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	$ 206,000		Accounts payable	$606,300
Receivables	1,548,000		Notes payable	332,900
Inventories	1,184,000		Other current liabilities	547,000
Total current assets	$2,938,000		Total current liabilities	$1,486,200
Net fixed assets	1,345,000		Long-term debt	1,007,100
			Common equity	1,789,700
Total assets	$4,283,000		Total liabilities and equity	$4,283,000

Lozano Chip Company: Income Statement for Year Ended December 31, 2015 (Thousands of Dollars)

Sales	$7,859,000
Cost of goods sold	6,372,000
Selling, general, and administrative expenses	810,000
Earnings before interest and taxes (EBIT)	$ 677,000
Interest expense	98,000
Earnings before taxes (EBT)	$ 579,000
Federal and state income taxes (40%)	231,600
Net income	$ 347,400

1. 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.

2. 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.