A. (6 Points) Perform a Du Pont analysis on Dispatch & Patch. Comment on what th

Question

A. (6 Points) Perform a Du Pont analysis on Dispatch & Patch. Comment on what the results imply.

B. For Dispatch & Patch, calculate the following ratios and give a one or two sentence comment on what the value of each of their ratios means in light of the industry average:

1. Return on Assets

2. CurrentRatio Value: Value: ??

3. Days Cash on Hand Value: ?

4. Average collection period Value: ?

5. Debt-to-Equity ratio Value:

?6. Times Interest Earned Value: ?

7. Fixed Asset Turnover Value:

Safari File Edit View History Bookmarks Window Help ebay blackboard.uiwtx.edu https://blackboard.uiwtx.edu/bbcswebdav/pid-1548888-dt-content-rid-6686494_1/courses/HADM6306_V5... Chegg.com III. Consider the following financial statements for nonprofit Dispatch & Patch Emergency Services: ies Dispatch & Patch Emergency Services Statement of Operations and Change in net Assets Year Ended December 31, 2011 nes Revenue: Insurance Proceeds Co-Payments Interest and Other Income $30,000 4,500 300 $34,800 Total Revenues Expenses: Salaries and Benefits Depreciation Provision for Bad Debts Supplies Insurance Interest $20,000 2,000 1,500 1,300 1,000 200 $26,000 Total Expenses 8,800 $ 400 $9,200 Net Income Net Assets, January 1, 2010 Net Assets, December 31, 2010

Explanation / Answer

A. Du Pont Analysis

ROE can be represented as follows

ROE = Operating efficiency * Asset use efficiency * Financial Leverage

ROE = (Net income / Sales) * (Sales / Total Assets) * (Total Assets / Equity)

ROE = (8800 / 34800) * (34800 / 21900) * (21900 / 9200)

ROE = 0.25 * 1.59 * 2.38
So ROE is more driven by equity multiplier than other two ratios

Compared to industry averages, company has a very good profit margin and below par Asset turnover and equity turnover

B.

1. Return on Assets = Net income / Total Assets = 8800 / 21900 = 40.18%
This ratio is greater than industry average, so this is a good sign for the company

2. Current Ratio = Current Assets / Current Liabilities = 3500 / 4700 = 0.74
This ratio is less than the industry average of 1.2. This is not a good sign for the company. Working capital required to higher compared to competitors

3. Days cash on hand = Cash and cash equivalents / Daily operating expenses = 2200 / ((26000 - 2000 - 1500)/365) = 2200 / 22500 / 365 = 2200 / 61.64 = 35.69
So days cash on hand os 36 days which is less than the industry average of 40 days. Not a good sign for the company

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