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 $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 a Calculate is based on 365-day year. Balance Sheet as of December 31, 2019 (millions of dollars) Income Statement for Year Ended December 31, 2019 (millions of dollars) a. Calculate the ratios you think would be useful in this analysis. b. Construct a DuPont equation, and compare the company’s ratios to the industry average ratios. c. Do the balance sheet accounts or the income statement figures seem to be primarily responsible for the low profits? d. Which specific accounts seem to be most out of line relative to other firms in the industry? e. If the firm had a pronounced seasonal sales pattern or if it grew rapidly during the year, how might that affect the validity of your ratio analysis? How might you correct for such potential problems?

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Fundamentals Of Financial Manageme...

10th Edition
Eugene F. Brigham + 1 other
Publisher: Cengage Learning
ISBN: 9781337902571
BuyFind

Fundamentals Of Financial Manageme...

10th Edition
Eugene F. Brigham + 1 other
Publisher: Cengage Learning
ISBN: 9781337902571

Solutions

Chapter 4, Problem 24P
Textbook Problem

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 $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

Chapter 4, Problem 24P, DuPONT ANALYSIS A firm has been experiencing low profitability in recent years. Perform an analysis , example  1

aCalculate is based on 365-day year.

Balance Sheet as of December 31, 2019 (millions of dollars)

Chapter 4, Problem 24P, DuPONT ANALYSIS A firm has been experiencing low profitability in recent years. Perform an analysis , example  2

Income Statement for Year Ended December 31, 2019 (millions of dollars)

Chapter 4, Problem 24P, DuPONT ANALYSIS A firm has been experiencing low profitability in recent years. Perform an analysis , example  3

  1. a. Calculate the ratios you think would be useful in this analysis.
  2. b. Construct a DuPont equation, and compare the company’s ratios to the industry average ratios.
  3. c. Do the balance sheet accounts or the income statement figures seem to be primarily responsible for the low profits?
  4. d. Which specific accounts seem to be most out of line relative to other firms in the industry?
  5. e. If the firm had a pronounced seasonal sales pattern or if it grew rapidly during the year, how might that affect the validity of your ratio analysis? How might you correct for such potential problems?

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Chapter 4 Solutions

Fundamentals Of Financial Management, Concise Edition (mindtap Course List)
Ch. 4 - Differentiate between ROE and ROIC.Ch. 4 - Indicate the effects of the transactions listed in...Ch. 4 - DAYS SALES OUTSTANDING Baxley Brothers has a DSO...Ch. 4 - DEBT TO CAPITAL RATIO Kayes Kitchenware has a...Ch. 4 - DuPONT ANALYSIS Hendersons Hardware has an ROA of...Ch. 4 - MARKET/BOOK AND EV/EBITDA RATIOS Edelman Engines...Ch. 4 - PRICE/EARNINGS RATIO A company has an EPS of 2.40,...Ch. 4 - DuPONT AND ROE A firm has a profit margin of 3%...Ch. 4 - ROE AND ROIC Baker Industriess net income is...Ch. 4 - DuPONT AND NET INCOME Precious Metal Mining has 17...Ch. 4 - BEP, ROE, AND ROIC Broward Manufacturing recently...Ch. 4 - M/B, SHARE PRICE, AND EV/EBITDA You are given the...Ch. 4 - RATIO CALCULATIONS Assume the following...Ch. 4 - RATIO CALCULATIONS Thomson Trucking has 12 billion...Ch. 4 - TIE AND ROIC RATIOS The W.C Pruett Corp. has...Ch. 4 - RETURN ON EQUITY Pacific Packagings ROE last year...Ch. 4 - RETURN ON EQUITY AND QUICK RATIO Lloyd Inc. has...Ch. 4 - RETURN ON EQUITY Commonwealth Construction (CC)...Ch. 4 - CONCEPTUAL: RETURN ON EQUITY Which of the...Ch. 4 - TIE RATIO MPI Incorporated has 6 billion in...Ch. 4 - CURRENT RATIO The Stewart Company has 2,392,500 in...Ch. 4 - DSO AND ACCOUNTS RECEIVABLE Ingraham Inc....Ch. 4 - P/E AND STOCK PRICE Ferrell Inc. recently reported...Ch. 4 - BALANCE SHEET ANALYSIS Complete the balance sheet...Ch. 4 - RATIO ANALYSIS Data for Barry Computer Co. and its...Ch. 4 - DuPONT ANALYSIS A firm has been experiencing low...Ch. 4 - RATIO ANALYSIS The Corrigan Corporations 2018 and...Ch. 4 - FINANCIAL STATEMENTS AND TAXES Part I of this...Ch. 4 - CONDUCTING A FINANCIAL RATIO ANALYSIS ON HP INC....Ch. 4 - CONDUCTING A FINANCIAL RATIO ANALYSIS ON HP INC....Ch. 4 - CONDUCTING A FINANCIAL RATIO ANALYSIS ON HP INC....Ch. 4 - CONDUCTING A FINANCIAL RATIO ANALYSIS ON HP INC....

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