Prinicapals Of Finance Calculate The Indicated Ratios Business And Finance Homework Help

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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%

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