In: Finance
Comprehensive Ratio Analysis
Data for Lozano Chip Company and its industry averages follow.
Lozano Chip Company: Balance Sheet as of December 31, 2018 (Thousands of Dollars)
Cash | $ 230,000 | Accounts payable | $ 601,866 | |
Receivables | 1,575,000 | Notes payable | 326,634 | |
Inventories | 1,125,000 | Other current liabilities | 539,000 | |
Total current assets | $2,930,000 | Total current liabilities | $1,467,500 | |
Net fixed assets | 1,350,000 | Long-term debt | 1,068,750 | |
Common equity | 1,743,750 | |||
Total assets | $4,280,000 | Total liabilities and equity | $4,280,000 |
Lozano Chip Company: Income Statement for Year Ended December 31, 2018 (Thousands of Dollars)
Sales | $7,500,000 |
Cost of goods sold | 6,375,000 |
Selling, general, and administrative expenses | 820,000 |
Earnings before interest and taxes (EBIT) | $ 305,000 |
Interest expense | 111,631 |
Earnings before taxes (EBT) | $ 193,369 |
Federal and state income taxes (40%) | 77,348 |
Net income | $ 116,021 |
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. |
For the firm, ROE is %.
For the industry, ROE is %.
Current ratio =current Assets /current liabilities
Current Assets=$2,930,000
Current Liabilities =$1,467,500
Current ratio =$2930000/1467500=2.0
Days Sales Outstanding =Average Receivable /Credit sales*365
Receivables =1,575,000
Sales =$7,500,000
Days Sales Outstanding=1575000/7500000*365=76.65 days
COGS/Inventory
COGS=6375000
Inventory =1125000
COGS/Inventory =$6,375,000/$1,125,000=5.67
Sales/Fixed Assets
Sales =7,500,000
Fixed assets =1,350,000
Sales /Fixed Assets =7,500,000/1,350,000=5.56
Sales/total Assets
Sales =7,500,000
Total Assets=$4,280,000
Sales / Total Assets =7,500,000/4,280,000=1.75
Net Income /Sales
Net Income =$116,021
Sales =$7,500,000
So Net Income /Sales = 116,021/7,500,000=.015 Thats 1.5%
Net Income /Total Assets
Net Income =$116,021
Total Assets =$4,280,000
Net Income /total assets=116,021/4,280,000=2.71%
Net Income /Common Equity
Net income =$116,021
Common Equity=$1,743,750
Net Income /Common Equity =116,021/1,743,750=6.65%
Total debt/total Assets
Total Debt=$1,068,750
Total Assets =$4,280,000
Total Debt / Total Assets =$1,068,750/$4,280,000=24.97%
Total Liabilities /total Assets
Total liabilities =Current liability+long term debt =$1,068,750+$1,467,500=$2,536,250
Total Assets =4,280,000
Total Liabilities /total equities =$2,536,250/4,280,000=59.26%
b.DuPont Equation Extended =Net Profit /Sales*Sales/total Assets*Assets/Equity
For Firm
Solving for the equation we arrive at ROE=Net Income /Equity
Which is 6.65%(116,021/1,743,750)
For Industry ROE
Solving for the equation we arrive at ROE=Net Income /Equity
=Net Income /equity =9.0%(given)