DuPONT ANALYSIS A firm The firm has firm\'s financial statements are as follows:
ID: 2819743 • Letter: D
Question
DuPONT ANALYSIS A firm The firm has firm's financial statements are as follows: has been experiencing low profitability in recent years. Perform an analysis of the firm's financial position using the DuPont equation. no lease payments but has a $3 million sinking fund payment on its debt. The most recent industry average ratios and the . Industry Average Ratios Current ratio Debt-to-capital ratio Times interest earned EBITDA coverage Inventory turnover Days sales outstanding -Calculation is based on a 365-day year 4.20x 18.31% 24.81x 19.35x 9.28x 26.22 days Fixed assets turnover Total assets turnover Profit margin Return on total assets Return on common equity Return on invested capital 5.57x 2.93x 10.52% 32.81% 43.58% 39.08%Explanation / Answer
As per rules I am answering the first 4 sub parts of the question
1: EBITDA coverage = EBITDA/Interest
= 100.8/2 = 50.4 times
This is much higher than industry average implying greater solvency.
2: Inventory turnover= Cost of goods sold/ Inventory
= 273/86 =3.17 times
This is lower than industry average and shows that the company is slower than expected in its sales.
3: Days sales outstanding= Receivables*365/ Sales
= 38*365/420 = 33.02 days
This is higher than the industry average implying lack of efficiency in collection of receivables
4: Fixed asset turnover= Sales/ Fixed assets
= 420/83 = 5.06
This is lower than industry average which means that the company is overinvested in fixed assets and they are not generating enough revenue as they should.