Developed the ratio calculations and industry comparisons

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Reference no: EM13899471

Luna Lighting, a retail firm, has experienced modest sales growth over the past three years but has had difficulty translating the expansion of sales into improved profitability. Using three years' financial statements, you have developed the following ratio calculations and industry comparisons. Based on this information, suggest possible reasons for Luna's profitability problems.

Industry Averages 2013 2012 2011 2013
Current 2.3X 2.3X

2.2X

2.1X

Average collection period

45 days

46 days

47 days

50 days

Inventory turnover

8.3X

8.2X

8.1X

8.3X

Fixed asset turnover

2.7X

3.0X

3.3X

3.5X

Total asset turnover

1.1X

1.2X

1.3X

1.5X

Debt ratio

50%

50%

50%

54%

Times interest earned

8.1X

8.2X

8.1X

7.2X

Fixed charge coverage

4.0X

4.5X

5.5X

5.1X

Gross profit margin

43%

43%

43%

40%

Operating profit margin

6.3%

7.2%

8.0%

7.5%

Net profit margin

3.5%

4.0%

4.3%

4.2%

Return on assets

3.7%

5.0%

5.7%

6.4%

Return on equity

7.4%

9.9%

11.4%

11.8%

Reference no: EM13899471

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