Problem 3-13 Comprehensive Ratio Analysis Data for Lozano Chip Company and its i

Question

Problem 3-13 Comprehensive Ratio Analysis Data for Lozano Chip Company and its industry averages follow Lozano Chip Company: Balance Sheet as of December 31, 2016 (Thousands of Dollars) Cash Receivables Inventories 225,000 1,575,000 1,125,000 $2,925,000 1,350,000 Accounts payable Notes payable Other current liabilities Total current liabilities Long-term debt Common equity Total liabilities and equity $601,866 326,634 525,000 $1,453,500 1,068,750 1,752,750 $4,275,000 Total current assets Net fixed assets Total assets Lozano Chip Company: Income Statement for Year Ended December 31, 2016 (Thousands of Dollars) Sales Cost of goods sold Selling general and administrative expenses $4,275,000 $7,500,000 6,375,000 825,000 Earnings before interest and taxes (EBIT)$300,000 111,631 $ 188,369 75,348 $ 113,022 Interest expense Earnings before taxes (EBT) Federal and state income taxes (40%) Net income

Explanation / Answer

Lozano Chip company   Details Ratio data Ratio amt Providinfg the details of the ratios marked wrong a         1 COGS /Inventory   =6375000/1125000                                                   5.67         2 Sales / Total Assets = =7500000/4275000                                                   1.75         3 Total Debt /Total Assets   =(326634+1068750)/4275000 32.64% b ROE = Net Profit/sales*Sales/Total Assets*Total Asset/Equity Ratios   Lozano Chip company   Industry average Net Profit /Sales   1.51% 1.20% Sale /Total Assets                                                     1.75                                                   3.00 (Net Income/Common Equity)/(Net Income/Total Assets)= Total Assets/Equity=                                                     2.48                                                   2.50 ROE = Net Profit/sales*Sales/Total Assets*Total Asset/Equity 6.55% 9.00% c Lozano Chip company   Strengths Weakness Liquidity position and net profit % is good   Very high DSO days , Fixed   compared to industry average. Asset Turnover, Inventory Turnover ratios higher than industry average . Working   capital management needs improvement. Return on total assets and   return on equity lower than industry average.

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