Question

Problem 7-14
Comprehensive Ratio Analysis

The Jimenez Corporation's forecasted 2016 financial statements follow, along with some industry average ratios.

Jimenez Corporation: Forecasted Balance Sheet as of December 31, 2016

Assets
Cash	$    78,000
Accounts receivable	462,000
Inventories	875,000
Total current assets	$1,415,000
Fixed assets	432,000
Total assets	$1,847,000
Liabilities and Equity
Accounts payable	$   335,000
Notes payable	95,000
Accruals	176,000
Total current liabilities	$   606,000
Long-term debt	405,590
Common stock	555,000
Retained earnings	280,410
Total liabilities and equity	$1,847,000

Jimenez Corporation: Forecasted Income Statement for 2016

Sales	$4,244,000
Cost of goods sold (excluding depreciation)	3,500,000
Selling, general, and administrative expenses	374,790
Depreciation	155,000
Earnings before taxes (EBT)	$   214,210
Taxes (40%)	85,684
Net income	$   128,526
Per Share Data
EPS	$        6.12
Cash dividends per share	$        0.85
P/E ratio	7.2
Market price (average)	$      25.42
Number of shares outstanding	21,000
Industry Financial Ratios (2015)*
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
*Industry average ratios have been stable for the past 4 years.
**Based on year-end balance sheet figures.
***Calculation is based on a 365-day year.

Calculate Jimenez's 2016 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. Do not round intermediate calculations.

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	$6.12	n.a.	--
Stock Price	$25.42	n.a.	--
P/E ratio		6.0	-Select-PoorRichItem 24
P/CF ratio		3.5	-Select-PoorRichItem 26
M/B ratio		n.a.	--

Answer 1

Quick ratio: 0.89 vs 1 industry levels (unfavourable/Weaker)

Current ratio:2.33 vs 2.7 industry levels (unfavourable/Weaker)

Inventory Turnover: 91 days vs 7 days industry levels (Poor/Weaker){ inventory turnover should be lower}

Fixed asset Turnover:9.824 vs 13 industry levels (Poor/Weaker)

Return on assets:6.95% vs 9.1% industry levels (Poor/Bad)

Return on Equity: 23.15% vs 18.12%  industry levels (Favourbale/Good)

Profit margin on sales: 3.02% vs 3.5%  industry levels (Poor/Bad)

Debt ratio: 21% vs 21% industry levels (neutral)

Liability to assets ratio:54% vs 50% industry levels (Poor/Bad)

PE ratio:4.15 vs 6  industry levels (Favourbale/Good)

P/CF ratio: 29.90 vs 3.5 industry levels (Favourbale/Good)