Comprehensive Ratio Analysis Data for Lozano Chip Company and its industry averages follow.
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 $2,925,000 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 taxes (40%) 75,348
Net income $ 113,022
Calculate the indicated ratios for Lozano. Round your answers to two decimal places.
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 Du Pont equation for both Lozano and the industry. Round your answers to two decimal places.
For the firm, ROE is %
For the industry, ROE is %
Outline Lozano's strengths and weaknesses as revealed by your analysis