Analysis of Financial Statements: Tying the Ratios Together The DuPont equation shows the relationships among asset management, debt management, and profitability ratios. Management can use the DuPont equation to analyze ways of improving the firm's performance. Its equation is: ROE Profit margin Total assets turnover Equity multiplier Ratio analysis is important to understand and interpret financial statements; however, sound financial analysis involves more than just calculating and interpreting numbers. Qualitative Quantitative Problem: Rosnan Industries' 2018 and 2017 balance sheets and income statements are shown below. Balance Sheets: 2018 2017 Assets Cash and equivalents $80 $65 Accounts receivable Inventories 275 300 375 350 Total current assets $730 $715 Net plant and equipment 2,000 1,490 Total assets $2,730 $2,205 Liabilities and Equity Accounts payable $150 $85 Accruals 75 50 Notes payable 130 155 Total current liabilities $355 $290 Long-term debt 450 290 Total liabilities $805 $580 Common stock 1,225 1,225 Retained earnings 700 400 Total common equity $1,925 $1,625 Total liabilities and equity $2,730 $2,205 factors also need to be considered. Income Statements: 2018 2017 Sales Operating costs excluding depreciation EBITDA Depreciation and amortization $2,000 $1,500 1,250 1,000 $750 $500 100 75 EBIT $650 $425 Interest EBT 62 45 $588 $380 Taxes (40%) 235 152 Net income $353 $228 Dividends paid $53 $48 Addition to retained earnings $300 $180 Shares outstanding Price WACC 100 100 $25.00 $22.50 10.00% What is the firm's 2018 current ratio? Do not round intermediate calculations. Round your answer to two decimal places. 2.06 If the industry average debt-to-assets ratio is 30%, then Rosnan's creditors have a bigger cushion than indicated by the industry average. What is the firm's 2018 net profit margin? Do not round intermediate calculations. Round your answer to four decimal places. 17.65 % If the industry average profit margin is 12%, then Rosnan's lower than average debt-to-assets ratio might be one reason for its high profit margin. True What is the firm's 2018 price/earnings ratio? Do not round intermediate calculations. Round your answer to two decimal places. 9.92 Using the DuPont equation, what is the firm's 2018 ROE? Do not round intermediate calculations. Round your answer to two decimal places. 12.61 %