Construct an extended du pont equation

Question

A firm has been experiencing low profitability in recent years. Perform an analysis of the firm's financial position using the extended Du Pont equation. The firm has no lease payments, but has a $3 million sinking fund payment on its debt. The most recent industry average ratios and the firm's financial statements are as follows:

	Industry Average Ratios
Current ratio	3.95x		Fixed assets turnover	4.69x
Debt/total assets	32.40%		Total assets turnover	2.29x
Times interest earned	18.09x		Profit margin on sales	4.31%
EBITDA coverage	15.15x		Return on total assets	9.88%
Inventory turnover	10.96x		Return on common equity	14.61%
Days sales outstandinga	35days

^aCalculation is based on a 365-day year.

Balance Sheet as of December 31, 2012 (Millions of Dollars)
Cash and equivalents	$97		Accounts payable	$68
Net receivables	68		Notes payable	51
Inventories	182		Other current liabilities	11
Total current assets	$347		Total current liabilities	$130
			Long-term debt	29
			Total liabilities	$159
Gross fixed assets	302		Common stock	154
Less depreciation	79		Retained earnings	257
Net fixed assets	$223		Total stockholders' equity	$411
Total assets	$570		Total liabilities and equity	$570

Income Statement for Year Ended December 31, 2012 (Millions of Dollars)
Net sales	$950.0
Cost of goods sold	731.5
Gross profit	$218.5
Selling expenses	104.5
EBITDA	$114.0
Depreciation expense	16.2
Earnings before interest and taxes (EBIT)	$97.8
Interest expense	4.0
Earnings before taxes (EBT)	$93.8
Taxes (40%)	37.5
Net income	$56.3

1. Calculate those ratios that you think would be useful in this analysis. Do not round intermediate steps. Round your answers to two decimal places.

   	Firm	Industry Average
   Current ratio	x	3.95x
   Debt to total assets	%	32.40%
   Times interest earned	x	18.09x
   EBITDA coverage	x	15.15x
   Inventory turnover	x	10.96x
   DSO	days	35days
   F.A. turnover	x	4.69x
   T.A. turnover	x	2.29x
   Profit margin	%	4.31%
   Return on total assets	%	9.88%
   Return on common equity	%	14.61%

2. Construct an extended Du Pont equation, and compare the company's ratios to the industry average ratios. Do not round intermediate steps. Round your answers to two decimal places.

   	Firm	Industry
   Profit margin	%	4.31%
   Total assets turnover	x	2.29x
   Equity multiplier