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Financial ratio analysis is conducted by mangers, equity investors, long term creditors, and short-term creditors.  What is the primary emphasis of each of these groups in evaluating ratios?

Over the past year, M.D. Ryngaert & Co. has realized an increase in its current ratio and a drop in its total assets turnover ratio. However, the company’s sales, quick ratio, and fixed assets turnover ratio have remained constant.  What explains these changes?

Data for Lozano Chip Company and its industry averages follow.

A.  Calculate the indicated ratios for Lozano.

B.  Construct the extended Du Pont equation for both Lozano and the industry.

C.  Outline Lozano’s strengths and weaknesses as revealed by you analysis.

Lozano Chip Company: Balance Sheet as of December 31, 2013 (thousands of dollars)

Cash  $ 225,000  Accounts Payable   $601,866

Receivables    1,575,000  Notes payable    326,634

Inventories  1,125,000  Other current liabilities    525,000

  Total current assets  $2,950,000  Total current liabilities  $1,453,500

Net fixed assets    1,350,000  Long term debt    1,068,750

  __________  Common equity    1,752,750

Total assets  $4,275,000  Total liabilities and equity  $4,275,000

Lozano Chip Company: Income Statement for Year ended December 31, 2013 (thousands of dollars)

Sales  $  7,500,000

Cost of goods sold    6,375.000

Selling, general, and administrative expenses     825,000

  Earnings before interest and taxes (EBIT)  $  300,000

Interest expense      111,631

  Earnings before taxes (EBT)  $  188,369

Federal and state income axes (%40)    75,348

Net income  $  113,022

Ratio  Lozano    Industry Average

Current Assets/Current Liabilities          2.0

Days sales outstanding (365-day year)      35.0 Days

COGS/Inventory        6.7

Sales/Fixed assets        12.1

Sales/Total Assets        3.0

Net income/Sales        1.2%

Net income/Total assets        3.6%

Net income/Common Equity        9.0%

Total debt/Total assets        30.0%

Total liabilities/Total assets        60.0%

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