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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 companyâ€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 Lozanoâ€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
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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