Prinicapals of Finance Calculate the indicated ratios, business and finance homework help
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Financial ratio analysis is conducted by mangers, equity
investors, long term creditors, and short-term creditors. What is the primary emphasis of each of these
groups in evaluating ratios?
Over the past year, M.D. Ryngaert & Co. has realized an
increase 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 have
remained constant. What explains these
changes?
Data for Lozano Chip Company and its industry averages
follow.
A.
Calculate the indicated ratios for Lozano.
B.
Construct the extended Du Pont equation for both
Lozano and the industry.
C.
Outline Lozano’s strengths and weaknesses as
revealed by you analysis.
Lozano
Chip Company: Balance Sheet as of December 31, 2013 (thousands of dollars)
Cash $
225,000 Accounts Payable $601,866
Receivables 1,575,000 Notes
payable 326,634
Inventories
1,125,000 Other current liabilities
525,000
Total current
assets $2,950,000 Total current liabilities $1,453,500
Net fixed assets 1,350,000 Long
term debt 1,068,750
__________ Common equity 1,752,750
Total assets
$4,275,000 Total
liabilities and equity $4,275,000
Lozano
Chip Company: Income Statement for Year ended December 31, 2013 (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 axes (%40) 75,348
Net income $ 113,022
Ratio Lozano Industry Average
Current Assets/Current Liabilities 2.0
Days sales outstanding (365-day year) 35.0
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%
