Tying the Ratios Together
The DuPont equation shows the relationships among asset management, debt management, and
-Select-liquiditymarketprofitabilityCorrect 1 of Item 1 ratios. Management can use the DuPont equation to analyze ways of improving the firm's performance. Its equation is:
Ratio analysis is important to understand and interpret financial statements; however, sound financial analysis involves more than just calculating and interpreting numbers. -Select-QuantitativeQualitativeForeignCorrect 2 of Item 1 factors also need to be considered.
Quantitative Problem: Rosnan Industries' 2014 and 2013 balance sheets and income statements are shown below.
Balance Sheets: 2014 2013 Cash and equivalents $60 $45 Accounts receivable 275 300 Inventories 375 350 Total current assets $710 $695 Net plant and equipment 2,000 1,490 Total assets $2,710 $2,185 Accounts payable $150 $85 Accruals 75 50 Notes payable 110 135 Total current liabilities $335 $270 Long-term debt 450 290 Common stock 1,225 1,225 Retained earnings 700 400 Total liabilities and equity $2,710 $2,185
Income Statements: 2014 2013 Sales $2,000 $1,500 Operating costs excluding depreciation 1,250 1,000 EBITDA $750 $500 Depreciation and amortization 100 75 EBIT $650 $425 Interest 62 45 EBT $588 $380 Taxes (40%) 235 152 Net income $353 $228 Dividends paid $53 $48 Addition to retained earnings $300 $180 Shares outstanding 100 100 Price $25.00 $22.50 WACC 10.00%
What is the firmâs 2014 current ratio? Round your answer to two decimal places.
The 2014 current ratio indicates that Rosnan has -Select-insufficientsufficientCorrect 1 of Item 3 current assets to meet its current obligations as they come due.
What is the firmâs 2014 total assets turnover ratio? Round your answer to four decimal places.
Given the 2014 current and total assets turnover ratios calculated above, if Rosnanâs 2014 quick ratio is 1.0 then an analyst might conclude that Rosnanâs fixed assets are managed -Select-efficientlyinefficientlyCorrect 1 of Item 4.
What is the firmâs 2014 debt-to-capital ratio? Round your answer to two decimal places.
%
If the industry average debt-to-capital ratio is 30%, then Rosnanâs creditors have a -Select-smallerbiggerCorrect 1 of Item 5 cushion than indicated by the industry average.
What is the firmâs 2014 profit margin? Round your answer to two decimal places.
%
If the industry average profit margin is 12%, then Rosnanâs lower than average debt-to-capital ratio might be one reason for its high profit margin.
-Select-TrueFalseCorrect 1 of Item 6
What is the firmâs 2014 price/earnings ratio? Round your answer to two decimal places.
Using the DuPont equation, what is the firmâs 2014 ROE? Round your answer to two decimal places.
%
Tying the Ratios Together
The DuPont equation shows the relationships among asset management, debt management, and
-Select-liquiditymarketprofitabilityCorrect 1 of Item 1 ratios. Management can use the DuPont equation to analyze ways of improving the firm's performance. Its equation is:
Ratio analysis is important to understand and interpret financial statements; however, sound financial analysis involves more than just calculating and interpreting numbers. -Select-QuantitativeQualitativeForeignCorrect 2 of Item 1 factors also need to be considered.
Quantitative Problem: Rosnan Industries' 2014 and 2013 balance sheets and income statements are shown below.
| Balance Sheets: | |||
| 2014 | 2013 | ||
| Cash and equivalents | $60 | $45 | |
| Accounts receivable | 275 | 300 | |
| Inventories | 375 | 350 | |
| Total current assets | $710 | $695 | |
| Net plant and equipment | 2,000 | 1,490 | |
| Total assets | $2,710 | $2,185 | |
| Accounts payable | $150 | $85 | |
| Accruals | 75 | 50 | |
| Notes payable | 110 | 135 | |
| Total current liabilities | $335 | $270 | |
| Long-term debt | 450 | 290 | |
| Common stock | 1,225 | 1,225 | |
| Retained earnings | 700 | 400 | |
| Total liabilities and equity | $2,710 | $2,185 | |
| Income Statements: | |||
| 2014 | 2013 | ||
| Sales | $2,000 | $1,500 | |
| Operating costs excluding depreciation | 1,250 | 1,000 | |
| EBITDA | $750 | $500 | |
| Depreciation and amortization | 100 | 75 | |
| EBIT | $650 | $425 | |
| Interest | 62 | 45 | |
| EBT | $588 | $380 | |
| Taxes (40%) | 235 | 152 | |
| Net income | $353 | $228 | |
| Dividends paid | $53 | $48 | |
| Addition to retained earnings | $300 | $180 | |
| Shares outstanding | 100 | 100 | |
| Price | $25.00 | $22.50 | |
| WACC | 10.00% | ||
What is the firmâs 2014 current ratio? Round your answer to two decimal places.
The 2014 current ratio indicates that Rosnan has -Select-insufficientsufficientCorrect 1 of Item 3 current assets to meet its current obligations as they come due.
What is the firmâs 2014 total assets turnover ratio? Round your answer to four decimal places.
Given the 2014 current and total assets turnover ratios calculated above, if Rosnanâs 2014 quick ratio is 1.0 then an analyst might conclude that Rosnanâs fixed assets are managed -Select-efficientlyinefficientlyCorrect 1 of Item 4.
What is the firmâs 2014 debt-to-capital ratio? Round your answer to two decimal places.
%
If the industry average debt-to-capital ratio is 30%, then Rosnanâs creditors have a -Select-smallerbiggerCorrect 1 of Item 5 cushion than indicated by the industry average.
What is the firmâs 2014 profit margin? Round your answer to two decimal places.
%
If the industry average profit margin is 12%, then Rosnanâs lower than average debt-to-capital ratio might be one reason for its high profit margin.
-Select-TrueFalseCorrect 1 of Item 6
What is the firmâs 2014 price/earnings ratio? Round your answer to two decimal places.
Using the DuPont equation, what is the firmâs 2014 ROE? Round your answer to two decimal places.
%
Related questions
Debt Management Ratios
Financial statements for Remington Inc. follow.
| RemingtonInc. | |||||
| ConsolidatedStatements of Income | |||||
| (In thousands exceptper share amounts) | |||||
| 2013 | 2012 | 2011 | |||
| Net sales | $ 7,245,088 | $ 6,944,296 | $ 6,149,218 | ||
| Cost of goods sold | (5,286,253) | (4,953,556) | (4,355,675) | ||
| Gross margin | $ 1,958,835 | $ 1,990,740 | $ 1,793,543 | ||
| General and administrativeexpenses | (1,259,896) | (1,202,042) | (1,080,843) | ||
| Special and nonrecurring items | 2,617 | - | - | ||
| Operating income | $ 701,556 | $ 788,698 | $ 712,700 | ||
| Interest expense | (63,685) | (62,398) | (63,927) | ||
| Other income | 7,308 | 10,080 | 11,529 | ||
| Gain on sale of investments | - | 9,117 | - | ||
| Income before income taxes | $ 645,179 | $ 745,497 | $ 660,302 | ||
| Provision for income taxes | 254,000 | 290,000 | 257,000 | ||
| Net income | $ 391,179 | $ 455,497 | $ 403,302 | ||
| Net income per share | $1.08 | $1.25 | $1.11 | ||
| RemingtonInc. | ||||||
| ConsolidatedBalance Sheets | ||||||
| (In thousands) | ||||||
| ASSETS | Dec. 31,2013 | Dec. 31,2012 | ||||
| Current assets: | ||||||
| Cashand equivalents | $ 320,558 | $ 41,235 | ||||
| Accounts receivable | 1,056,911 | 837,377 | ||||
| Inventories | 733,700 | 803,707 | ||||
| Other | 109,456 | 101,811 | ||||
| Total current assets | $2,220,625 | $1,784,130 | ||||
| Property and equipment, net | 1,666,588 | 1,813,948 | ||||
| Other assets | 205,342 | 248,372 | ||||
| Total assets | $4,092,555 | $3,846,450 | ||||
| LIABILITIES ANDSTOCKHOLDERS' EQUITY | ||||||
| Currentliabilities: | ||||||
| Accounts payable | $ 250,363 | $ 309,092 | ||||
| Accrued expenses | 347,892 | 274,220 | ||||
| Other current liabilities | 15,700 | - | ||||
| Income taxes | 93,489 | 137,466 | ||||
| Total current liabilities | $ 707,444 | $ 720,778 | ||||
| Long-term debt | $ 650,000 | $ 541,639 | ||||
| Deferred income taxes | 275,101 | 274,844 | ||||
| Other long-term liabilities | 61,267 | 41,572 | ||||
| Total liabilities | $1,693,812 | $1,578,833 | ||||
| Stockholders'equity: | ||||||
| Common and preferred stock | $ 189,727 | $ 189,727 | ||||
| Additional paid-in capital | 128,906 | 127,776 | ||||
| Retained earnings | 2,397,112 | 2,136,794 | ||||
| $2,715,745 | $2,454,297 | |||||
| Less: Treasury stock, at cost | (317,002) | (186,680) | ||||
| Total stockholders' equity | 2,398,743 | $2,267,617 | ||||
| Total liabilities and stockholders'equity | 4,092,555 | $3,846,450 | ||||
Required:
Using Remington's financial statements as shown above, respondto the following requirements.
1. Compute the five debt management ratios for2012 and 2013. Round your answers to two decimal places.
| 2013 | 2012 | |
| Times interest earned | ||
| Debt to equity ratio | ||
| Debt to total assets ratio | ||
| Long-term debt to equity ratio | ||
| Long-term debt to total assetsratio |
2. Conceptual Connection: Indicate whether theratios have changed significantly from 2012 to 2013.
Select All the ratios decreased,Times interest earned ratiodecreased, other ratios did not change by much., Debt to equityratio decreased, other ratios did not change by much., Debt tototal assets ratio decreased, other ratios did not change by much,Long-term-debt to equity ratio decreased, other ratios did notchange by much, Long-term-debt to total assets ratio decreased,other ratios did not change by much.
B. Do the ratios suggest that Remington is more or less riskyfor long-term creditors at December 31, 2013, than at December 31,2012? Explain.
SelectMore risky for long-term creditors Less risky forlong-term creditors
I need 5 Finanical Ratio's and benchmarks see list below forAllscript Health Solutions finiacial data included An excelspreadsheet showing calculations for a minimum of 30 ratios and anindustry benchmark, and a dashboard (1 page graphicalrepresentation of 5 ratios). The analysis will include at leastthree recommendations on specific action that can be taken by theorganization to improve financial performance.
| CONSOLIDATED BALANCE SHEETS -USD ($) $ in Thousands | Dec. 31, 2015 | Dec. 31, 2014 | Dec.31,2013 |
| Current assets: | |||
| Cash and cash equivalents | $ 116,873 | $ 53,173 | $62,954 |
| Accounts receivable, net ofallowance of $31,266 and $36,047 as of December 31, 2015 and 2014,respectively | 327,851 | 331,625 | 313,486 |
| Prepaid expenses and othercurrent assets | 93,622 | 102,392 | 107,911 |
| Total current assets | 538,346 | 487,190 | 539,819 |
| Long-term marketablesecurities | 0 | 1,305 | 1,329 |
| Fixed assets, net | 125,617 | 145,830 | 174,013 |
| Software development costs,net | 85,775 | 86,153 | 88,244 |
| Intangible assets, net | 347,646 | 403,362 | 455,971 |
| Goodwill | 1,222,601 | 1,200,746 | 1,189,585 |
| Deferred taxes, net | 2,298 | 1,984 | 7,361 |
| Other assets | 359,665 | 137,760 | 163,341 |
| Total assets | 2,681,948 | 2,464,330 | 2,619,662 |
| Current liabilities: | |||
| Accounts payable | 60,004 | 70,824 | 72,956 |
| Accrued expenses | 62,021 | 78,967 | 96,499 |
| Accrued compensation andbenefits | 62,398 | 51,062 | 80,196 |
| Deferred revenue | 315,925 | 293,022 | 251,038 |
| Current maturities oflong-term debt and capital lease obligations | 12,609 | 27,498 | 16,350 |
| Total current liabilities | 512,957 | 521,373 | 517,039 |
| Long-term debt | 612,405 | 539,193 | 545,133 |
| Deferred revenue | 20,273 | 23,168 | 29,080 |
| Deferred taxes, net | 22,164 | 21,119 | 79,694 |
| Other liabilities | 95,076 | 75,257 | 130,572 |
| Total liabilities | $ 1,262,875 | $ 1,180,110 | $1,301,518 |
| Commitments andcontingencies | |||
| Stockholdersâ equity: | |||
| Preferred stock: $0.01 parvalue, 1,000 shares authorized, no shares issued and outstanding asof December 31, 2015 and 2014 | $ 0 | $ 0 | $0 |
| Common stock: $0.01 par value,349,000 shares authorized as of December 31, 2015 and 2014; 266,545and 189,308 shares issued and outstanding as of December 31, 2015,respectively; 265,138 and 180,466 shares issued and outstanding asof December 31, 2014, respectively | 2,665 | 2,651 | 2635 |
| Treasury stock: at cost,77,237 and 84,672 shares as of December 31, 2015 and 2014,respectively | (189,753) | (278,036) | -278,036 |
| Additional paid-incapital | 1,789,449 | 1,749,593 | 1,716,847 |
| Accumulated deficit | (190,235) | (188,009) | -121556 |
| Accumulated othercomprehensive loss | (4,242) | (1,979) | -1745 |
| Total Allscripts HealthcareSolutions, Inc.'s stockholders' equity | 1,407,884 | 1,284,220 | 1,318,145 |
| Non-controlling interest | 11,189 | 0 | 0 |
| Total stockholders'equity | 1,419,073 | 1,284,220 | 1,318,145 |
| Total liabilities andstockholders' equity | $ 2,681,948 | $ 2,464,330 | 2,619,663 |
| CONSOLIDATEDSTATEMENTS OF OPERATIONS - USD ($) $ in Thousands | 12 Months Ended | ||
| Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 | |
| Revenue: | |||
| Software delivery, support andmaintenance | $ 918,430 | $ 907,343 | $ 918,686 |
| Client services | 467,963 | 470,530 | 454,375 |
| Total revenue | 1,386,393 | 1,377,873 | 1,373,061 |
| Cost of revenue: | |||
| Software delivery, support andmaintenance | 291,804 | 312,898 | 325,471 |
| Client services | 432,038 | 437,776 | 427,933 |
| Amortization of softwaredevelopment and acquisition-related assets | 81,986 | 81,215 | 85,201 |
| Total cost of revenue | 805,828 | 831,889 | 838,605 |
| Gross profit | 580,565 | 545,984 | 534,456 |
| Selling, general andadministrative expenses | 339,175 | 358,681 | 419,599 |
| Research and development | 184,791 | 192,821 | 199,751 |
| Asset impairment charges | 1,544 | 2,390 | 11,454 |
| Amortization of intangible andacquisition-related assets | 23,172 | 31,280 | 31,253 |
| Income (loss) fromoperations | 31,883 | (39,188) | (127,601) |
| Interest expense | (31,396) | (29,297) | (28,055) |
| Other income, net | 2,183 | 766 | 7,310 |
| Equity in net earnings ofunconsolidated investments | (2,100) | (398) | 0 |
| Income (loss) before incometaxes | 570 | (68,117) | (148,346) |
| Income tax (provision)benefit | (2,626) | 1,664 | 44,320 |
| Net loss | (2,056) | (66,453) | (104,026) |
| Less: Net income attributableto non-controlling interest | (170) | 0 | 0 |
| Net loss attributable toAllscripts Healthcare Solutions, Inc. stockholders | $ (2,226) | $ (66,453) | $ (104,026) |
| Loss per share - basic anddiluted attributable to Allscripts Healthcare Solutions, Inc.stockholders | $ (0.01) | $ (0.37) | $ (0.59) |
| 2015 | 2014 | 2013 | Benchmark | |||||
| Profitability Ratios | ||||||||
| Total Margin | ||||||||
| Operating Margin | ||||||||
| Cash Flow Margin | ||||||||
| Free Cash Flow Margin | ||||||||
| Operating Cash Flow | ||||||||
| Free Operating Cash Flow | ||||||||
I need 10 Finanical Ratio's and benchmarks see list below forAllscript Health Solutions finiacial data included ratios and anindustry benchmark, and a dashboard (1 page graphicalrepresentation of 5 ratios). The analysis will include at leastthree recommendations on specific action that can be taken by theorganization to improve financial performance.
| CONSOLIDATED BALANCE SHEETS -USD ($) $ in Thousands | Dec. 31, 2015 | Dec. 31, 2014 | Dec.31,2013 |
| Current assets: | |||
| Cash and cash equivalents | $ 116,873 | $ 53,173 | $62,954 |
| Accounts receivable, net ofallowance of $31,266 and $36,047 as of December 31, 2015 and 2014,respectively | 327,851 | 331,625 | 313,486 |
| Prepaid expenses and othercurrent assets | 93,622 | 102,392 | 107,911 |
| Total current assets | 538,346 | 487,190 | 539,819 |
| Long-term marketablesecurities | 0 | 1,305 | 1,329 |
| Fixed assets, net | 125,617 | 145,830 | 174,013 |
| Software development costs,net | 85,775 | 86,153 | 88,244 |
| Intangible assets, net | 347,646 | 403,362 | 455,971 |
| Goodwill | 1,222,601 | 1,200,746 | 1,189,585 |
| Deferred taxes, net | 2,298 | 1,984 | 7,361 |
| Other assets | 359,665 | 137,760 | 163,341 |
| Total assets | 2,681,948 | 2,464,330 | 2,619,662 |
| Current liabilities: | |||
| Accounts payable | 60,004 | 70,824 | 72,956 |
| Accrued expenses | 62,021 | 78,967 | 96,499 |
| Accrued compensation andbenefits | 62,398 | 51,062 | 80,196 |
| Deferred revenue | 315,925 | 293,022 | 251,038 |
| Current maturities oflong-term debt and capital lease obligations | 12,609 | 27,498 | 16,350 |
| Total current liabilities | 512,957 | 521,373 | 517,039 |
| Long-term debt | 612,405 | 539,193 | 545,133 |
| Deferred revenue | 20,273 | 23,168 | 29,080 |
| Deferred taxes, net | 22,164 | 21,119 | 79,694 |
| Other liabilities | 95,076 | 75,257 | 130,572 |
| Total liabilities | $ 1,262,875 | $ 1,180,110 | $1,301,518 |
| Commitments andcontingencies | |||
| Stockholdersâ equity: | |||
| Preferred stock: $0.01 parvalue, 1,000 shares authorized, no shares issued and outstanding asof December 31, 2015 and 2014 | $ 0 | $ 0 | $0 |
| Common stock: $0.01 par value,349,000 shares authorized as of December 31, 2015 and 2014; 266,545and 189,308 shares issued and outstanding as of December 31, 2015,respectively; 265,138 and 180,466 shares issued and outstanding asof December 31, 2014, respectively | 2,665 | 2,651 | 2635 |
| Treasury stock: at cost,77,237 and 84,672 shares as of December 31, 2015 and 2014,respectively | (189,753) | (278,036) | -278,036 |
| Additional paid-incapital | 1,789,449 | 1,749,593 | 1,716,847 |
| Accumulated deficit | (190,235) | (188,009) | -121556 |
| Accumulated othercomprehensive loss | (4,242) | (1,979) | -1745 |
| Total Allscripts HealthcareSolutions, Inc.'s stockholders' equity | 1,407,884 | 1,284,220 | 1,318,145 |
| Non-controlling interest | 11,189 | 0 | 0 |
| Total stockholders'equity | 1,419,073 | 1,284,220 | 1,318,145 |
| Total liabilities andstockholders' equity | $ 2,681,948 | $ 2,464,330 | 2,619,663 |
| CONSOLIDATEDSTATEMENTS OF OPERATIONS - USD ($) $ in Thousands | 12 Months Ended | ||
| Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 | |
| Revenue: | |||
| Software delivery, support andmaintenance | $ 918,430 | $ 907,343 | $ 918,686 |
| Client services | 467,963 | 470,530 | 454,375 |
| Total revenue | 1,386,393 | 1,377,873 | 1,373,061 |
| Cost of revenue: | |||
| Software delivery, support andmaintenance | 291,804 | 312,898 | 325,471 |
| Client services | 432,038 | 437,776 | 427,933 |
| Amortization of softwaredevelopment and acquisition-related assets | 81,986 | 81,215 | 85,201 |
| Total cost of revenue | 805,828 | 831,889 | 838,605 |
| Gross profit | 580,565 | 545,984 | 534,456 |
| Selling, general andadministrative expenses | 339,175 | 358,681 | 419,599 |
| Research and development | 184,791 | 192,821 | 199,751 |
| Asset impairment charges | 1,544 | 2,390 | 11,454 |
| Amortization of intangible andacquisition-related assets | 23,172 | 31,280 | 31,253 |
| Income (loss) fromoperations | 31,883 | (39,188) | (127,601) |
| Interest expense | (31,396) | (29,297) | (28,055) |
| Other income, net | 2,183 | 766 | 7,310 |
| Equity in net earnings ofunconsolidated investments | (2,100) | (398) | 0 |
| Income (loss) before incometaxes | 570 | (68,117) | (148,346) |
| Income tax (provision)benefit | (2,626) | 1,664 | 44,320 |
| Net loss | (2,056) | (66,453) | (104,026) |
| Less: Net income attributableto non-controlling interest | (170) | 0 | 0 |
| Net loss attributable toAllscripts Healthcare Solutions, Inc. stockholders | $ (2,226) | $ (66,453) | $ (104,026) |
| Loss per share - basic anddiluted attributable to Allscripts Healthcare Solutions, Inc.stockholders | $ (0.01) | $ (0.37) | $ (0.59) |
| Capital Structure Ratios | ||||||||
| Capitalization ratios | ||||||||
| Equity ratio | ||||||||
| Capitalization ratio | ||||||||
| Fixed asset financingratio | ||||||||
| Coverage ratio | ||||||||
| Cash flow to toal debt | ||||||||
| Debt service coverage | ||||||||
| Cash flow coverage | ||||||||
| Cushion ratio | ||||||||
| Capital expense ratio | ||||||||
