Problem 3-14 Comprehensive Ratio Analysis The Jimenez Corporation\'s forecasted
ID: 2818163 • Letter: P
Question
Problem 3-14
Comprehensive Ratio Analysis
The Jimenez Corporation's forecasted 2017 financial statements follow, along with some industry average ratios.
Jimenez Corporation: Forecasted Balance Sheet as of December 31, 2017
Jimenez Corporation: Forecasted Income Statement for 2017
Calculate Jimenez's 2017 forecasted ratios, compare them with the industry average data, and comment briefly on Jimenez's projected strengths and weaknesses. Assume that there are no changes from the prior period to any of the operating balance sheet accounts. Round DSO to the nearest whole number. Round the other ratios to one decimal place.
So, the firm appears to be -Select-badlywellItem 28 managed.
Problem 3-14
Comprehensive Ratio Analysis
The Jimenez Corporation's forecasted 2017 financial statements follow, along with some industry average ratios.
Jimenez Corporation: Forecasted Balance Sheet as of December 31, 2017
Assets Cash $ 72,000 Accounts receivable 439,000 Inventories 894,000 Total current assets $1,405,000 Fixed assets 431,000 Total assets $1,836,000 Liabilities and Equity Accounts payable $ 332,000 Notes payable 100,000 Accruals 170,000 Total current liabilities $ 602,000 Long-term debt 404,290 Common stock 575,000 Retained earnings 254,710 Total liabilities and equity $1,836,000Jimenez Corporation: Forecasted Income Statement for 2017
Sales $4,290,000 Cost of goods sold (excluding depreciation) 3,580,000 Selling, general, and administrative expenses 370,320 Depreciation 159,000 Earnings before taxes (EBT) $ 180,680 Taxes (40%) 72,272 Net income $ 108,408 Jimenez Corporation: Per Share Data for 2017 EPS $ 4.71 Cash dividends per share $ 0.95 P/E ratio 5.0 Market price (average) $ 23.57 Number of shares outstanding 23,000 Industry Ratios Quick ratio 1.0 Current ratio 2.7 Inventory turnover** 7.0 Days sales outstanding*** 32.0 days Fixed assets turn over** 13.0 Total assets turnover** 2.6 Return on assets 9.1% Return on equity 18.2% Profit margin on sales 3.5% Debt-to-assets ratio 21.0% Liabilities-to-assets ratio 50.0% P/E ratio 6.0 Price/Cash flow ratio 3.5 Market/Book ratio 3.5 **Based on year-end balance sheet figures. ***Calculation is based on a 365-day year.Calculate Jimenez's 2017 forecasted ratios, compare them with the industry average data, and comment briefly on Jimenez's projected strengths and weaknesses. Assume that there are no changes from the prior period to any of the operating balance sheet accounts. Round DSO to the nearest whole number. Round the other ratios to one decimal place.
Ratios Firm Industry Comment Quick ratio 1.0 -Select-StrongWeakItem 2 Current ratio 2.7 -Select-StrongWeakItem 4 Inventory turnover 7.0 -Select-PoorRichItem 6 Days sales outstanding days 32 days -Select-PoorRichItem 8 Fixed assets turnover 13.0 -Select-PoorRichItem 10 Total assets turnover 2.6 -Select-PoorRichItem 12 Return on assets % 9.1% -Select-BadGoodItem 14 Return on equity % 18.2% -Select-BadGoodItem 16 Profit margin on sales % 3.5% -Select-BadGoodItem 18 Debt ratio % 21.0% -Select-LowHighItem 20 Liabilities-to-assets % 50.0% -Select-LowHighItem 22 EPS $4.71 n.a. -- Stock Price $23.57 n.a. -- P/E ratio 6.0 -Select-PoorRichItem 24 Price/Cash flow ratio 3.5 -Select-PoorRichItem 26 Market/Book ratio n.a. --So, the firm appears to be -Select-badlywellItem 28 managed.
Explanation / Answer
As per rules I will answer the first 4 sub parts of the question
1: Quick ratio =(Cash + Receivables)/ current liabilities
= (72000+439000)/602000
= 0.85
(Weak)
The company has a lower quick ratio than the industry average implying lesser liquidity.
2: Current ratio = Current assets/ current liabilities
=1405000/602000=2.33
(Weak)
The company has a lower current ratio than the industry average implying lesser liquidity.
3: Inventory turnover = Cost of goods sold/ Inventory
=3580000/894000 = 4 times
(Weak)
The company has a lower turnover implying that the inventory is not moving quickly
4: Days sales outstanding= Receivables * 365/ Sales
= 439000*365/4290000 = 37.35 days
(Weak)
The DSO is lower than the industry average. This means that the sales are not being converted to cash very quickly.
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