Question

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 $   225,000 Accounts payable $   601,866 Receivables 1,575,000 Notes payable 326,634 Inventories 1,130,000 Other current liabilities 527,000   Total current assets $2,930,000   Total current liabilities $1,455,500 Net fixed assets 1,325,000 Long-term debt 1,068,750 Common equity 1,730,750 Total assets $4,255,000 Total liabilities and equity $4,255,000 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 825,000   Earnings before interest and taxes (EBIT) $   300,000 Interest expense 111,631   Earnings before taxes (EBT) $   188,369 Federal and state income taxes (40%) 75,348 Net income $   113,021 Calculate the indicated ratios for Lozano. Do not round intermediate calculations. Round your answers to two decimal places. 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. Use the extended DuPont equation to calculate ROE for both Lozano and the industry. Do not round intermediate calculations. Round your answers to two decimal places. 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-slackentightenItem 13 credit or enforce a -Select-morelessItem 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-decreasedincreasedItem 17 , or both. While the company's profit margin is -Select-higherlowerItem 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.

Answer 1

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