Question

Comprehensive Ratio Analysis

Data for Lozano Chip Company and its industry averages follow.

Lozano Chip Company: Balance Sheet as of December 31, 2019 (Thousands of Dollars)
Cash	$   220,000		Accounts payable	$   600,000
Receivables	1,575,000		Notes payable	100,000
Inventories	1,155,000		Other current liabilities	540,000
Total current assets	$2,950,000		Total current liabilities	$1,240,000
Net fixed assets	1,325,000		Long-term debt	400,000
			Common equity	2,635,000
Total assets	$4,275,000		Total liabilities and equity	$4,275,000

Lozano Chip Company: Income Statement for Year Ended December 31, 2019 (Thousands of Dollars)
Sales	$7,500,000
Cost of goods sold	6,375,000
Selling, general, and administrative expenses	929,000
Earnings before interest and taxes (EBIT)	$   196,000
Interest expense	40,000
Earnings before taxes (EBT)	$   156,000
Federal and state income taxes (25%)	39,000
Net income	$   117,000

b.

Use the extended DuPont equation to calculate ROE for both Lozano and the industry. Do not round intermediate calculations. Round your answers to two decimal places.

For the firm, ROE is   %.

For the industry, ROE is   %.

Answer 1

Return on equity for firm
ROE Calculation for the firm
​DuPont Analysis=Net Profit Margin×AT×EM
			=	4.44%
Net Profit Margin		=	Net Income/ Revenue			=117000/7500000	0.0156
Asset Turnover (AT)	=	Sales/Avearge Total Assets			=7500000/4275000	1.7544
Equity Multiplier		=	Average total assets/Average shareholders equity			=4275000/2635000	1.6224