Question No. 1

Explain what is du-pont analysis in detail? Where is it used and why is it considered useful?

Question No. 2

The financial statements of Sharif Industries for the year ended December 31, 2018 follow.

Income statement

Sharif Industries

For the year ended December 31, 2018

Sales revenue

Rs. 160,000

Less: cost of goods sold

106,000

Gross profit

54000

Less: operating expenses

Selling expenses

16,000

General and administrative expenses

11,000

Depreciation expense

10,000

Total operating expenses

37,000

Operating profits

17,000

Less: interest expense

6,100

Net profit before taxes

10,900

Less: taxes (40%)

?

Net profit after taxes

??

Balance Sheet

Sharif Industries

December 31, 2018

Assets

Cash

Rs. 500

Marketable securities

1,000

Accounts receivables

25,000

Inventories

45,500

Total current assets

?

Land

26,000

Buildings and equipment

90,000

Less: accumulated depreciation

38,000

Net fixed assets

?

Total assets

??

Liabilities and stockholders' equity

Accounts payable

Rs. 22,000

Notes payable

47,000

Total current liabilities

?

Long-term loan

22,950

Common stock

31,500

Retained earnings

?

Total liabilities and stockholders' equity

150,000

1. Use the preceding financial statements to complete the following table. Assume that the industry averages given in the table are applicable for both 2017 and 2018.
2. Analyze Sharif Industries' financial condition as it relates to (1) liquidity, (2) activity, (3) debt, and (4) profitability. Summarize the company's overall financial condition.

Table A

Ratio

Industry average

Actual 2017

Actual 2018

Current ratio

1.80

1.84

Quick ratio

0.70

0.78

Inventory turnover

2.50

2.59

Average collection period(#)

37 days

36 days

Debt ratio

65%

67%

Times interest earned ratio

3.8

4.0

Gross profit margin

38%

40%

Net profit margin

3.5%

3.6%

Return on total assets

4.0%

4.0%

Return on equity

9.5%

8.0%

# Based on a 360-day year and on end-of-year figures.

Question No.3

Sharif Manufacturing has sales of Rs. 4 million and a gross profit margin of 40 percent. Its end-of-quarter inventories are as follows:

Quarter

Inventory

1

Rs. 400,000

2

800.000

3

1,200,000

4

200,000

1. Find the average quarterly inventory and use it to calculate the firm's inventory turnover and the average age of inventory.
2. Assuming that the company is an industry with an average inventory turnover of 2.0, how would you evaluate the activity of Sharifs' Manufacturing?