DuPont Analysis A firm has been experiencing low profitability in recent years.
ID: 2649343 • Letter: D
Question
DuPont Analysis
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 $1 million sinking fund payment on its debt. The most recent industry average ratios and the firm's financial statements are as follows:
aCalculation is based on a 365-day year.
Calculate those ratios that you think would be useful in this analysis. Do not round intermediate steps. Round your answers to two decimal places.
Construct aa Du Pont equation, and compare the company's ratios to the industry average ratios. Do not round intermediate steps. Round your answers to two decimal places.
Industry Average Ratios Current ratio 4.63x Fixed assets turnover 4.58x Debt/total assets 27.86% Total assets turnover 2.29x Times interest earned 5.66x Profit margin 3.52% EBITDA coverage 8.34x Return on total assets 8.06% Inventory turnover 11.61x Return on common equity 11.18% Days sales outstandinga 37 days Return on invested capital 11.50%Explanation / Answer
Firm
Industry Average
Current ratio
3.13x
4.63x
Debt to total capital
4.82%
27.86%
Times interest earned
9.28x
5.66x
EBITDA coverage
8.87x
8.34x
Inventory turnover
4.53x
11.61x
DSO
31 days
37days
F.A. turnover
4.17x
4.58x
T.A. turnover
1.67x
2.29x
Profit margin
4.55%
3.52%
Return on total assets
14.15%
8.06%
Return on common equity
9.86%
11.18%
Return on invested capital
9.39%
11.50%
Current Ratio = 169/54=3.13
Debt to total capital = 11/217+11= 4.82%
Times interest earned = 39.9/4.3=9.28
EBITDA coverage= 47/4.3+1= 8.87
Inventory turnover= 385.4/85 =4.53
DSO= 39/470x365 =31 days
F.A. turnover= 470/113= 4.16
T.A. turnover= 470/282 = 1.67
Profit margin= 21.4/470x100= 4.55%
Return on total assets= 39.9/ 282x100= 14.15%
Return on common equity= 21.4/217x100=9.86%
Return on invested capital= 21.4/228x100=9.39%
Firm
Industry
Profit margin
4.55%
3.52%
Total assets turnover
1.67x
2.29x
Equity multiplier
7.60
Firm
Industry Average
Current ratio
3.13x
4.63x
Debt to total capital
4.82%
27.86%
Times interest earned
9.28x
5.66x
EBITDA coverage
8.87x
8.34x
Inventory turnover
4.53x
11.61x
DSO
31 days
37days
F.A. turnover
4.17x
4.58x
T.A. turnover
1.67x
2.29x
Profit margin
4.55%
3.52%
Return on total assets
14.15%
8.06%
Return on common equity
9.86%
11.18%
Return on invested capital
9.39%
11.50%
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