CHALLENGE10. Using the following data for Jackson Products Company, answer Parts a through g:Jackson Products Company's Balance SheetDecember 31, 2010$ 240,000Accounts payable$ 380,000CashAccounts receivable320,000Nates payable (9%)420,000Inventory1,040,000Other current liabilities50,000Total current assets$1,600,000Total current liabilities$ 850,000Net plant and equipment800,000Long-tem debt (10%)Stockholders' equity800,000Total assets$2,400,000750,000Total liabilities andstockhalders' equity$2,400,000Income Statement for the Year Ended December 31, 2010Net sales (all on credit)$3,000,000Cost af sales1,800,000Gross profitSelling, general, and administrative expensesEamings before interest and taxes$1,200,000860,000$ 340,000Interest:Notes$37,800Long-term debtTotal interest charges80,000117,800Eamings before taxes$ 222,200Federal income tax (40%)Eamings after taxes88,880$ 133,320 Industry AveragesCurrent ratio2.5:1Quick ratio1.1:1Average collection period (365-day year)35 daysInventory turnaver ratioTatal asset tumover ratioTimes interest earmed ratio2.4 times1.4 times3.5 timesNet prafit margin ratio4.0%Retum an investment ratio5.6%Tatal assets/stockholders' equity (equity multiplier) ratioRetum an stockholders' equity ratio3.0 times16.8%P/E ratio9.0 timesa. Evaluate the liquidity position of Jackson relative to that of the average firmin 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 earnedratio 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 itsindustry.e. Give an overall evaluation of the performance of Jackson relative to otherfirms 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 toaccount for this ratio relative to the higher industry average ratio?

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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?

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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