Data for Lozano Chip Company and its industry averages follow. a. Calculate the
ID: 2651742 • Letter: D
Question
Data for Lozano Chip Company and its industry averages follow.
a. Calculate the indicated ratios for Lozano.
b. Construct the extended Du Pont equation for both Lozano and the industry.
c. Outline Lozano’s strengths and weaknesses as revealed by your analysis.
Lozano Chip Company: Balance Sheet as of December 31, 2013 (Thousands
of Dollars)
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 $2,950,000 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 $4,275,000
Lozano Chip Company: Income Statement for Year Ended December 31, 2013
(Thousands of Dollars)
Sales $ 7,500,000
Cost of goods sold 6,375,000
Selling, general, and administrative expenses 825,000
Earnings before interest and taxes (EBIT) $ 300,000
Interest expense 111,631
Earnings before taxes (EBT) $ 188,369
Federal and state income taxes (40%) 75,348
Net income $ 113,022
Ratio Lozano Industry Average
Current assets/Current liabilities __________ 2.0
Days sales outstanding (365-day year) __________ 35.0 days
COGS/Inventory __________ 6.7
Sales/Fixed assets __________ 12.1
Sales/Total assets __________ 3.0
Net income/Sales __________ 1.2%
Net income/Total assets __________ 3.6%
Net income/Common equity __________ 9.0%
Total debt/Total assets __________ 30.0%
Total liabilities/Total assets __________ 60.0%
Explanation / Answer
a.
Current ratio = Current assets / Current liabilities
= $2,950,000 / $1,453,500
= 2.03
Days sales outstanding = 365 days ÷ (Sales / Receivable)
= 365 / 4.8
= 76 days
COGS/Inventory = $6,375,000 / $1,125,000
= 5.7
Sales/Fixed assets = $7,500,000 / $1,350,000
= 5.6
Sales/Total assets = $7,500,000 / $4,275,000
= 1.8
Net income/Sales = ($113,022 / $7,500,000) × 100
= 1.5%
Net income/Total assets = ($113,022 / $4,275,000) × 100
= 2.6%
Net income/Common equity = ($113,022 / $1,752,750) × 100
= 6.4%
Total debts/Total assets = ($1,068,750 / $4,275,000) × 100
= 25%
Total liabilities/Total assets = ($2,522,250 / $4,275,000) × 100
= 59%
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