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Financial ratio analysis is conducted by mangers, equityinvestors, long term creditors, and short-term creditors. What is the primary emphasis of each of thesegroups in evaluating ratios?
Over the past year, M.D. Ryngaert & Co. has realized anincrease in its current ratio and a drop in its total assets turnover ratio.However, the company’s sales, quick ratio, and fixed assets turnover ratio haveremained constant. What explains thesechanges?
Data for Lozano Chip Company and its industry averagesfollow.
A. Calculate the indicated ratios for Lozano.
B. Construct the extended Du Pont equation for bothLozano and the industry.
C. Outline Lozano’s strengths and weaknesses asrevealed by you analysis.
LozanoChip Company: Balance Sheet as of December 31, 2013 (thousands of dollars)
Cash $225,000 Accounts Payable $601,866
Receivables 1,575,000 Notespayable 326,634
Inventories 1,125,000 Other current liabilities 525,000
Total currentassets $2,950,000 Total current liabilities $1,453,500
Net fixed assets 1,350,000 Longterm debt 1,068,750
__________ Common equity 1,752,750
Total assets $4,275,000 Totalliabilities and equity $4,275,000
LozanoChip Company: Income Statement for Year ended December 31, 2013 (thousands ofdollars)
Sales $ 7,500,000
Cost of goods sold 6,375.000
Selling, general, and administrative expenses 825,000
Earnings beforeinterest and taxes (EBIT) $ 300,000
Interest expense 111,631
Earnings beforetaxes (EBT) $ 188,369
Federal and state income axes (%40) 75,348
Net income $ 113,022
Ratio Lozano Industry Average
Current Assets/Current Liabilities 2.0
Days sales outstanding (365-day year) 35.0Days
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%
