Problem 3-14 Comprehensive Ratio Analysis

The Jimenez Corporation's forecasted 2017 financial statements follow, along with some industry average ratios.

Jimenez Corporation: Forecasted Balance Sheet as of December 31, 2017

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	404,290
Common stock	575,000
Retained earnings	254,710
Total liabilities and equity	$1,836,000

Jimenez Corporation: Forecasted Income Statement for 2017

Sales	$4,290,000
Cost of goods sold	3,580,000
Selling, general, and administrative expenses	370,320
Depreciation and amortization	159,000
Earnings before taxes (EBT)	$ 180,680
Taxes (40%)	72,272
Net income	$ 108,408
Per Share Data
EPS	$ 4.71
Cash dividends per share	$ 0.95
P/E ratio	5.0
Market price (average)	$ 23.57
Number of shares outstanding	23,000
Industry Financial Ratios (2017)*
Quick ratio	1.0
Current ratio	2.7
Inventory turnover**	7.0
Days sales outstanding***	32.0 days
Fixed assets turn over**	13.0
Total assets turnover**	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
Price/Cash flow ratio	3.5
Market/Book ratio	3.5
*Industry average ratios have been constant for the past 4 years.
**Based on year-end balance sheet figures.
***Calculation is based on a 365-day year.

Calculate Jimenez's 2017 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. Round DSO to the nearest whole number. Round the other ratios to one decimal place.

Ratios	Firm	Industry	Comment
Quick ratio		1.0	-Select-StrongWeakItem 2
Current ratio		2.7	-Select-StrongWeakItem 4
Inventory turnover		7.0	-Select-PoorRichItem 6
Days sales outstanding	days	32 days	-Select-PoorRichItem 8
Fixed assets turnover		13.0	-Select-PoorRichItem 10
Total assets turnover		2.6	-Select-PoorRichItem 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 ratio	%	21.0%	-Select-LowHighItem 20
Liabilities-to-assets	%	50.0%	-Select-LowHighItem 22
EPS	$4.71	n.a.	--
Stock Price	$23.57	n.a.	--
P/E ratio		6.0	-Select-PoorRichItem 24
P/CF ratio		3.5	-Select-PoorRichItem 26
M/B ratio		n.a.	--

So, the firm appears to be -Select-badlywellItem 28 managed.