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Presentation/PPT
27/08/2022
Using the following data for Jackson Products Company, answer Parts a through g:
Jackson Products Company’s Balance Sheet December 31, 2013
Cash $ 240,000
Accounts payable $ 380,000
Accounts receivable 320,000
Notes 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-term debt (10%) 800,000
Total assets $2,400,000
Stockholders’ equity 750,000
Total liabilities and stockholders’ equity $2,400,000
Income Statement for the Year Ended December 31, 2013
Net sales (all on credit) $3,000,000
Cost of sales 1,800,000
Gross profit $1,200,000
Selling, general, and administrative expenses 860,000
Earnings before interest and taxes $340,000
Interest: Notes $37,800 Long-term debt 80,000 Total interest charges 117,800
Earnings before taxes $222,200
Federal income tax (40%) 88,880
Earnings after taxes $133,320
Industry Averages Current ratio 2.5:1
Quick ratio 1.1:1
Average collection period (365-day year) 35 days Inventory turnover ratio 2.4 times
Total asset turnover ratio 1.4 times Times
interest earned ratio 3.5 times
Net profit margin ratio 4.0%
Return on investment ratio 5.6%
Total assets/stockholders’ equity (equity multiplier) ratio 3.0 times
Return on stockholders’ equity ratio 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 working capital (current assets minus current liabilities) for Jackson. What problems, 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 greatest need for improvement?
g. Jackson’s current P/Eratiois7times.Whatfactor(s)are most likely to account for this ratio relative to the higher industry average ratio?
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