Translating expansion of sales into improved profitability

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Reference no: EM131623704

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 2016 2015 2014 2016 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: EM131623704

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