Question

Comprehensive Ratio Analysis The Jimenez Corporation's forecasted 2020 financial statements follow, along with some industry average ratios. Jimenez Corporation: Forecasted Balance Sheet as of December 31, 2020 Assets Cash $    71,000 Accounts receivable 439,000 Inventories 895,000   Total current assets $1,405,000 Fixed assets 431,000 Total assets $1,836,000 Liabilities and Equity Accounts payable $   332,000 Notes payable    110,000 Accruals 160,000   Total current liabilities $   602,000 Long-term debt 403,490 Common stock 575,800 Retained earnings 254,710 Total liabilities and equity $1,836,000 Jimenez Corporation: Forecasted Income Statement for 2020 Sales $4,290,000 Cost of goods sold 3,713,000 Selling, general, and administrative expenses 411,456   Earnings before interest and taxes (EBIT) $   165,544 Interest expense 30,000   Earnings before taxes (EBT) $   135,544 Taxes (25%) 33,886 Net income $   101,658 Jimenez Corporation: Per Share Data for 2020 EPS $  4.42 Cash dividends per share $  0.95 P/E ratio 5.0 Market price (average) $22.10 Number of shares outstanding 23,000 Industry Ratiosa Quick ratio 1.0 Current ratio 2.7 Inventory turnoverb 7.0 Days sales outstandingc 32.0 days Fixed assets turnoverb 13.0 Total assets turnoverb 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 Market/Book ratio 3.5 Notes: aIndustry average ratios have been stable for the past 4 years. bBased on year-end balance sheet figures. cCalculation is based on a 365-day year. Calculate Jimenez's 2020 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. Do not round intermediate calculation. Round your answers to two decimal places. Ratios Firm Industry Comment Quick ratio 1.0 -Select-StrongWeakItem 2 Current ratio 2.7 -Select-StrongWeakItem 4 Inventory turnover 7.0 -Select-PoorHighItem 6 Days sales outstanding days 32 days   -Select-PoorHighItem 8 Fixed assets turnover 13.0   -Select-PoorHighItem 10 Total assets turnover 2.6 -Select-PoorHighItem 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-to-assets ratio % 21.0% -Select-LowHighItem 20 Liabilities-to-assets ratio % 50.0% -Select-LowHighItem 22 P/E ratio 6.0 -Select-PoorHighItem 24 Market/Book ratio 3.5 -Select-PoorHighItem 26 So, the firm appears to be -Select-badlywellItem 27 managed.

Answer 1

As per rules I am answering the first 4 subparts of the question

1: Quick ratio=(cash + securities+ accounts receivable)/ current liabilities

= ( 71,000+0+439000)/602000

=0.85

Weak

Since the quick ratio is lesser than the industry ratio it implies that the company has lesser liquidity and hence this ratio is weak.

2: Current ratio = Current assets/ current liabilities

= 1405000/602000

=2.33

Weak

Since the current ratio is lesser than the industry ratio it implies that the company has lesser liquidity and hence this ratio is weak.

3: Inventory turnover= Cost of goods sold/ Inventory

= 3713000/895000

=4.15

Weak

Since this ratio is lesser than the industry average it implies that there are not enough sales and hence this ratio is weak.

4: Days sales outstanding = Receivables*365/Sales

= 439000*365/4290000

=37.35 days

Weak

The sales are outstanding for greater time as compared to industry average and this means that there are not enough collections which renders this ratio weak.