Problem 3-14 Comprehensive Ratio Analysis The Jimenez Corporation\'s forecasted

Question

Problem 3-14
Comprehensive Ratio Analysis

The Jimenez Corporation's forecasted 2014 financial statements follow, along with some industry average ratios.

Jimenez Corporation: Forecasted Balance Sheet as of December 31, 2014

Jimenez Corporation: Forecasted Income Statement for 2014

Calculate Jimenez's 2014 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.

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

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

Explanation / Answer

Current ratio:

= Current assets÷Current liabilities

= $1,405,000÷$602,000

= 2.33

Quick ratio:

= Quick assets÷Current liabilities

= ($72,000+$439,000)÷$602000

= 0.85

Inventory turnover:

= Cost of goods sold÷Inventory

= $3,580,000÷$894,000

= 4

Days sales outstanding:

= Accounts receivable×365÷Sales

= $439,000×365÷$4,290,000

= 37.35 days

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