DuPont Analysis Question: DuPONT ANALYSI A firm has been experiencing low profit

Question

DuPont Analysis Question:

DuPONT ANALYSI A firm has been experiencing low profitability in recent years. Perform an analysis of the firm's financial position using the DuPont equation. The firm has no lease payments but has a $2 million sinking fund payment on its debt The most recent industry average ratios and the firm's financial statements are as follows: Industry Average Ratios Current ratio Debt-to-capital ratio Times interest earned EBITDA coverage Inventory turnover Day 4.12x 17.07% 5.15x 7.68x 13.19x Fixed assets turnover Total assets turnover Profit margin Return on total assets Return on common equity Return on invested capital 6.00x 3.66x 3.54% 13.66% 18.36% 16.65% s sales outstanding 16.66 days aCalculation is based on a 365-day year

Explanation / Answer

Current Ratio = Total Current Assets /TotalCurrent Liability = 162 / 59 = 2.75x

Debt to Total Capital = Total Liability / Total capital = 75 / 270 = 27.78%

Times interest earned = EBIT / Interest charges = 40.5 / 4.4 =9.20x

EBITDA coverage ratio = EBITDA / Interest charges = 54 / 4.4 = 12.27x

Inventory turnover = COGS/average inventory = 437.4 / 86 = 5.09x

Days sales outstanding = AR / Sales per day = 23.66 days

Fixed asset turnover ratio = net sales / net fixed asset = 540 / 108 = 5x

Total asset turnover = net sales / total assets = 540 / 270 = 2x

Profit Margin = net income / net sales = 21.7 / 540 = 4.02%

Return on total assets = EBIT / Total Assets = 40.5 / 270 = 15%

Return on common equity = EBIT / Total Equity = 40.5 / 195 = 20.77%

Return on invested capital = NOPAT / Invested Capital = 24.3 / 229 = 10.61 %

NOPAT = Earning before interest but after tax

Invested Capital = Total assets - cash and equivalent

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