Comprehensive Ratio Analysis Data for Lozano Chip Company and its industry avera
ID: 2636704 • Letter: C
Question
Comprehensive Ratio Analysis
Data for Lozano Chip Company and its industry averages follow.
Lozano Chip Company: Balance Sheet as of December 31, 2013 (Thousands of Dollars)
Lozano Chip Company: Income Statement for Year Ended December 31, 2013 (Thousands of Dollars)
$ 113,022
Please calculate Total Debt/Total Asset .
Thanks.
Cash $ 225,000 Accounts payable $601,866 Receivables 1,575,000 Notes payable 326,634 Inventories 1,125,000 Other current liabilities 525,000 Total current assets $2,925,000 Total current liabilities $1,453,500 Net fixed assets 1,350,000 Long-term debt 1,068,750 Common equity 1,752,750 Total assets $4,275,000 Total liabilities and equity $4,275,000Explanation / Answer
a . Current asset/ current liability=2
Days sales outstanding =35 days
Sales/Inventory =6.67
Sales/Fixed assets=5.55
Sales/Total assets =1.754
Net income/Sales =1.5%
Net income/Total assets=2.64%
Net income/common equity=6.45%
Total liabilities/Total assets =59%
B. Du pont
Lozano
ROI= [(net profit/sales)*(sales/total assets)]
= [(113022/7500000)*(7500000/4275000)]
= 0.0264 or 2.64%
Industry
ROI= 1.2%*3=0.036 or 3.6%
c. strengths.
ROI measyres the profit which a firm earns on investing a unit of capital.
The net income/ sales helps in determining the efficiency with which the affairs of the business being managed.
Weakness
By comparing fixed asset turnover with industry avg. it is seen that investments in fixed assets is not judicious.
d. The ratio of Lozano will be more than industry average... by doubling the figures the net income/fixed asset increases to 11.11 which gives an indication that the investment in fixed assets is judicious.
sales/iventory ratio will remain same..
net income/sales will also increase.
net income/total asset will also increase.
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