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ata for Morton Chip Company and its industry averages follow. Morton Chip Company: Balance Sheet as of December 31, 2010 (Thousands of Dollars) Cash...

3-13. Data for Morton Chip Company and its industry averages follow.
a. Calculate the indicated ratios for Morton.
b. Construct the extended DU Pont equation for both Morton and the industry.
c. Outline Morton’s strengths and weaknesses as revealed by your analysis.
d. Suppose Morton had doubled its sales as well as its inventories, accounts receivables, and common equity during 2010. How would that information affect the validity of your ratio analysis? (Hint: Think about averages and the effects of rapid growth on ratios if averages are not used. No calculations are needed.

ata for Morton Chip Company and its industry averages follow. Morton Chip Company: Balance Sheet as of December 31, 2010 (Thousands of Dollars) Cash $ 77,500 Accounts payable $129,000 Receivables 336,000 Notes payable 84,000 Inventories 241,500 Other current liabilities 117,000 Total current assets $655,000 Total current liabilities $330,000 Net fixed assets 292,500 Long-term debt 256,500 Common equity 361,000 Total assets $947,500 Total liabilities and equity $947,500 Morton Chip Company: Income Statement for Year Ended December 31, 2010 (Thousands of Dollars) Sales $1,607,500 Cost of goods sold 1,392,500 Selling general and administrative expenses 145,000 Earnings before interest and taxes (EBIT) $ 70,000 Interest expense 24,500 Earnings before taxes (EBT) $ 45,500 Federal and state income taxes (40%) 18,200 Net income $ 27,300 a.Calculate the indicated ratios for Morton. Round your answer to two decimal places. Ratio Morton Industry Average Current assets/Current liabilities x 2.0x Days sales outstanding* days 35.0 days Sales/Inventory x 6.7x Sales/Fixed assets x 12.1x Sales/Total assets x 3.0x Net income/Sales % 1.2% Net income/Total assets % 3.6% Net income/Common equity % 9.0% Total debt/Total assets % 60.0% *Calculation is based on a 365-day year. b.Construct the extended Du Pont equation for both Morton and the industry. Round your answer to two decimal places. For the firm, ROE is % For the industry, ROE is %
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