The Jimenez Corporation’s forecasted 2011 financial statements follow, along with some industry average ratios. a. Calculate Jimenez’s 2011 forecasted ratios, compare them with the industry average data, and comment briefly on Jimenez’s projected strengths and weaknesses. b. What do you think would happen to Jimenez’s ratios if the company initiated cost-cutting measures that allowed it to hold lower levels of inventory and substantially decreased the cost of goods sold? No calculations are necessary: Think about which ratios would be affected by changes in these two accounts. Jimenez Corporation: Forecasted Balance Sheet as of December 31, 2011 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 and notes payable $ 432,000 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 2011 Sales $4,290,000 Cost of goods sold 3,580,000 Selling, general, and administrative expenses 370,320 Depreciation 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 Market price (average) $ 23.57 Number of shares outstanding 23,000 Industry Financial Ratios (2010)a Quick ratio 1.0 Current ratio 2.7 Inventory turnoverb 7.0 Days sales outstandingc 32 days Fixed assets turnoverb 13.0 Total assets turnoverb 2.6 Return on assets 9.1% Return on equity 18.2% Debt ratio 50.0% Profit margin on sales 3.5% P/E ratio 6.0 Price/Cash flow ratio 3.5 a Industry average ratios have been constant for the past 4 years. b Based on year-end balance sheet figures. c Calculation is based on a 365-day year.
The Jimenez Corporation’s
some industry average ratios.
a. Calculate Jimenez’s 2011 forecasted ratios, compare them with the industry average
data, and comment briefly on Jimenez’s projected strengths and weaknesses.
b. What do you think would happen to Jimenez’s ratios if the company initiated
cost-cutting measures that allowed it to hold lower levels of inventory and
substantially decreased the cost of goods sold? No calculations are necessary:
Think about which ratios would be affected by changes in these two
accounts.
Jimenez Corporation: Forecasted
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 and notes payable $ 432,000
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:
Sales $4,290,000
Cost of goods sold 3,580,000
Selling, general, and administrative expenses 370,320
Depreciation 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
Market price (average) $ 23.57
Number of shares outstanding 23,000
Industry Financial Ratios (2010)a
Quick ratio 1.0
Current ratio 2.7
Inventory turnoverb 7.0
Days sales outstandingc 32 days
Fixed assets turnoverb 13.0
Total assets turnoverb 2.6
Return on assets 9.1%
Return on equity 18.2%
Debt ratio 50.0%
Profit margin on sales 3.5%
P/E ratio 6.0
Price/
a
Industry average ratios have been constant for the past 4 years.
b
Based on year-end balance sheet figures.
c
Calculation is based on a 365-day year.
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