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Comprehensive Ratio Analysis The Jimenez Corporation's forecasted 2020 financial statements follow, along with some industry average...

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 $    68,000
Accounts receivable 439,000
Inventories 898,000
  Total current assets $1,405,000
Fixed assets 431,000
Total assets $1,836,000
Liabilities and Equity
Accounts payable $   332,000
Notes payable    114,000
Accruals 156,000
  Total current liabilities $   602,000
Long-term debt 404,260
Common stock 575,030
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 3,692,000
Selling, general, and administrative expenses 406,456
  Earnings before interest and taxes (EBIT) $   191,544
Interest expense 40,000
  Earnings before taxes (EBT) $   151,544
Taxes (25%) 37,886
Net income $   113,658
Jimenez Corporation: Per Share Data for 2020
EPS $  4.94
Cash dividends per share $  0.95
P/E ratio 4.0
Market price (average) $19.77
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 5.0
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 5.0 -Select-PoorHighItem 24
Market/Book ratio 3.5 -Select-PoorHighItem 26

So, the firm appears to be -Select-badlywellItem 27 managed.

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Solutions

Expert Solution

Quick Ratio       = (Cash+ Cash Equivalents+ Short term Investments+ Current Receivables)/Current Liabilities

                                = (68000+0+0+439000)/602000

                        = 0.842192691

                        = 0.84 Times

Current Ratio     = Current Assets / Current Liabilities

                        = 1405000/602000

                        = 2.333887043

                        = 2.33 Times

Inventory Turnover Ratio = Cost of Goods Sold/ Average Inventory

                                    = 3692000/898000

                                    = 4.111358575

                                    = 4.11 Times

Days Sales Outstanding = (Accounts Receivable/ Total Credit Sales in Accounting Period)*Days in Accounting Period

                                    = (439000/4290000)*365

                                    = 37.35081585

                                    = 37.35 Days

                                    = 38 Days (as Days are always rounded off to next one)

Fixed Asset Turnover Ratio        = Net Sales/ Average Fixed Assets

                                                = 4290000/431000

                                                = 9.953596288

                                                = 9.95 Times

Total Asset Turnover Ratio         = Net Sales/ Average Total Assets

                                                = 4290000/1836000

                                                = 2.336601307

                                                = 2.34 Times

Return on Asset Ratio (%) = (Net Income /Average Total Asset)*100

(ROA)                               = (113658/1836000)*100

                                        = 6.190522876

                                        = 6.19 %

Return on Equity Ratio (%) = (Net Income/ Shareholder’s Equity)*100

(ROE)                                = (113658/(575030+254710))*100

                                         = 13.69802589 %

                                         = 13.70%

Profit Margin Ratio (%)       = (Net Profit/ Sales)*100

                                          = (113658/4290000)*100

                                          = 2.649370629 %

                                          = 2.65%

Debt to Asset Ratio (%)             = (Short term Debt + Long Term Debt)/ Total Asset*100

                                    = (332000+114000+404260)/1836000*100

                                    = 0.463104575*100

                                    = 46.31%

Liabilities to Asset Ratio = = (Short term Liabilities + Long Term Liabilities)/ Total Asset*100

                                    = (332000+114000+404260)/1836000*100

                                    = 0.463104575*100

                                    = 46.31%

Market to Book Ratio (M/B Ratio)           = Market Capitalisation/ Total Book Value

                                                            = (19.77*23000)/(575030+254710)

                                                            = 0.548015041

                                                            = 0.55

Ratios

Firm

Industry

Comment

Quick ratio

0.84

1.0

Weak

Current ratio

2.33

2.7

Weak

Inventory turnover

4.11

7.0

Poor

Days sales outstanding

38 days

32 days  

Poor

Fixed assets turnover

9.95

13.0  

Poor

Total assets turnover

2.34

2.6

Poor

Return on assets

6.19%

   9.1%

Bad

Return on equity

13.70%

18.2%

Bad

Profit margin on sales

2.65%

  3.5%

Bad

Debt-to-assets ratio

46.31%

21.0%

Low

Liabilities-to-assets ratio

46.31%

50.0%

High

P/E ratio

4.0

5.0

Poor

Market/Book ratio

0.55

3.5

Poor


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