Problem 7-13

Comprehensive Ratio Analysis Data for Lozano Chip Company and its industry averages follow. Lozano Chip Company: Balance Sheet as of December 31, 2015 (Thousands of Dollars) Cash $ 286000 Accounts payable $613900 Receivables 1525000 Notes payable 334000 Inventories 1104000 Other current liabilities 532000 Total current assets $2915000 Total current liabilities $1479900 Net fixed assets 1318000 Long-term debt 1000700 Common equity 1752400 Total assets $4233000 Total liabilities and equity $4233000

Take home_CH7 FSA

Lozano Chip Company: Income Statement for Year Ended December 31, 2015 (Thousands of Dollars) Sales $7688000 Cost of goods sold 6040000 Selling, general, and administrative expenses 803000 Earnings before interest and taxes (EBIT) $ 845000 Interest expense 93900 Earnings before taxes (EBT) $ 751100 Federal and state income taxes (40%) 300440 Net income $ 450660 a. Calculate the indicated ratios for Lozano. Round your answers to two decimal places. Do not round intermediate calculations. Ratio Lozano Industry Average Current assets/Current liabilities ________ 2.0 Days sales outstanding* ________ days 35.0 days COGS/Inventory ________ 6.7 Sales/Fixed assets ________ 12.1 Sales/Total assets ________ 3.0 Net income/Sales ________ % 1.2% Net income/Total assets ________ % 3.6% Net income/Common equity ________ % 9.0% Total debt/Total assets ________ % 30.0% Total liabilities/Total assets ________ % 60.0% *Calculation is based on a 365-day year.

b. Construct the extended DuPont equation for both Lozano and the industry. Round your answers to two decimal places. Do not round intermediate calculations. For the firm, ROE is ________ % For the industry, ROE is ________ %

c. Outline Lozano's strengths and weaknesses as revealed by your analysis. The input in the box below will not be graded, but may be reviewed and considered by