CHAPTER 2 Financial Statements and Analysis 91LG6
LG6 2–22 Dupont system of analysis Use the following ratio information for Johnson
International and the industry averages for Johnson’s line of business to:
a. Construct the DuPont system of analysis for both Johnson and the
industry.
b. Evaluate Johnson (and the industry) over the 3-year period.
c. Indicate in which areas Johnson requires further analysis. Why?
2–23 Complete ratio analysis, recognizing significant differences Home Health, Inc.,
has come to Jane Ross for a yearly financial checkup. As a first step, Jane has
prepared a complete set of ratios for fiscal years 2002 and 2003. She will use
them to look for significant changes in the company’s situation from one year to
the next.Home Health, Inc.
Financial Ratios
Ratio 2002 2003Current ratio 3.25 3.00
Quick ratio 2.50 2.20
Inventory turnover 12.80 10.30
Average collection period 42 days 31 days
Total asset turnover 1.40 2.00
Debt ratio 0.45 0.62
Times interest earned ratio 4.00 3.85
Gross profit margin 68% 65%
Operating profit margin 14% 16%
Net profit margin 8.3% 8.1%
Return on total assets 11.6% 16.2%
Return on common equity 21.1% 42.6%
Price/earnings ratio 10.7 9.8
Market/book ratio 1.40 1.252001 2002 2003
JohnsonFinancial leverage multiplier 1.75 1.75 1.85
Net profit margin 0.059 0.058 0.049
Total asset turnover 2.11 2.18 2.34
Industry AveragesFinancial leverage multiplier 1.67 1.69 1.64
Net profit margin 0.054 0.047 0.041
Total asset turnover 2.05 2.13 2.15