Transcribed Image Text
Analysis of Financial Statements: Tying the RatiosTogetherThe DuPont equation shows the relationships among assetmanagement, debt management, and-Select-liquiditymarketprofitabilityCorrect 1 of Item1 ratios. Management can use the DuPont equation toanalyze ways of improving the firm's performance.Ratio analysis is important to understand and interpretfinancial statements; however, sound financial analysis involvesmore than just calculating and interpreting numbers.-Select-QuantitativeQualitativeForeignCorrect 2 of Item1 factors also need to be considered.Quantitative Problem: Rosnan Industries' 2018and 2017 balance sheets and income statements are shown below.Balance Sheets:20182017Cash and equivalents$80 $65 Accounts receivable275 300 Inventories375 350 Total current assets$730 $715 Net plant and equipment2,000 1,490 Total assets$2,730 $2,205 Accounts payable$150 $85 Accruals75 50 Notes payable130 155 Total currentliabilities$355 $290 Long-term debt450 290 Common stock1,225 1,225 Retained earnings700 400 Total liabilities and equity$2,730 $2,205 Income Statements:20182017Sales$2,000 $1,500 Operating costs excluding depreciation1,250 1,000 EBITDA$750 $500 Depreciation and amortization100 75 EBIT$650 $425 Interest62 45 EBT$588 $380 Taxes (40%)235 152 Net income$353 $228 Dividends paid$53 $48 Addition to retained earnings$300 $180 Shares outstanding100 100 Price$25.00 $22.50 WACC10.00% What is the firm’s 2018 current ratio? Round your answer to twodecimal places.If the industry average debt-to-total-assets ratio is 30%, thenRosnan’s creditors have a -Select-smallerbiggerCorrect 1 of Item3 cushion than indicated by the industry average.What is the firm’s 2018 net profit margin? Round your answer tofour decimal places.%If the industry average profit margin is 12%, then Rosnan’slower than average debt-to-total-assets ratio might be one reasonfor its high profit margin.-Select-TrueFalseCorrect 1 of Item 4What is the firm’s 2018 price/earnings ratio? Round your answerto two decimal places.Using the DuPont equation, what is the firm’s 2018 ROE? Roundyour answer to two decimal places.%