Current ratio 2.5:1 Quick ratio 1.1:1 Average collection period (365-day year) Inventory turmaver ratia 35 days 2.4 times Total asset tumover ratio 1.4 times Times interest eamed ratio 35 times Net profit margin ratio Retum an investment ratio 4.0% 56% Tatal assets/stockholders' equity (equity multiplier) ratio Retum an stockholders' equity ratio 3.0 times 16.8% P/E ratio 9.0 times . Evaluate the liquidity position of Jackson relative to that of the average firm in the industry. Consider the current ratio, the quick ratio, and the net work- ing capital (current assets minus current liabilities) for Jackson. What pro- blems, if any, are suggested by this analysis?
Current ratio 2.5:1 Quick ratio 1.1:1 Average collection period (365-day year) Inventory turmaver ratia 35 days 2.4 times Total asset tumover ratio 1.4 times Times interest eamed ratio 35 times Net profit margin ratio Retum an investment ratio 4.0% 56% Tatal assets/stockholders' equity (equity multiplier) ratio Retum an stockholders' equity ratio 3.0 times 16.8% P/E ratio 9.0 times . Evaluate the liquidity position of Jackson relative to that of the average firm in the industry. Consider the current ratio, the quick ratio, and the net work- ing capital (current assets minus current liabilities) for Jackson. What pro- blems, if any, are suggested by this analysis?
Survey of Accounting (Accounting I)
8th Edition
ISBN:9781305961883
Author:Carl Warren
Publisher:Carl Warren
Chapter9: Metric-analysis Of Financial Statements
Section: Chapter Questions
Problem 9.4.10P: Twenty metrics of liquidity, solvency, and profitability The comparative financial statements of...
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![CHALLENGE
10. Using the following data for Jackson Products Company, answer Parts a through g:
Jackson Products Company's Balance Sheet
December 31, 2010
$ 240,000
Accounts payable
$ 380,000
Cash
Accounts receivable
320,000
Nates payable (9%)
420,000
Inventory
1,040,000
Other current liabilities
50,000
Total current assets
$1,600,000
Total current liabilities
$ 850,000
Net plant and equipment
800,000
Long-tem debt (10%)
Stockholders' equity
800,000
Total assets
$2,400,000
750,000
Total liabilities and
stockhalders' equity
$2,400,000
Income Statement for the Year Ended December 31, 2010
Net sales (all on credit)
$3,000,000
Cost af sales
1,800,000
Gross profit
Selling, general, and administrative expenses
Eamings before interest and taxes
$1,200,000
860,000
$ 340,000
Interest:
Notes
$37,800
Long-term debt
Total interest charges
80,000
117,800
Eamings before taxes
$ 222,200
Federal income tax (40%)
Eamings after taxes
88,880
$ 133,320](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F00c65bd1-b740-46bd-a670-b6278e5d4771%2F0b16f2c9-bd7c-4c1f-aa14-c917ecf74e82%2Fs7upx5n_processed.png&w=3840&q=75)
Transcribed Image Text:CHALLENGE
10. Using the following data for Jackson Products Company, answer Parts a through g:
Jackson Products Company's Balance Sheet
December 31, 2010
$ 240,000
Accounts payable
$ 380,000
Cash
Accounts receivable
320,000
Nates payable (9%)
420,000
Inventory
1,040,000
Other current liabilities
50,000
Total current assets
$1,600,000
Total current liabilities
$ 850,000
Net plant and equipment
800,000
Long-tem debt (10%)
Stockholders' equity
800,000
Total assets
$2,400,000
750,000
Total liabilities and
stockhalders' equity
$2,400,000
Income Statement for the Year Ended December 31, 2010
Net sales (all on credit)
$3,000,000
Cost af sales
1,800,000
Gross profit
Selling, general, and administrative expenses
Eamings before interest and taxes
$1,200,000
860,000
$ 340,000
Interest:
Notes
$37,800
Long-term debt
Total interest charges
80,000
117,800
Eamings before taxes
$ 222,200
Federal income tax (40%)
Eamings after taxes
88,880
$ 133,320
![Industry Averages
Current ratio
2.5:1
Quick ratio
1.1:1
Average collection period (365-day year)
35 days
Inventory turnaver ratio
Tatal asset tumover ratio
Times interest earmed ratio
2.4 times
1.4 times
3.5 times
Net prafit margin ratio
4.0%
Retum an investment ratio
5.6%
Tatal assets/stockholders' equity (equity multiplier) ratio
Retum an stockholders' equity ratio
3.0 times
16.8%
P/E ratio
9.0 times
a. Evaluate the liquidity position of Jackson relative to that of the average firm
in the industry. Consider the current ratio, the quick ratio, and the net work-
ing capital (current assets minus current liabilities) for Jackson. What pro-
blems, if any, are suggested by this analysis?
b. Evaluate Jackson's performance by looking at key asset management ratios.
Are any problems apparent from this analysis?
c. Evaluate the financial risk of Jackson by examining its times interest earned
ratio and its equity multiplier ratio relative to the same industry average ratios.
d. Evaluate the profitability of Jackson relative to that of the average firm in its
industry.
e. Give an overall evaluation of the performance of Jackson relative to other
firms in its industry.
f. Perform a DuPont analysis for Jackson. What areas appear to have the great-
est need for improvement?
g. Jackson's current P/E ratio is 7 times. What factor(s) are most likely to
account for this ratio relative to the higher industry average ratio?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F00c65bd1-b740-46bd-a670-b6278e5d4771%2F0b16f2c9-bd7c-4c1f-aa14-c917ecf74e82%2F6cz1f8p_processed.png&w=3840&q=75)
Transcribed Image Text:Industry Averages
Current ratio
2.5:1
Quick ratio
1.1:1
Average collection period (365-day year)
35 days
Inventory turnaver ratio
Tatal asset tumover ratio
Times interest earmed ratio
2.4 times
1.4 times
3.5 times
Net prafit margin ratio
4.0%
Retum an investment ratio
5.6%
Tatal assets/stockholders' equity (equity multiplier) ratio
Retum an stockholders' equity ratio
3.0 times
16.8%
P/E ratio
9.0 times
a. Evaluate the liquidity position of Jackson relative to that of the average firm
in the industry. Consider the current ratio, the quick ratio, and the net work-
ing capital (current assets minus current liabilities) for Jackson. What pro-
blems, if any, are suggested by this analysis?
b. Evaluate Jackson's performance by looking at key asset management ratios.
Are any problems apparent from this analysis?
c. Evaluate the financial risk of Jackson by examining its times interest earned
ratio and its equity multiplier ratio relative to the same industry average ratios.
d. Evaluate the profitability of Jackson relative to that of the average firm in its
industry.
e. Give an overall evaluation of the performance of Jackson relative to other
firms in its industry.
f. Perform a DuPont analysis for Jackson. What areas appear to have the great-
est need for improvement?
g. Jackson's current P/E ratio is 7 times. What factor(s) are most likely to
account for this ratio relative to the higher industry average ratio?
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