The focus is analyzing financial ratios. I need to use DuPont analysis, liquid r

Question

The focus is analyzing financial ratios. I need to use DuPont analysis, liquid ratio, quick ratio, & cash ratio.

I then need to explain what problems are found by ratios and present a solution.

Actuals Fiscal Year End Balance Sheet 2014 2015 2016 2017 (millions, except footnotes) Assets Cash and cash equivalents Receivables Inventory Other current assets Total current assets $685 2,461 2.872 3,120 701 6,967 $714 3,280 4,800 838 4,000 6,400 $600 2,786 744 844 71 6,970 9,538 12,082 Fixed Assets Real Estate, Buildings, and Improvements Fixtures and equipment Total Fixed Assets 8,235 6,984 8,377 8,641 2,927 9911 11.566 11,81211.316 3,172 $16,881 $18,532 $21,350 $23.398 Total Assets Liabilities and shareholders investment Accounts payable Other current liabilities Short term borrowings Total current liabilities 2,404 2,650 2,902 2,983 1,338 1,330 129 1,592 1,248 318 1,876 3,971 4,110 ,33 6,197 4,967 5,843 6,124 6,479 Unsecured debt and other borrowings Other noncurrent liabilities Total noncurrent liabilities 1,130 6,064 6,859 7,292 7,609 10,034 10,969 12,624 13,806 1,096 10161168 1130 Total Liabilities Shareholders' investment Common stock and paid in capital Retained earnings Total shareholders' investment 2,068 1,324 1,320 1,336 8,256 4,779 6,239 7,406 6,846 7,564 8,726 9,592 $16,881 $18,532 $21,350 $23,398 Total Liabilities and Equity

Explanation / Answer

DuPont analysis:

RoE=Net profit margin*Sales turnover*Financial multiplier

0.19=0.05*1.56*2.5

We see that this is a company with high leverage ratio, low profit margin and low asset turnover indicating inefficient or under utilization of assets

So, the profitability can be improved by increasing profit margin (may be lowering discounts or increasing price through better positioning of product) and efficiently utilizing the assets

As the quick ratio is 0.86, it is considered low and the company is able to settle only 86% of the debts instantaneously but it might also happen because of fast moving inventory

As the Cash ratio is 0.1, it is very low and company would need a lot more than just cash reserves for paying off current debt.

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