Problem 7-13 Comprehensive Rat

Problem 7-13Comprehensive Ratio Analysis

Data for Lozano Chip Company and its industry averagesfollow.

Lozano Chip Company: Balance Sheet as of December 31,2015 (Thousands of Dollars)

Cash $  206,000 Accounts payable $606,300
Receivables 1,548,000 Notes payable 332,900
Inventories 1,184,000 Other current liabilities 547,000
  Total current assets $2,938,000   Total current liabilities $1,486,200
Net fixed assets 1,345,000 Long-term debt 1,007,100
Common equity 1,789,700
Total assets $4,283,000 Total liabilities and equity $4,283,000

Lozano Chip Company: Income Statement for Year EndedDecember 31, 2015 (Thousands of Dollars)

Sales $7,859,000
Cost of goods sold 6,372,000
Selling, general, and administrative expenses 810,000
  Earnings before interest and taxes (EBIT) $    677,000
Interest expense 98,000
  Earnings before taxes (EBT) $    579,000
Federal and state income taxes (40%) 231,600
Net income $    347,400
  1. Calculate the indicated ratios for Lozano. Round your answersto two decimal places. Do not round intermediate calculations.
    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.
  2. Construct the extended DuPont equation for both Lozano and theindustry. Round your answers to two decimal places. Do not roundintermediate calculations.
    For the firm, ROE is %
    For the industry, ROE is %

c. Outline Lozano’s strengths and weaknesses as revealed by youranalysis.


Answrer A :

Lozano Chip Compant Industry Average
Current assets/Currentliabilities                                                     1.98 2
Days sales outstanding* days                                                   71.89 35.0 days
COGS/Inventory                                                     5.38 6.7
Sales/Fixed assets                                                     5.84 12.1
Sales/Total assets                                                     1.83 3
Net income/Sales % 4% 1.20%
Net income/Total assets % 8% 3.60%
Net income/Common equity % 19% 9.00%
Total debt/Total assets % 24% 30.00%
Total liabilities/Totalassets % 35% 60.00%

Answer C :

Lozano Chip Compant Industry Average Analysis
Current assets/Currentliabilities                         1.98 2 Adverse
Days sales outstanding* days                        71.89 35.0 days Adverse
COGS/Inventory                         5.38 6.7 Favourable
Sales/Fixed assets                         5.84 12.1 Adverse
Sales/Total assets                         1.83 3 Adverse
Net income/Sales % 4% 1.20% Favourable
Net income/Total assets % 8% 3.60% Favourable
Net income/Common equity % 19% 9.00% Favourable
Total debt/Total assets % 24% 30.00% Favourable
Total liabilities/Totalassets % 35% 60.00% Favourable

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