Question

Problem 7-13 Comprehensive Ratio Analysis Data for Lozano Chip Company and its industry averages follow. Lozano Chip Company: Balance Sheet as of December 31, 2015 (Thousands of Dollars) Cash $  206,000 Accounts payable $606,300 Receivables 1,548,000 Notes payable 332,900 Inventories 1,184,000 Other current liabilities 547,000   Total current assets $2,938,000   Total current liabilities $1,486,200 Net fixed assets 1,345,000 Long-term debt 1,007,100 Common equity 1,789,700 Total assets $4,283,000 Total liabilities and equity $4,283,000 Lozano Chip Company: Income Statement for Year Ended December 31, 2015 (Thousands of Dollars) Sales $7,859,000 Cost of goods sold 6,372,000 Selling, general, and administrative expenses 810,000   Earnings before interest and taxes (EBIT) $    677,000 Interest expense 98,000   Earnings before taxes (EBT) $    579,000 Federal and state income taxes (40%) 231,600 Net income $    347,400 Calculate the indicated ratios for Lozano. Round your answers to two decimal places. Do not round intermediate calculations. Ratio       Lozano Industry Average Current assets/Current liabilities 2.0 Days sales outstanding* 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 % 30.0% Total liabilities/Total assets % 60.0% *Calculation is based on a 365-day year. Construct the extended DuPont equation for both Lozano and the industry. Round your answers to two decimal places. Do not round intermediate calculations. For the firm, ROE is % For the industry, ROE is % c. Outline Lozano's strengths and weaknesses as revealed by your analysis.

Answer 1

Answrer A :

		Lozano Chip Compant	Industry Average
Current assets/Current liabilities		1.98	2
Days sales outstanding*	days	71.89	35.0 days
COGS/Inventory		5.38	6.7
Sales/Fixed assets		5.84	12.1
Sales/Total assets		1.83	3
Net income/Sales	%	4%	1.20%
Net income/Total assets	%	8%	3.60%
Net income/Common equity	%	19%	9.00%
Total debt/Total assets	%	24%	30.00%
Total liabilities/Total assets	%	35%	60.00%

Answer C :

		Lozano Chip Compant	Industry Average	Analysis
Current assets/Current liabilities		1.98	2	Adverse
Days sales outstanding*	days	71.89	35.0 days	Adverse
COGS/Inventory		5.38	6.7	Favourable
Sales/Fixed assets		5.84	12.1	Adverse
Sales/Total assets		1.83	3	Adverse
Net income/Sales	%	4%	1.20%	Favourable
Net income/Total assets	%	8%	3.60%	Favourable
Net income/Common equity	%	19%	9.00%	Favourable
Total debt/Total assets	%	24%	30.00%	Favourable
Total liabilities/Total assets	%	35%	60.00%	Favourable