Reference no: EM131119791
Using the following data for Jackson Products Company, answer Parts a through g:
Jackson Products Company's Balance Sheet
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/E ratio is 7 times. What factor(s) are most likely to account for this ratio relative to the higher industry averageratio?