Is this a firm we would feel comfortable extending significant credit to in the future?
We are also looking to take a minority ownership position in Winco Const. and need a profitability analysis. Use the decomposed Dupont model to analyze the drivers (return on assets, profit margin, debt/leverage) of Winco's return on equity (ROE) for 2014.
What can you conclude about the drivers of Winco's ROE?
Concept Check: Ratios are simply the relationship between two variables. Keep in mind where the numbers are coming from in the financial statements and think about how these variables relate to one another and what the result shows in general before we look at the specific company. Helpful Hint: When calculating financial ratios you need to place them in context of either; a competitor, previous year's results or to industry benchmarks. A single ratio merely shows a relationship between two variables. The financial statements are provided below: Winco Construction Inc. 2014 Income Statement ($ in millions) Net sales $8,450 Less: Cost of goods sold 7,240 Less: Depreciation 400 Earnings before interest and taxes 810 Less: Interest paid 70 Taxable Income $ 740 Less: Taxes 259 Net income $ 481 Winco Construction Inc.. 2013 and 2014 Balance Sheets ($ in millions) 2013 2014 2013 2014 Cash $ 120 $ 140 Accounts payable $1,110 $1,120 Accounts rec. 930 780 Long-term debt 840 1,210 Inventory 1,480 1,520 Common stock 3,200 3,000 Total $2,530 $2,440 Retained earnings 530 710 Net fixed assets 3,150 3,600 Total assets $5,680 $6,040 Total liabilities & equ $5,680 $6,040 Average Industry Ratios Lower Quartile Median Upper Quartile Day's sales in receivables 60 40 30 Cash Coverage ratio 2.0 10.0 18.0 Debt ratio 1.00 .90 0.80 Return on Equity 13 14.0 15.0