Question

he DuPont equation shows the relationships among asset management, debt management, and -(Select-liquidity,market,profitability) of Item 1 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. (-Select one-Quantitative,Qualitative,Foreign) of Item 1 factors also need to be considered.

Quantitative Problem: Rosnan Industries' 2019 and 2018 balance sheets and income statements are shown below.

Balance Sheets:
	2019			2018
Cash and equivalents	$	60		$	45
Accounts receivable		275			300
Inventories		375			350
Total current assets	$	710		$	695
Net plant and equipment		2,000			1,490
Total assets	$	2,710		$	2,185
Accounts payable	$	150		$	85
Accruals		75			50
Notes payable		110			135
Total current liabilities	$	335		$	270
Long-term debt		450			290
Common stock		1,225			1,225
Retained earnings		700			400
Total liabilities and equity	$	2,710		$	2,185

Income Statements:
	2019			2018
Sales	$	1,885		$	1,425
Operating costs excluding depreciation		1,250			1,000
EBITDA	$	635		$	425
Depreciation and amortization		100			75
EBIT	$	535		$	350
Interest		63			46
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	%

the current ratio is 2.12

The 2019 current ratio indicates that Rosnan has, sufficient of Item 3 current assets to meet its current obligations as they come due.

turn over rate in 2019 is .7702

Given the 2019 current and total assets turnover ratios calculated above, if Rosnan's 2019 quick ratio is 1.0 then an analyst might conclude that Rosnan's fixed assets are managed efficiently of Item 4.

What is the firm's 2019 debt-to-capital ratio? Round your answer to two decimal places.

%

If the industry average debt-to-capital ratio is 30%, then Rosnan's creditors have a -(Select one-smaller or bigger) of Item 5 cushion than indicated by the industry average.

What is the firm's 2019 profit margin? Round your answer to two decimal places.

%

If the industry average profit margin is 12%, then Rosnan's lower than average debt-to-capital ratio might be one reason for its high profit margin. (-Select-True or False)1 of Item 6

What is the firm's 2019 price/earnings ratio? Round your answer to two decimal places.

Using the DuPont equation, what is the firm's 2019 ROE? Round your answer to two decimal places.

%

Answer 1

2019 Current Ratio =Current assets/Current Liabilities =710/335 =2.12
Rosnan has sufficient current assets to meets its current liabilities

2019 Total Assets Turnover =Sales/Total assets =1885/2710=0.70
Rosnan Fixed assets are managed inefficiently

Debt to capital ratio=Total Debt/Total Assets =(325+450)/2710=29.60%
Roshnan' Creditors have a bigger cushion .

2019 Profit Margin =Net Income/Sales =354/1885=18.78%
True. Lower Debt to  Capital ratio might be a reason for high profit margin.

Price to Earnings ratio =Price/(Earnings by number of shares) =25/(354/100) =7.06

Equity Multiplier =Total Assets/Equity =2710/(1225+700)=1.4078
Dupoint ROE =Net Profit Margin*Assets Turnover*Equity Multiplier =354/1885*1885/2710*1.4078=18.39%