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Jimenez Corporation: Forecasted Balance Sheet as of December 31, 2011

Assets

Cash $72,000

Accounts receivable 439,000

Inventories 894,000

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Total current assets $1,405,000

Fixed assets $431,000

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Total assets $1,836,000

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_________

Liabilities and Equity

Accounts and notes payable $432,000

Accruals 170,000

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Total current liabilities $602,000

Long-term debt 404,290

Common stock 575,000

Retained earnings 254,710

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Total liabilities and equity $1,836,000

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Jimenez Corporation: Forecasted Income Statement for 2011

Sales $4,290,000

Cost of Goods Sold 3,580,000

Selling, general, and administrative expenses 370,320

Depreciation 159,000

Earnings before taxes (EBT) $180,680

Taxes (40%) 72,272

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Net income $108,408

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Per share data

EPS $4.71

Cash dividends per share $0.95

P/E ratio 5

Market price (average) $23.57

Number of shares outstanding 23,000

Industry Financial Ratios (2010) - Industry average ratios have been constant for the past 4 years.

Quick ratio 1.0

Current ratio 2.7

Inventory turnover (based on year-end balance sheet figures) 7.0

Days sales outstanding (calculation is based on a 365-day year) 32 days

Fixed assets turnover (based on year-end balance sheet figures) 13.0

Total assets turnover (based on year-end balance sheet figures) 2.6

Return on assets 9.1%

Return on equity 18.2%

Debt ratio 50.0%

Profit margin on sales 3.5%

P/E ratio 6.0

Price/Cash flow ratio 3.5

a. Calculate Jimenez's 2011 forecasted ratios, compare them with the industry average data, and comment briefly on Jimenez's projected strengths and weaknesses.

b. What do you think would happen to Jimenez's ratios if the company initiated cost-cutting measures that allowed it to hold lower levels of inventory and substantially decreased the cost of goods sold. No calculations are necessary. Think about which ratios would be affected by changes in these two accounts.