit margin 8.74%
EBITDA coverage 14.57x   Return on total assets 34.34%
Inventory turnover 12.38x   Return on common equity 49.86%
Days sales outstandinga 25.75 days   Return on invested capital 41.75%

aCalculation is based on a 365-day year.

Balance Sheet as of December 31, 2016 (Millions of Dollars)
 
Cash and equivalents $35   Accounts payable $28
Accounts receivables 39   Other current liabilities 14
Inventories 78   Notes payable 28
   Total current assets $152      Total current liabilities $70
      Long-term debt 12
         Total liabilities $82
Gross fixed assets 115   Common stock 55
    Less depreciation 37   Retained earnings 93
Net fixed assets $78      Total stockholders' equity $148
Total assets $230   Total liabilities and equity $230
Income Statement for Year Ended December 31, 2016 (Millions of Dollars)
 
Net sales $460.0
Cost of goods sold 335.8
  Gross profit $124.2
Selling expenses 32.2
EBITDA $92.0
Depreciation expense 9.2
  Earnings before interest and taxes (EBIT) $82.8
Interest expense 4.0
  Earnings before taxes (EBT) $78.8
Taxes (40%) 31.5
Net income $47.3

Calculate the following ratios. Do not round intermediate steps. Round your answers to two decimal places.

  Firm Industry Average
Current ratio x 2.69x
Debt to total capital % 21.33%
Times interest earned x 14.90x
EBITDA coverage x 14.57x
Inventory turnover x 12.38x
Days sales outstanding   days 25.75days
Fixed assets turnover x 7.08x
Total assets turnover x 3.44x
Profit margin % 8.74%
Return on total assets % 34.34%
Return on common equity % 49.86%
Return on invested capital % 41.75%

Construct a DuPont equation for the firm and the industry. Do not round intermediate steps. Round your answers to two decimal places.

  Firm Industry
Profit margin ?% 8.74%
Total assets turnover ?x 3.44x
Equity multiplier ?x ?x

May 17 2018 View more View Less

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