Question
Several of JJJ Company's important ratios are given here for the years 2018, 2019 and 2020 with the industry ratios for 2020. The company is
Several of JJJ Company's important ratios are given here for the years 2018, 2019 and 2020 with the industry ratios for 2020. The company is considering borrowing more funds for expansion.
JJJ Company
Industry
Ratios2018201920202020
Return on Equity (ROE)17.0%24.0%29.0%20.0%
Debt to Equity 1.0 1.2 1.4 0.5
Current Ratio 2.4 1.6 1.2 2.1
Times Interest Earned 14x 10x6x9x
Net Profit Margin 6.0% 7.0% 8.5% 7.0%
Total Asset Turnover 1.3x 1.3x1.25x1.15x
Quick Ratio 1.3 0.9 0.6 1.1
Average Collection Period24 days22 days20 days34 days
Inventory Turnover 12x 10x7x 11x
Required:
Evaluate the company's (a) Liquidity, (b) Profitability, and (c) debt situation.
What is your advice?
Step by Step Solution
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Step: 1
Evaluation of the companys ratios a Liquidity Current ratio and quick ratio have been declining sinc...
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Financial Reporting and Analysis
Authors: Lawrence Revsine, Daniel Collins, Bruce Johnson, Fred Mittelstaedt, Leonard Soffer
7th edition
1259722651, 978-1259722653
