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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?

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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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
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?
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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