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Income Statement for Year Ended December 31, 2018 (Millions of Dollars) Net sales $795.0 Cost of goods sold 660.0 Gross profit $135.0 Selling expenses 73.5 EBITDA $ 61.5 Depreciation expenses 12.0 Earnings before interest and taxes (EBIT) $ 49.5 Interest expenses 4.5 Earnings before taxes (EBT) $ 45.0 Taxes (40%) 18.0 Net income $ 27.0 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...

15th Edition
Eugene F. Brigham + 1 other
Publisher: Cengage Learning
ISBN: 9781337395250
BuyFind

Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
Publisher: Cengage Learning
ISBN: 9781337395250

Solutions

Chapter
Section
Chapter 4, Problem 24P
Textbook Problem

Chapter 4, Problem 24P, Income Statement for Year Ended December 31, 2018 (Millions of Dollars) Net sales 795.0 Cost of

Income Statement for Year Ended December 31, 2018 (Millions of Dollars)

Net sales $795.0
Cost of goods sold 660.0
Gross profit $135.0
Selling expenses 73.5
EBITDA $ 61.5
Depreciation expenses 12.0
Earnings before interest and taxes (EBIT) $ 49.5
Interest expenses 4.5
Earnings before taxes (EBT) $ 45.0
Taxes (40%) 18.0
Net income $ 27.0
  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

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