The Finnerty Furniture Company, a manufacturer and wholesaler of high-quality home furnishings, has experienced low profitability in

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The Finnerty Furniture Company, a manufacturer and wholesaler of high-quality home furnishings, has experienced low profitability in recent years. As a result, the board of directors has replaced the president of the firm with a new president, Elizabeth Brannigan, who has asked you to make an analysis of the firm's financial position using the DuPont chart. The most recent industry average ratios and Finnerty's financial statements are as follows:

The Finnerty Furniture Company, a manufacturer and wholesaler of high-quality
The Finnerty Furniture Company, a manufacturer and wholesaler of high-quality

Finnerty Furniture Company:
Income Statement for Year Ended December 31, 2012 ($ million)
Net sales...................................................................$795.0
Cost of goods sold.......................................................(660.0)
Gross profit...............................................................$135.0
Selling expenses.........................................................( 73.5)
Depreciation expense....................................................( 12.0)
Earnings before interest and taxes (EBIT)............................$ 49.5
Interest expense............................................................( 4.5)
Earnings before taxes (EBT) ...........................................$ 45.0
Taxes (40%)...............................................................( 18.0)
Net income................................................................$ 27.0
a. Calculate those ratios that you think would be useful in this analysis.
b. Construct a DuPont equation for Finnerty 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 profit?
d. Which specific accounts seem to be most out of line compared with those of other firms in the industry?
e. If Finnerty 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?

Financial Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial...
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Principles of Finance

ISBN: 978-1111527365

5th edition

Authors: Scott Besley, Eugene F. Brigham

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