eBook

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	$ 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	404,800
Common stock	574,490
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	3,695,000
Selling, general, and administrative expenses	412,456
Earnings before interest and taxes (EBIT)	$ 182,544
Interest expense	30,000
Earnings before taxes (EBT)	$ 152,544
Taxes (25%)	38,136
Net income	$ 114,408
Jimenez Corporation: Per Share Data for 2020
EPS	$ 4.97
Cash dividends per share	$ 0.95
P/E ratio	5.0
Market price (average)	$24.87
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.