The DuPont equation shows the relationships among asset management, debt management, and ratios. Management can use the DuPont equation to analyze ways of improving the firm's performance. Its equation is: Ratio analysis is important to understand and interpret financial statements; however, sound financial analysis involves more than just calculating and interpreting numbers. factors also need to be considered. Quantitative Problem: Rosnan Industries' 2022 and 2021 balance sheets and income statements are shown below. Balance Sheets 2022 2021 Assets Cash and equivalents $ 70 $ 55 Accounts receivable 275 300 Inventories 375 350 Total current assets $ 720 $ 705 Net plant and equipment 2,000 1,490 Total assets $ 2,720 $ 2,195 Liabilities and Equity Accounts payable $ 150 $ 85 Accruals 75 50 Notes payable 120 145 Total current liabilities $ 345 $ 280 Long-term debt 450 290 Total liabilities $ 795 $ 570 Common stock 1,225 1,225 Retained earnings 700 400 Total common equity $ 1,925 $ 1,625 Total liabilities and equity $ 2,720 $ 2,195 Income Statements 2022 2021 Sales $ 2,000 $ 1,500 Operating costs excluding depreciation and amortization 1,350 1,050 EBITDA $ 650 $ 450 Depreciation and amortization 116 101 EBIT $ 534 $ 349 Interest 62 45 EBT $ 472 $ 304 Taxes (25%) 118 76 Net income $ 354 $ 228 Dividends paid $54 $48 Addition to retained earnings $300 $180 Shares outstanding 100 100 Price $25.00 $22.50 WACC 10.00% What is the firm's 2022 current ratio? Do not round intermediate calculations. Round your answer to two decimal places. If the industry average debt-to-assets ratio is 30%, then Rosnan's creditors have a cushion than indicated by the industry average. What is the firm's 2022 net profit margin? Do not round intermediate calculations. Round your answer to two decimal places. % If the industry average profit margin is 12%, then Rosnan's lower than average debt-to-assets ratio might be one reason for its high profit margin. What is the firm's 2022 price/earnings ratio? Do not round intermediate calculations. Round your answer to two decimal places. Using the DuPont equation, what is the firm's 2022 ROE? Do not round intermediate calculations. Round your answer to two decimal places.

The DuPont equation shows the relationships among asset management, debt management, and ratios. Management can use the DuPont equation to analyze ways of improving the firm's performance. Its equation is: Ratio analysis is important to understand and interpret financial statements; however, sound financial analysis involves more than just calculating and interpreting numbers. factors also need to be considered. Quantitative Problem: Rosnan Industries' 2022 and 2021 balance sheets and income statements are shown below. Balance Sheets 2022 2021 Assets Cash and equivalents $ 70 $ 55 Accounts receivable 275 300 Inventories 375 350 Total current assets $ 720 $ 705 Net plant and equipment 2,000 1,490 Total assets $ 2,720 $ 2,195 Liabilities and Equity Accounts payable $ 150 $ 85 Accruals 75 50 Notes payable 120 145 Total current liabilities $ 345 $ 280 Long-term debt 450 290 Total liabilities $ 795 $ 570 Common stock 1,225 1,225 Retained earnings 700 400 Total common equity $ 1,925 $ 1,625 Total liabilities and equity $ 2,720 $ 2,195 Income Statements 2022 2021 Sales $ 2,000 $ 1,500 Operating costs excluding depreciation and amortization 1,350 1,050 EBITDA $ 650 $ 450 Depreciation and amortization 116 101 EBIT $ 534 $ 349 Interest 62 45 EBT $ 472 $ 304 Taxes (25%) 118 76 Net income $ 354 $ 228 Dividends paid $54 $48 Addition to retained earnings $300 $180 Shares outstanding 100 100 Price $25.00 $22.50 WACC 10.00% What is the firm's 2022 current ratio? Do not round intermediate calculations. Round your answer to two decimal places. If the industry average debt-to-assets ratio is 30%, then Rosnan's creditors have a cushion than indicated by the industry average. What is the firm's 2022 net profit margin? Do not round intermediate calculations. Round your answer to two decimal places. % If the industry average profit margin is 12%, then Rosnan's lower than average debt-to-assets ratio might be one reason for its high profit margin. What is the firm's 2022 price/earnings ratio? Do not round intermediate calculations. Round your answer to two decimal places. Using the DuPont equation, what is the firm's 2022 ROE? Do not round intermediate calculations. Round your answer to two decimal places.

College Accounting, Chapters 1-27

23rd Edition

ISBN:9781337794756

Author:HEINTZ, James A.

Publisher:HEINTZ, James A.

Chapter24: Analysis Of Financial Statements

Section: Chapter Questions

Problem 5CE

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Question

Ratio analysis is important to understand and interpret financial statements; however, sound financial analysis involves more than just calculating and interpreting numbers. factors also need to be considered.

Quantitative Problem: Rosnan Industries' 2022 and 2021 balance sheets and income statements are shown below.

Balance Sheets
	2022		2021
Assets
Cash and equivalents		$	70	$	55
Accounts receivable			275		300
Inventories			375		350
Total current assets		$	720	$	705
Net plant and equipment			2,000		1,490
Total assets		$	2,720	$	2,195

Liabilities and Equity
Accounts payable		$	150	$	85
Accruals			75		50
Notes payable			120		145
Total current liabilities		$	345	$	280
Long-term debt			450		290
Total liabilities		$	795	$	570
Common stock			1,225		1,225
Retained earnings			700		400
Total common equity		$	1,925	$	1,625
Total liabilities and equity		$	2,720	$	2,195

Income Statements
	2022		2021
Sales		$	2,000	$	1,500
Operating costs excluding depreciation and amortization			1,350		1,050
EBITDA		$	650	$	450
Depreciation and amortization			116		101
EBIT		$	534	$	349
Interest			62		45
EBT		$	472	$	304
Taxes (25%)			118		76
Net income		$	354	$	228

Dividends paid		$54		$48
Addition to retained earnings		$300		$180

Shares outstanding		100		100
Price	$25.00		$22.50
WACC	10.00%

What is the firm's 2022 current ratio? Do not round intermediate calculations. Round your answer to two decimal places.

If the industry average debt-to-assets ratio is 30%, then Rosnan's creditors have a cushion than indicated by the industry average.

What is the firm's 2022 net profit margin? Do not round intermediate calculations. Round your answer to two decimal places.

If the industry average profit margin is 12%, then Rosnan's lower than average debt-to-assets ratio might be one reason for its high profit margin.

What is the firm's 2022 price/earnings ratio? Do not round intermediate calculations. Round your answer to two decimal places.

Using the DuPont equation, what is the firm's 2022 ROE? Do not round intermediate calculations. Round your answer to two decimal places.

Sales
Operating costs excluding depreciation and amortization
EBITDA
Depreciation and amortization
EBIT
Interest
EBT
Taxes (25%)
Net income
Dividends paid
Addition to retained earnings
Income Statements
Shares outstanding
Price
WACC
2022
$2,000
1,350
$ 650
116
$534
62
$ 472
118
$ 354
$54
$300
100
$25.00
10.00%
2021
$1,500
1,050
450
101
$349
45
$ 304
76
$ 228
$48
$180
100
$22.50

Assets
Cash and equivalents
Accounts receivable
Inventories
Total current assets
Net plant and equipment
Total assets
Liabilities and Equity
Accounts payable
Accruals
Notes payable
Total current liabilities
Long-term debt
Total liabilities
Common stock
Retained earnings
Total common equity
Total liabilities and equity
Balance Sheets
2022
70
275
375
$ 720
2,000
$2,720
$ 150
75
120
$ 345
450
$ 795
1,225
700
$1,925
$2,720
2021
55
300
350
705
1,490
$2,195
85
50
145
$ 280
290
$570
1,225
400
$1,625
$2,195

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