Problem $7-13($Comprehensive Ratio Analysis$)$

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Comprehensive Ratio Analysis

Data for Lozano Chip Company and its industry averages follow.

Lozano Chip Company: Balance Sheet as of December $31,2021$

$($Thousands of Dollars$)$

Lozano Chip Company: Income Statement for Year Ended December $31,$

$2021$

$($Thousands of Dollars$)$

Sales

Cost of goods sold

Selling, general, and administrative expenses

Earnings before interest and taxes $($EBIT$)$

Interest expense

Earnings before taxes $($EBT$)$

Federal and state income taxes $(25\%)$

Net income

a$.$ Calculate the indicated ratios for Lozano. Do not round intermediate calculations. Round your answers to two decimal places.

b$.$ Use the extended DuPont equation to calculate ROE for both Lozano and the industry. Do not round intermediate calculations. Round your

answers to two decimal places.

For the firm, ROE is $\%.$

For the industry, ROE is

c$.$ Outline Lozano's strengths and weaknesses as revealed by your analysis.

The firm's days sales outstanding is more than twice as long as the industry average, indicating that the firm should

$|$ credit or

enforce $a]$ stringent collection policy.

The total assets turnover ratio is well

$]$ the industry average so sales should be

$|,$ assets

$],$ or both.

While the company's profit margin is

$|$ than the industry average, its other profitability ratios are

$|$ compared to the industry