$\text { Dana Dairy Products Key Ratio }$ Income Statement
Dana Dairy Products
for the Year Ended December

Multiple Choice

$\text { Dana Dairy Products Key Ratio }$
$\begin{array}{lll}\hline&\text { Industry } & \text { Actual } & \text { Actual } \\&\text { Average } & 2001 & 2002\\\hline\text { Current Ratio } & 1.3 & 1.0 \\\text { Quick Ratio } & 0.8 & 0.75 \\\text { Average collection Period } & 23 \text { days } & 30 \text { days } \\\text { Inventory Turnover } & 21.7 & 19 \\\text { Debt Ratio } & 64.7 \% & 50 \% \\\text { Times Interest Earned } & 4.8 & 5.5 \\\text { Gross Profit Margin } & 13.6 \% & 12.0 \% \\\text { Net Profit Margin } & 1.0 \% & 0.5 \% \\\text { Return on total assets } & 2.9 \% & 2.0 \% \\\text { Return on Equity } & 8.2 \% & 4.0 \%\end{array}$
Income Statement
Dana Dairy Products
For the Year Ended December 31, 2002
$$\begin{array} { l c } \hline \text { Sales Revenue } & \$ 100,000 \\\text { Less: Cost of Goods Sold } & 87,000 \\& - \cdots \\\text { Gross Profits } & \$ 13,000 \\\text { Less: Operating Expenses } & 11,000 \\& - \cdots \\\text { Operating Profits } & 2,000 \\\text { Less: Interest Expense } & 500 \\& - \cdots \\\text { Net Profits Before Taxes } & \$ 1,500 \\\text { Less: Taxes } ( 40 \% ) & 600\end{array}$$
Balance Sheet
Dana Dairy Products
December 31, 2002
ASSETS
$\begin{array}{lr}\hline \text { Cash } & \$ 1,000 \\\text { Accounts Receivable } & 8,900 \\\text { Inventories } & 4,350\\&----\\\text { Total Current Assets } & \$ 14,250 \\\text { Gross Fixed Assets } & \$ 35,000 & \\\text { Less: Accumulated Depreciation } & 13,250 \\\text { Net Fixed Assets }&21,750\\&----\\\text { Total Assets }&\$36,000\\\\\text { Liabilities \& Stockholders' Equity }\\\hline\text { Accounts Payable } & \$ 9,000 \\\text { Accruals } & 6,675\\&----\\\text { Total Current Liabilities } & \$ 15,675 \\\text { Long-term Debts } & 4,125\\&----\\\text { Total Liabilities }&\$19,800\\\text { Common Stock } & 1,000 \\\text { Retained Earnings } & 15,200\\&----\\\text { Total Stockholders' Equity }&\$16,200\\&----\\\text { Total Liab. \& S.E. }&\$36,000\end{array}$
-Using the modified DuPont formula allows the analyst to break Dana Dairy Products return on equity into 3 components:. Which of the following mathematical expressions represents the modified DuPont formula relative to Dana Dairy Products' 2002 performance? (See Figure 3.2)

A) 5.6(ROE) = 2.5(ROA) × 2.24(Financial leverage multiplier)
B) 5.6(ROE) = 3.3(ROA) × 1.70(Financial leverage multiplier)
C) 2.5(ROE) = 5.6(ROA) × 0.44(Financial leverage multiplier)
D) 4.0(ROE) = 2.0(ROA) × 2.00(Financial leverage multiplier)