Balance Sheet Data Income Statement Data Cash $900,000 Accounts payable $1,080,000 Sales $18,000,000 Accounts receivable 1,800,000 Accruals 360,000 Cost of goods sold 10,800,000 Inventory 2,700,000 Notes payable 1,440,000 Gross profit 7,200,000 Current assets 5,400,000 Current liabilities 2,880,000 Operating expenses 4,500,000 Long-term debt 5,310,000 EBIT 2,700,000 Total liabilities 8,190,000 Interest expense 810,000 Common stock 1,102,500 EBT 1,890,000 Net fixed assets 7,200,000 Retained earnings 3,307,500 Taxes 472,500 Total equity 4,410,000 Net income $1,417,500 Total assets $12,600,000 Total debt and equity $12,600,000 Now, let’s see your notes with your ratios, and then we can talk about possible strategies that will improve the ratios. I’m going to check the box to the side of your calculated value if your calculation is correct and leave it unchecked if your calculation is incorrect. Pavo Media Systems Inc. DuPont Analysis Ratios Value Correct/Incorrect Ratios Value Correct/Incorrect Profitability ratios Asset management ratio Gross profit margin (%) 40.00 Total assets turnover 1.43 Operating profit margin (%) 10.50 Net profit margin (%) 11.25 Financial ratios Return on equity (%) 24.77 Equity multiplier 1.54 ASHLEY: OK, it looks like I’ve got a couple of incorrect values, so show me your calculations, and then we can talk strategies for improvement. YOU: I’ve just made rough calculations, so let me complete this table by inputting the components of each ratio and its value: Do not round intermediate calculations and round your final answers up to two decimals. Pavo Media Systems Inc. DuPont Analysis Ratios Calculation Value Profitability ratios Numerator Denominator Gross profit margin (%) / = Operating profit margin (%) / = Net profit margin (%) / = Return on equity (%) / = Asset management ratio Total assets turnover / = Financial ratios Equity multiplier / = Check all that apply. A. Use more equity financing in its capital structure, which will increase the equity multiplier. B. Increase the firm’s bottom-line profitability for the same volume of sales, which will increase the company’s net profit margin. C. Decrease the company’s use of debt capital because it will decrease the equity multiplier. D. Use more debt financing in its capital structure and increase the equity multiplier.

Balance Sheet Data Income Statement Data Cash $900,000 Accounts payable $1,080,000 Sales $18,000,000 Accounts receivable 1,800,000 Accruals 360,000 Cost of goods sold 10,800,000 Inventory 2,700,000 Notes payable 1,440,000 Gross profit 7,200,000 Current assets 5,400,000 Current liabilities 2,880,000 Operating expenses 4,500,000 Long-term debt 5,310,000 EBIT 2,700,000 Total liabilities 8,190,000 Interest expense 810,000 Common stock 1,102,500 EBT 1,890,000 Net fixed assets 7,200,000 Retained earnings 3,307,500 Taxes 472,500 Total equity 4,410,000 Net income $1,417,500 Total assets $12,600,000 Total debt and equity $12,600,000 Now, let’s see your notes with your ratios, and then we can talk about possible strategies that will improve the ratios. I’m going to check the box to the side of your calculated value if your calculation is correct and leave it unchecked if your calculation is incorrect. Pavo Media Systems Inc. DuPont Analysis Ratios Value Correct/Incorrect Ratios Value Correct/Incorrect Profitability ratios Asset management ratio Gross profit margin (%) 40.00 Total assets turnover 1.43 Operating profit margin (%) 10.50 Net profit margin (%) 11.25 Financial ratios Return on equity (%) 24.77 Equity multiplier 1.54 ASHLEY: OK, it looks like I’ve got a couple of incorrect values, so show me your calculations, and then we can talk strategies for improvement. YOU: I’ve just made rough calculations, so let me complete this table by inputting the components of each ratio and its value: Do not round intermediate calculations and round your final answers up to two decimals. Pavo Media Systems Inc. DuPont Analysis Ratios Calculation Value Profitability ratios Numerator Denominator Gross profit margin (%) / = Operating profit margin (%) / = Net profit margin (%) / = Return on equity (%) / = Asset management ratio Total assets turnover / = Financial ratios Equity multiplier / = Check all that apply. A. Use more equity financing in its capital structure, which will increase the equity multiplier. B. Increase the firm’s bottom-line profitability for the same volume of sales, which will increase the company’s net profit margin. C. Decrease the company’s use of debt capital because it will decrease the equity multiplier. D. Use more debt financing in its capital structure and increase the equity multiplier.

Survey of Accounting (Accounting I)

8th Edition

ISBN:9781305961883

Author:Carl Warren

Publisher:Carl Warren

Chapter15: Capital Investment Analysis

Section: Chapter Questions

Problem 15.5.1MBA

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Question

Balance Sheet Data	Income Statement Data
Cash	$900,000	Accounts payable	$1,080,000	Sales	$18,000,000
Accounts receivable	1,800,000	Accruals	360,000	Cost of goods sold	10,800,000
Inventory	2,700,000	Notes payable	1,440,000	Gross profit	7,200,000
Current assets	5,400,000	Current liabilities	2,880,000	Operating expenses	4,500,000
		Long-term debt	5,310,000	EBIT	2,700,000
		Total liabilities	8,190,000	Interest expense	810,000
		Common stock	1,102,500	EBT	1,890,000
Net fixed assets	7,200,000	Retained earnings	3,307,500	Taxes	472,500
		Total equity	4,410,000	Net income	$1,417,500
Total assets	$12,600,000	Total debt and equity	$12,600,000

Now, let’s see your notes with your ratios, and then we can talk about possible strategies that will improve the ratios. I’m going to check the box to the side of your calculated value if your calculation is correct and leave it unchecked if your calculation is incorrect.

Pavo Media Systems Inc. DuPont Analysis

Ratios	Value	Ratios	Value
Profitability ratios		Asset management ratio
Gross profit margin (%)	40.00	Total assets turnover	1.43
Operating profit margin (%)	10.50
Net profit margin (%)	11.25	Financial ratios
Return on equity (%)	24.77	Equity multiplier	1.54

ASHLEY: OK, it looks like I’ve got a couple of incorrect values, so show me your calculations, and then we can talk strategies for improvement.

YOU: I’ve just made rough calculations, so let me complete this table by inputting the components of each ratio and its value:

Do not round intermediate calculations and round your final answers up to two decimals.

Pavo Media Systems Inc. DuPont Analysis

Ratios	Calculation		Value
Profitability ratios	Numerator		Denominator
Gross profit margin (%)		/		=
Operating profit margin (%)		/		=
Net profit margin (%)		/		=
Return on equity (%)		/		=
Asset management ratio
Total assets turnover		/		=
Financial ratios
Equity multiplier		/		=

Check all that apply.

A. Use more equity financing in its capital structure, which will increase the equity multiplier.

B. Increase the firm’s bottom-line profitability for the same volume of sales, which will increase the company’s net profit margin.

C. Decrease the company’s use of debt capital because it will decrease the equity multiplier.

D. Use more debt financing in its capital structure and increase the equity multiplier.

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