In: Finance
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 | $ 220,000 | Accounts payable | $ 600,000 | |
Receivables | 1,575,000 | Notes payable | 100,000 | |
Inventories | 1,145,000 | Other current liabilities | 520,000 | |
Total current assets | $2,940,000 | Total current liabilities | $1,220,000 | |
Net fixed assets | 1,340,000 | Long-term debt | 400,000 | |
Common equity | 2,660,000 | |||
Total assets | $4,280,000 | Total liabilities and equity | $4,280,000 |
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 | 931,000 |
Earnings before interest and taxes (EBIT) | $ 194,000 |
Interest expense | 40,000 |
Earnings before taxes (EBT) | $ 154,000 |
Federal and state income taxes (25%) | 38,500 |
Net income | $ 115,500 |
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 | % |
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 -Select-slacken tighten Item 13 credit or enforce a -Select-more lessItem 14 stringent collection policy.
The total assets turnover ratio is well -Select-abovebelowItem 15 the industry average so sales should be -Select-decreasedincreasedItem 16 , assets -Select-decreased increasedItem 17 , or both.
While the company's profit margin is -Select-higher lowerItem 18 than the industry average, its other profitability ratios are -Select-highlowItem 19 compared to the industry - net income should be -Select-higherlowerItem 20 given the amount of equity and assets.