Question

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	$    73,000
Accounts receivable	439,000
Inventories	893,000
Total current assets	$1,405,000
Fixed assets	431,000
Total assets	$1,836,000
Liabilities and Equity
Accounts payable	$   332,000
Notes payable	120,000
Accruals	150,000
Total current liabilities	$   602,000
Long-term debt	403,700
Common stock	575,590
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	3,701,000
Selling, general, and administrative expenses	397,456
Earnings before interest and taxes (EBIT)	$   191,544
Interest expense	50,000
Earnings before taxes (EBT)	$   141,544
Taxes (25%)	35,386
Net income	$   106,158
Jimenez Corporation: Per Share Data for 2020
EPS	$  4.62
Cash dividends per share	$  0.95
P/E ratio	5.0
Market price (average)	$23.08
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

			Firm	Industry	comment
quick ratio =(total of current assets - inventory)/total of liabilities	(1405000-893000)/602000		0.85	1	weak
current ratio =total of current assets/total of current liabilities	(1405000)/602000		2.33	2.7	weak
Inventory turnover = cost of goods sold/average inventory	3701000/893000		4.14	7	poor
days sales outstanding	(365*accounts receivables)/total sales	(365*493000)/4290000	41.95	32 days	poor
fixed asset turnover = total sales/total of fixed assets	4290000/431000		9.95	13	poor
total asset turnover = total sales/total assets	4290000/1836000		2.34	2.6	poor
return on assets = net income/total of assets	106158/1836000		5.78%	9.10%	bad
return on equity = net income/total of equity	106158/(575590+254710)		12.79%	18.20%	bad
profit margin on sales = net income/sales	106158/4290000		2.47%	3.50%	bad
liabilities to asset ratio = total of liabilities/total assets	(403700+602000)/1836000		55%	50%	high
debt to assets ratio = total of liabilities/total assets	(403700)/1836000		22%	21%	high
PE ratio = market price/EPS	23.08/4.62		5.00	6	poor
market/ book ratio = market price/book value	23.08/36.1		0.64	3.5	poor
book value = total of equity/no of shares	(575590+254710)/23000	36.1
so the firm appears poorly maintained