A firm has been experiencing low profitability in recent years. Perform an analysis of the firm’s financial position using the DuPont equation. The firm has no lease payments but has a $2 million sinking fund payment on its debt. The most recent industry average ratios and the firm’s financial statements are as follows:$ $$ \begin{matrix} \text{Industry Average Ratios}\\ \text{Current ratio} & \text{3 }{\times} & \text{Fixed assets turnover} & \text{6 }{\times}\\ \text{Debt-to-capital ratio} & \text{20\\%} & \text{Total assets turnover} & \text{3 }{\3 times}\\ \text{Times interest earned} & \text{7 }{\times} & \text{Profit margin} & \text{3\\%}\\ \text{EBITDA coverage} & \text{9 }{\times} & \text{Return on total assets} & \text{9\\%}\\ \text{Inventory turnover} & \text{10}{\times} & \text{Return on common equity} & \text{12.86\\%}\\ \text{Days sales outstanding} & \text{24 days} & \text{Return on invested capital} & \text{11.50\\%}\\ \end{matrix} $$ $$ $\begin{matrix} \text{Balance Sheet as of December 31, 2016 (millions of Dollars)}\\ \text{Cash and equivalents} & \text{\$ 78} & \text{Accounts payable} & \text{\$ 45}\\ \text{Accounts receivable} & \text{66} & \text{Other current liabilities} & \text{11}\\ \text{Inventories} & \text{159} & \text{Notes payable} & \text{29}\\ \text{Total current assets} & \text{\$ 303} & \text{Total current liabilities} & \text{\$ 85}\\ \text{ } & \text{ } & \text{Long-term debt} & \text{50}\\ \text{ } & \text{ } & \text{Total liabilities} & \text{\$ 135}\\ \text{Gross fixed assets} & \text{225} & \text{Common stock} & \text{114}\\ \text{Less depreciation} & \text{78} & \text{Retained earnings} & \text{201}\\ \text{Net fixed assets} & \text{\$ 147} & \text{Total stockholders' equity} & \text{\$ 315}\\ \text{Total assets} & \text{\$ 450} & \text{Total liabilities and equity} & \text{\$ 450}\\ \end{matrix} $$ $$ \begin{matrix} \text{Income Statements for Year Ended December 31, 2016 (millions of dollars)}\\ \text{Net sales} & \text{\$ 795.0}\\ \text{Cost of goods sold} & \text{660.0}\\ \text{Gross profit} & \text{\$ 135.0}\\ \text{Selling expenses} & \text{73.5}\\ \text{EBITDA} & \text{\$ 61.5}\\ \text{Depreciation expense} & \text{12.0}\\ \text{Earnings before interest and taxes (EBIT)} & \text{\$ 49.5}\\ \text{Interest expense} & \text{4.5}\\ \text{Earnings before taxes (EBT)} & \text{\$ 45.0}\\ \text{Taxes (40\\%)} & \text{18.0}\\ \text{Net income} & \text{\$ 27.0}\\ \end{matrix} $$ a. Calculate the ratios you think would be useful in this analysis. b. Construct a DuPont equation, and compare the company’s ratios to the industry average ratios. c. Do the balance sheet accounts or the income statement figures seem to be primarily responsible for the low profits? d. Which specific accounts seem to be most out of line relative to other firms in the industry? e. If the firm had a pronounced seasonal sales pattern or if it grew rapidly during the year, how might that affect the validity of your ratio analysis? How might you correct for such potential problems?

A firm has been experiencing low profitability in recent years. Perform an analysis of the firm's financial position using the DuPont equation. The firm has no lease payments but has a $\$ 2$ million sinking fund payment on its debt. The most recent industry average ratios and the firm's financial statements are as follows:

$$\small{ \begin{array}{lrlr} \textbf{Industry Average Ratios}\\ \text{Current ratio} &3\times &\text{Fixed assets turnover}& 6\times\\ \text{Debt-to-capital ratio}& 20\% &\text{Total assets turnover}& 3\times\\ \text{Times interest earned} &7\times &\text{Profit margin} &3\%\\ \text{EBITDA coverage} &9\times& \text{Return on total assets} &9\%\\ \text{Inventory turnover}& 10\times& \text{Return on common equity} &12.86\%\\ \text{Days sales outstanding}& 24\text{ days} &\text{days Return on invested capital}& 11.50\%\\ \end{array}}$$

$$\footnotesize{\text{Calculation is based on a 365-day year.}}$$

$$\small{ \begin{array}{lrlr} \textbf{Balance Sheet as of December 31, 2016 (Millions of Dollars)}\\ \text{Cash and equivalents} &\$ 78 &\text{Accounts payable}& \$ 45\\ \text{Accounts receivable} &66 &\text{Other current liabilities} &11\\ \text{Inventories} &159& \text{Notes payable} &29\\ \text{Total current assets} &\$303 &\text{Total current liabilities} &\$ 85\\ &&\text{Long-term debt}& 50\\ &&\text{Total liabilities} &\$135\\ \text{Gross fixed assets} &225& \text{Common stock} &114\\ \text{Less depreciation}& 78 &\text{Retained earnings}& 201\\ \text{Net fixed assets} &\$147 &\text{Total stockholders’ equity}& \$315\\ \text{Total assets}& \$450 &\text{Total liabilities and equity} &\$450\\ \end{array}}$$

$$\small{ \begin{array}{lr} \textbf{Income Statement for Year Ended December 31, 2016 (Millions of Dollars)}\\ \text{Net sales}& \$795.0\\ \text{Cost of goods sold} &660.0\\ \text{Gross profit}& \$135.0\\ \text{Selling expenses} &73.5\\ \text{EBITDA}& \$ 61.5\\ \text{Depreciation expense}& 12.0\\ \text{Earnings before interest and taxes (EBIT)}& \$ 49.5\\ \text{Interest expense} &4.5\\ \text{Earnings before taxes (EBT)}& \$ 45.0\\ \text{Taxes (40\\\%)} &18.0\\ \text{Net income} &\$ 27.0\\ \end{array}}$$

Do the balance sheet accounts or the income statement figures seem to be primarily responsible for the low profits?

A firm has been experiencing low profitability in recent years. Perform an analysis of the firm's financial position using the DuPont equation. The firm has no lease payments but has a $\$ 2$ million sinking fund payment on its debt. The most recent industry average ratios and the firm's financial statements are as follows:

$$\small{ \begin{array}{lrlr} \textbf{Industry Average Ratios}\\ \text{Current ratio} &3\times &\text{Fixed assets turnover}& 6\times\\ \text{Debt-to-capital ratio}& 20\% &\text{Total assets turnover}& 3\times\\ \text{Times interest earned} &7\times &\text{Profit margin} &3\%\\ \text{EBITDA coverage} &9\times& \text{Return on total assets} &9\%\\ \text{Inventory turnover}& 10\times& \text{Return on common equity} &12.86\%\\ \text{Days sales outstanding}& 24\text{ days} &\text{days Return on invested capital}& 11.50\%\\ \end{array}}$$

$$\footnotesize{\text{Calculation is based on a 365-day year.}}$$

$$\small{ \begin{array}{lrlr} \textbf{Balance Sheet as of December 31, 2016 (Millions of Dollars)}\\ \text{Cash and equivalents} &\$ 78 &\text{Accounts payable}& \$ 45\\ \text{Accounts receivable} &66 &\text{Other current liabilities} &11\\ \text{Inventories} &159& \text{Notes payable} &29\\ \text{Total current assets} &\$303 &\text{Total current liabilities} &\$ 85\\ &&\text{Long-term debt}& 50\\ &&\text{Total liabilities} &\$135\\ \text{Gross fixed assets} &225& \text{Common stock} &114\\ \text{Less depreciation}& 78 &\text{Retained earnings}& 201\\ \text{Net fixed assets} &\$147 &\text{Total stockholders’ equity}& \$315\\ \text{Total assets}& \$450 &\text{Total liabilities and equity} &\$450\\ \end{array}}$$

$$\small{ \begin{array}{lr} \textbf{Income Statement for Year Ended December 31, 2016 (Millions of Dollars)}\\ \text{Net sales}& \$795.0\\ \text{Cost of goods sold} &660.0\\ \text{Gross profit}& \$135.0\\ \text{Selling expenses} &73.5\\ \text{EBITDA}& \$ 61.5\\ \text{Depreciation expense}& 12.0\\ \text{Earnings before interest and taxes (EBIT)}& \$ 49.5\\ \text{Interest expense} &4.5\\ \text{Earnings before taxes (EBT)}& \$ 45.0\\ \text{Taxes (40\\\%)} &18.0\\ \text{Net income} &\$ 27.0\\ \end{array}}$$

If the firm had a pronounced seasonal sales pattern or if it grew rapidly during the year, how might that affect the validity of your ratio analysis? How might you correct for such potential problems?

Ferrell Inc. recently reported net income of $8 million. It has 540,000 shares of common stock, which currently trades at$21 a share. Ferrell continues to expand and anticipates that 1 year from now, its net income will be $13.2 million. Over the next year, it also anticipates issuing an additional 81,000 shares of stock so that 1 year from now it will have 621,000 shares of common stock. Assuming Ferrell’s price/earnings ratio remains at its current level, what will be its stock price 1 year from now?

A firm has a profit margin of 3% and an equity multiplier of 1.9. Its sales are $150 million, and it has total assets of$60 million. What is its ROE?

Kaye’s Kitchenware has a market/book ratio equal to 1. Its stock price is $12 per share and it has 4.8 million shares outstanding. The firm’s total capital is$110 million and it finances with only debt and common equity. What is its debt-to-capital ratio?

Certain liability and net worth items generally increase spontaneously with increases in sales. Put a check mark next to those items that typically increase spontaneously.

$$\begin{matrix} \text{Accounts payable}\\ \text{Notes payable to banks}\\ \text{Accrued wages}\\ \text{Accrued taxes}\\ \text{Mortgage bonds}\\ \text{Common stock}\\ \text{Retained earnings}\\ \end{matrix}$$

Which of the following accounts would not appear on a balance sheet?

a. Service Revenue.
b. Salaries Payable
c. Unearned Revenue
d. Neither Service Revenue nor Unearned Revenue would appear on a balance sheet

For each set of data calculate (i) the range (ii) the interquartile range. a. 6 3 8 5 2 9 11 21 15 8 b. 5 3 6 8 9 12 10 9 8 13 16 12 9 11 8 c.

$$\begin{matrix} \text{Price of main course in euros} & \text{Frequency}\\ \text{18} & \text{6}\\ \text{19} & \text{4}\\ \text{20} & \text{5}\\ \text{21} & \text{8}\\ \text{22} & \text{3}\\ \text{23} & \text{2}\\ \text{24} & \text{5}\\ \text{25} & \text{4}\\ \end{matrix}$$

Explain what a chuck is and describe its characteristics.

Find the domain of each function.

$$f(x)=\left\{\begin{array}{ll}{\frac{1}{x}} & {\text { if } x<0} \\ {\sqrt[3]{x}} & {\text { if } x \geq 0}\end{array}\right.$$

The rate that a company must pay to obtain funds from creditors and stockholders is known as the:

a. hurdle rate

b. cost of capital

c. cutoff rate

d. all of these

The Stewart Company has $2,392,500 in current assets and$1,076,625 in current liabilities. Its initial inventory level is $526,350, and it will raise funds as additional notes payable and use them to increase inventory. How much can its short-term debt (notes payable) increase without pushing its current ratio below 2.0?

Which of the following statements is most correct? a. If a firm’s expected basic earning power (BEP) is constant for all of its assets and exceeds the interest rate on its debt, adding assets and financing them with debt will raise the firm’s expected return on common equity (ROE). b. The higher a firm’s tax rate, the lower its BEP ratio, other things held constant. c. The higher the interest rate on a firm’s debt, the lower its BEP ratio, other things held constant. d. The higher a firm’s debt ratio, the lower its BEP ratio, other things held constant. e. Statement a is false; but statements b, c, and d are true.