Problem 7-13 Comprehensive Rat

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January 18th, 2023

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

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.

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.

Answer:

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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