Liquidity position of Company J compared to industry averages by considering current, quick ratio and networking capital and give suggestions.

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Answer 1

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Chapter 3, Problem 10P

a)

Summary Introduction

To evaluate: Liquidity position of Company J compared to industry averages by considering current, quick ratio and networking capital and give suggestions.

a)

Expert Solution

Explanation of Solution

Calculation of current ratio and quick ratio and net working capital:

Current ratio=$1,600,000$850,000=1.88x

Quick ratio=($1,600,000−$1,040,000)$850,000=0.66x

Net working capital=$1,600,000−$850,000=$750,000

Hence, the industry average current ratio is 2.5 as compared to Company J (1.88) which means that, the company maintains lower liquidity.

The quick ratio also indicates the same position. The problem is not sufficient liquidity to cover unforeseen situations wherein there may be a large cash outflow and the firm won’t be able to service it.

b)

Summary Introduction

To evaluate: Company J’s performance by examining key asset management ratios. Whether any problems seeming to this analysis.

b)

Expert Solution

Explanation of Solution

Calculation of asset management ratios:

Average collection period=Average accounts receivablesNet credit sales×365=$320,000$3,000,000×365=38.93 days

Inventory turnover=Cost of goods soldAverage inventory=$1,800,000$1,040,000=1.73

Total asset turnover=Net salesTotal assets=$3,000,000$2,400,000=1.25

The average collection period of company J is 38.93 as compared to 35 days of industry showing that it takes longer period to collect receivables.

The inventory turnover is less and it is a good sign for company J and asset turnover is slightly lower than industry so it indicates a slight underperformance of company J.

c)

Summary Introduction

To evaluate: Company J’s financial risk by examining equity multiplier, times interest earned ratio as compared to industry averages.

c)

Expert Solution

Explanation of Solution

Calculation of times interest earned and equity multiplier:

Times interest earned=EBITInterest expense=$340,000$117,800=2.88

Equity multiplier=1+DE=1+$1,650,000$750,000=3.2

Hence, the times interest earned by company is lower than industry so it is a negative sign shows a higher interest payments and equity multiplier also indicates a higher debt.

d)

Summary Introduction

To evaluate: Profitability of Company J as compared to industry averages.

d)

Expert Solution

Explanation of Solution

Calculation of profit margin:

Profit margin=Net incomeNet sales=$133,320$3,000,000=4.44%

Hence, the profitability of company J is 4.4% as compared to profitability of industry with 4% which is a positive and able to generate higher profits.

Quick ratio=($3.0−$1.0+$1.0)($1.5)=2.0x

Hence, the current ratio and quick ratios are 2.67x and 2.0x, both ratios rise.

e)

Summary Introduction

To discuss: Overall performance of Company J.

e)

Expert Solution

Explanation of Solution

An excessive inventory is being carried by company J and this results in a lesser asset turnover with a weak liquidity position. In all these areas a prospective development is required and the company has outperformed the average firm in the industry in doing this.

f)

Summary Introduction

To perform: DuPont analysis of Company J.

f)

Expert Solution

Explanation of Solution

Calculation of ROE:

ROE=Net profit margin×Total asset turnover×Equity multiplier=$133,320$3,000,000×$3,000,000$2,400,000×$2,400,000$750,000=17.8%

Hence, ROE is 17.8% and the main area for improvement is total asset turnover.

g)

Summary Introduction

To discuss: Factors most likely to account price earnings ratio of Company J compared to industry averages.

g)

Expert Solution

Explanation of Solution

The main factor is the advanced amount of financial risk possessed by firm and also may be supposed as having a lower growth potential than the average firm, although there is no direct proof provided in the information to suggest this.

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Students have asked these similar questions

Using the following data for Jackson Products Company, answer Parts a through g: Evaluate the liquidity position of Jackson relative to that of the average firm in theindustry. Consider the current ratio, the quick ratio, and the net working capital (currentassets minus current liabilities) for Jackson. What problems, if any, are suggested by thisanalysis?b) Evaluate Jackson’s performance by looking at key asset management ratios. Are anyproblem apparent from this analysis?c) Evaluate the financial risk of Jackson by examining its times interest earned ratio and itsequity 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 itsindustry.f) Perform a DuPont analysis for Jackson. What areas appear to have the greatest need forimprovement?g) Jackson’s current P/E ratio is 7 times. What factor(s) are…

Using the data in the following table for a number of firms in the same industry, dothe following:•a. Compute the total asset turnover, the net profit margin, the equity multiplier, andthe return on equity for each firm.b. Evaluate each firm’s performance by comparing the firms with one another.Which firm or firms appear to be having problems? What corrective actionwould you suggest the poorer performing firms take? Finally, what additional data would you want to have on hand when conducting youranalyses?Firm (in million Dollars A B C D Sales $20 $10 $15 $25 Net Income after sales 3 0.5 2.25 3 Total Assets 15 7.5 15 24 Stockholders’ Equity 10 5 14 10

Which of the following is the correct explanation for the purpose of financial risk ratios? Select one: a. They show the probability of whether the company will face problems in operations. b. They show the profitability of the company over a specific period of time. c. They show the relative proportion of debt items with respect to shareholders' equity or total capital. d. They show the relative levels of liquid assets of the company. According to the information given in the table below, which of the following is Raw materials consumed? Opening Stock Raw Materials 32300 Purchases 128800 Freight in 4950 Sales return 2350 Wages paid to labor 78900 Closing Stock Raw Materials 28400 Select one: a. 135300 b. 149900 c. 143700 d. 137650 d. Current ratio

Answer 2

Question

100%

Chapter 3, Problem 10P

a)

Summary Introduction

To evaluate: Liquidity position of Company J compared to industry averages by considering current, quick ratio and networking capital and give suggestions.

a)

Expert Solution

Explanation of Solution

Calculation of current ratio and quick ratio and net working capital:

Current ratio=$1,600,000$850,000=1.88x

Quick ratio=($1,600,000−$1,040,000)$850,000=0.66x

Net working capital=$1,600,000−$850,000=$750,000

Hence, the industry average current ratio is 2.5 as compared to Company J (1.88) which means that, the company maintains lower liquidity.

The quick ratio also indicates the same position. The problem is not sufficient liquidity to cover unforeseen situations wherein there may be a large cash outflow and the firm won’t be able to service it.

b)

Summary Introduction

To evaluate: Company J’s performance by examining key asset management ratios. Whether any problems seeming to this analysis.

b)

Expert Solution

Explanation of Solution

Calculation of asset management ratios:

Average collection period=Average accounts receivablesNet credit sales×365=$320,000$3,000,000×365=38.93 days

Inventory turnover=Cost of goods soldAverage inventory=$1,800,000$1,040,000=1.73

Total asset turnover=Net salesTotal assets=$3,000,000$2,400,000=1.25

The average collection period of company J is 38.93 as compared to 35 days of industry showing that it takes longer period to collect receivables.

The inventory turnover is less and it is a good sign for company J and asset turnover is slightly lower than industry so it indicates a slight underperformance of company J.

c)

Summary Introduction

To evaluate: Company J’s financial risk by examining equity multiplier, times interest earned ratio as compared to industry averages.

c)

Expert Solution

Explanation of Solution

Calculation of times interest earned and equity multiplier:

Times interest earned=EBITInterest expense=$340,000$117,800=2.88

Equity multiplier=1+DE=1+$1,650,000$750,000=3.2

Hence, the times interest earned by company is lower than industry so it is a negative sign shows a higher interest payments and equity multiplier also indicates a higher debt.

d)

Summary Introduction

To evaluate: Profitability of Company J as compared to industry averages.

d)

Expert Solution

Explanation of Solution

Calculation of profit margin:

Profit margin=Net incomeNet sales=$133,320$3,000,000=4.44%

Hence, the profitability of company J is 4.4% as compared to profitability of industry with 4% which is a positive and able to generate higher profits.

Quick ratio=($3.0−$1.0+$1.0)($1.5)=2.0x

Hence, the current ratio and quick ratios are 2.67x and 2.0x, both ratios rise.

e)

Summary Introduction

To discuss: Overall performance of Company J.

e)

Expert Solution

Explanation of Solution

An excessive inventory is being carried by company J and this results in a lesser asset turnover with a weak liquidity position. In all these areas a prospective development is required and the company has outperformed the average firm in the industry in doing this.

f)

Summary Introduction

To perform: DuPont analysis of Company J.

f)

Expert Solution

Explanation of Solution

Calculation of ROE:

ROE=Net profit margin×Total asset turnover×Equity multiplier=$133,320$3,000,000×$3,000,000$2,400,000×$2,400,000$750,000=17.8%

Hence, ROE is 17.8% and the main area for improvement is total asset turnover.

g)

Summary Introduction

To discuss: Factors most likely to account price earnings ratio of Company J compared to industry averages.

g)

Expert Solution

Explanation of Solution

The main factor is the advanced amount of financial risk possessed by firm and also may be supposed as having a lower growth potential than the average firm, although there is no direct proof provided in the information to suggest this.

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Answer 3

Question

100%

Chapter 3, Problem 10P

a)

Summary Introduction

To evaluate: Liquidity position of Company J compared to industry averages by considering current, quick ratio and networking capital and give suggestions.

a)

Expert Solution

Explanation of Solution

Calculation of current ratio and quick ratio and net working capital:

Current ratio=$1,600,000$850,000=1.88x

Quick ratio=($1,600,000−$1,040,000)$850,000=0.66x

Net working capital=$1,600,000−$850,000=$750,000

Hence, the industry average current ratio is 2.5 as compared to Company J (1.88) which means that, the company maintains lower liquidity.

The quick ratio also indicates the same position. The problem is not sufficient liquidity to cover unforeseen situations wherein there may be a large cash outflow and the firm won’t be able to service it.

b)

Summary Introduction

To evaluate: Company J’s performance by examining key asset management ratios. Whether any problems seeming to this analysis.

b)

Expert Solution

Explanation of Solution

Calculation of asset management ratios:

Average collection period=Average accounts receivablesNet credit sales×365=$320,000$3,000,000×365=38.93 days

Inventory turnover=Cost of goods soldAverage inventory=$1,800,000$1,040,000=1.73

Total asset turnover=Net salesTotal assets=$3,000,000$2,400,000=1.25

The average collection period of company J is 38.93 as compared to 35 days of industry showing that it takes longer period to collect receivables.

The inventory turnover is less and it is a good sign for company J and asset turnover is slightly lower than industry so it indicates a slight underperformance of company J.

c)

Summary Introduction

To evaluate: Company J’s financial risk by examining equity multiplier, times interest earned ratio as compared to industry averages.

c)

Expert Solution

Explanation of Solution

Calculation of times interest earned and equity multiplier:

Times interest earned=EBITInterest expense=$340,000$117,800=2.88

Equity multiplier=1+DE=1+$1,650,000$750,000=3.2

Hence, the times interest earned by company is lower than industry so it is a negative sign shows a higher interest payments and equity multiplier also indicates a higher debt.

d)

Summary Introduction

To evaluate: Profitability of Company J as compared to industry averages.

d)

Expert Solution

Explanation of Solution

Calculation of profit margin:

Profit margin=Net incomeNet sales=$133,320$3,000,000=4.44%

Hence, the profitability of company J is 4.4% as compared to profitability of industry with 4% which is a positive and able to generate higher profits.

Quick ratio=($3.0−$1.0+$1.0)($1.5)=2.0x

Hence, the current ratio and quick ratios are 2.67x and 2.0x, both ratios rise.

e)

Summary Introduction

To discuss: Overall performance of Company J.

e)

Expert Solution

Explanation of Solution

An excessive inventory is being carried by company J and this results in a lesser asset turnover with a weak liquidity position. In all these areas a prospective development is required and the company has outperformed the average firm in the industry in doing this.

f)

Summary Introduction

To perform: DuPont analysis of Company J.

f)

Expert Solution

Explanation of Solution

Calculation of ROE:

ROE=Net profit margin×Total asset turnover×Equity multiplier=$133,320$3,000,000×$3,000,000$2,400,000×$2,400,000$750,000=17.8%

Hence, ROE is 17.8% and the main area for improvement is total asset turnover.

g)

Summary Introduction

To discuss: Factors most likely to account price earnings ratio of Company J compared to industry averages.

g)

Expert Solution

Explanation of Solution

The main factor is the advanced amount of financial risk possessed by firm and also may be supposed as having a lower growth potential than the average firm, although there is no direct proof provided in the information to suggest this.

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Answer 4

Question

100%

Chapter 3, Problem 10P

a)

Summary Introduction

To evaluate: Liquidity position of Company J compared to industry averages by considering current, quick ratio and networking capital and give suggestions.

a)

Expert Solution

Explanation of Solution

Calculation of current ratio and quick ratio and net working capital:

Current ratio=$1,600,000$850,000=1.88x

Quick ratio=($1,600,000−$1,040,000)$850,000=0.66x

Net working capital=$1,600,000−$850,000=$750,000

Hence, the industry average current ratio is 2.5 as compared to Company J (1.88) which means that, the company maintains lower liquidity.

The quick ratio also indicates the same position. The problem is not sufficient liquidity to cover unforeseen situations wherein there may be a large cash outflow and the firm won’t be able to service it.

b)

Summary Introduction

To evaluate: Company J’s performance by examining key asset management ratios. Whether any problems seeming to this analysis.

b)

Expert Solution

Explanation of Solution

Calculation of asset management ratios:

Average collection period=Average accounts receivablesNet credit sales×365=$320,000$3,000,000×365=38.93 days

Inventory turnover=Cost of goods soldAverage inventory=$1,800,000$1,040,000=1.73

Total asset turnover=Net salesTotal assets=$3,000,000$2,400,000=1.25

The average collection period of company J is 38.93 as compared to 35 days of industry showing that it takes longer period to collect receivables.

The inventory turnover is less and it is a good sign for company J and asset turnover is slightly lower than industry so it indicates a slight underperformance of company J.

c)

Summary Introduction

To evaluate: Company J’s financial risk by examining equity multiplier, times interest earned ratio as compared to industry averages.

c)

Expert Solution

Explanation of Solution

Calculation of times interest earned and equity multiplier:

Times interest earned=EBITInterest expense=$340,000$117,800=2.88

Equity multiplier=1+DE=1+$1,650,000$750,000=3.2

Hence, the times interest earned by company is lower than industry so it is a negative sign shows a higher interest payments and equity multiplier also indicates a higher debt.

d)

Summary Introduction

To evaluate: Profitability of Company J as compared to industry averages.

d)

Expert Solution

Explanation of Solution

Calculation of profit margin:

Profit margin=Net incomeNet sales=$133,320$3,000,000=4.44%

Hence, the profitability of company J is 4.4% as compared to profitability of industry with 4% which is a positive and able to generate higher profits.

Quick ratio=($3.0−$1.0+$1.0)($1.5)=2.0x

Hence, the current ratio and quick ratios are 2.67x and 2.0x, both ratios rise.

e)

Summary Introduction

To discuss: Overall performance of Company J.

e)

Expert Solution

Explanation of Solution

An excessive inventory is being carried by company J and this results in a lesser asset turnover with a weak liquidity position. In all these areas a prospective development is required and the company has outperformed the average firm in the industry in doing this.

f)

Summary Introduction

To perform: DuPont analysis of Company J.

f)

Expert Solution

Explanation of Solution

Calculation of ROE:

ROE=Net profit margin×Total asset turnover×Equity multiplier=$133,320$3,000,000×$3,000,000$2,400,000×$2,400,000$750,000=17.8%

Hence, ROE is 17.8% and the main area for improvement is total asset turnover.

g)

Summary Introduction

To discuss: Factors most likely to account price earnings ratio of Company J compared to industry averages.

g)

Expert Solution

Explanation of Solution

The main factor is the advanced amount of financial risk possessed by firm and also may be supposed as having a lower growth potential than the average firm, although there is no direct proof provided in the information to suggest this.

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Answer 5

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Answer 6

Question

100%

Answer 7

Chapter 3, Problem 10P

a)

Summary Introduction

To evaluate: Liquidity position of Company J compared to industry averages by considering current, quick ratio and networking capital and give suggestions.

a)

Expert Solution

Explanation of Solution

Calculation of current ratio and quick ratio and net working capital:

Current ratio=$1,600,000$850,000=1.88x

Quick ratio=($1,600,000−$1,040,000)$850,000=0.66x

Net working capital=$1,600,000−$850,000=$750,000

Hence, the industry average current ratio is 2.5 as compared to Company J (1.88) which means that, the company maintains lower liquidity.

The quick ratio also indicates the same position. The problem is not sufficient liquidity to cover unforeseen situations wherein there may be a large cash outflow and the firm won’t be able to service it.

b)

Summary Introduction

To evaluate: Company J’s performance by examining key asset management ratios. Whether any problems seeming to this analysis.

b)

Expert Solution

Explanation of Solution

Calculation of asset management ratios:

Average collection period=Average accounts receivablesNet credit sales×365=$320,000$3,000,000×365=38.93 days

Inventory turnover=Cost of goods soldAverage inventory=$1,800,000$1,040,000=1.73

Total asset turnover=Net salesTotal assets=$3,000,000$2,400,000=1.25

The average collection period of company J is 38.93 as compared to 35 days of industry showing that it takes longer period to collect receivables.

The inventory turnover is less and it is a good sign for company J and asset turnover is slightly lower than industry so it indicates a slight underperformance of company J.

c)

Summary Introduction

To evaluate: Company J’s financial risk by examining equity multiplier, times interest earned ratio as compared to industry averages.

c)

Expert Solution

Explanation of Solution

Calculation of times interest earned and equity multiplier:

Times interest earned=EBITInterest expense=$340,000$117,800=2.88

Equity multiplier=1+DE=1+$1,650,000$750,000=3.2

Hence, the times interest earned by company is lower than industry so it is a negative sign shows a higher interest payments and equity multiplier also indicates a higher debt.

d)

Summary Introduction

To evaluate: Profitability of Company J as compared to industry averages.

d)

Expert Solution

Explanation of Solution

Calculation of profit margin:

Profit margin=Net incomeNet sales=$133,320$3,000,000=4.44%

Hence, the profitability of company J is 4.4% as compared to profitability of industry with 4% which is a positive and able to generate higher profits.

Quick ratio=($3.0−$1.0+$1.0)($1.5)=2.0x

Hence, the current ratio and quick ratios are 2.67x and 2.0x, both ratios rise.

e)

Summary Introduction

To discuss: Overall performance of Company J.

e)

Expert Solution

Explanation of Solution

An excessive inventory is being carried by company J and this results in a lesser asset turnover with a weak liquidity position. In all these areas a prospective development is required and the company has outperformed the average firm in the industry in doing this.

f)

Summary Introduction

To perform: DuPont analysis of Company J.

f)

Expert Solution

Explanation of Solution

Calculation of ROE:

ROE=Net profit margin×Total asset turnover×Equity multiplier=$133,320$3,000,000×$3,000,000$2,400,000×$2,400,000$750,000=17.8%

Hence, ROE is 17.8% and the main area for improvement is total asset turnover.

g)

Summary Introduction

To discuss: Factors most likely to account price earnings ratio of Company J compared to industry averages.

g)

Expert Solution

Explanation of Solution

The main factor is the advanced amount of financial risk possessed by firm and also may be supposed as having a lower growth potential than the average firm, although there is no direct proof provided in the information to suggest this.

Answer 8

Chapter 3, Problem 10P

a)

Summary Introduction

To evaluate: Liquidity position of Company J compared to industry averages by considering current, quick ratio and networking capital and give suggestions.

a)

Expert Solution

Explanation of Solution

Calculation of current ratio and quick ratio and net working capital:

Current ratio=$1,600,000$850,000=1.88x

Quick ratio=($1,600,000−$1,040,000)$850,000=0.66x

Net working capital=$1,600,000−$850,000=$750,000

Hence, the industry average current ratio is 2.5 as compared to Company J (1.88) which means that, the company maintains lower liquidity.

The quick ratio also indicates the same position. The problem is not sufficient liquidity to cover unforeseen situations wherein there may be a large cash outflow and the firm won’t be able to service it.

Answer 9

Chapter 3, Problem 10P

a)

Summary Introduction

To evaluate: Liquidity position of Company J compared to industry averages by considering current, quick ratio and networking capital and give suggestions.

Answer 10

a)

Expert Solution

Explanation of Solution

Calculation of current ratio and quick ratio and net working capital:

Current ratio=$1,600,000$850,000=1.88x

Quick ratio=($1,600,000−$1,040,000)$850,000=0.66x

Net working capital=$1,600,000−$850,000=$750,000

Hence, the industry average current ratio is 2.5 as compared to Company J (1.88) which means that, the company maintains lower liquidity.

The quick ratio also indicates the same position. The problem is not sufficient liquidity to cover unforeseen situations wherein there may be a large cash outflow and the firm won’t be able to service it.

Answer 11

a)

Expert Solution

Answer 12

a)

Expert Solution

Answer 13

Expert Solution

Answer 14

b)

Summary Introduction

To evaluate: Company J’s performance by examining key asset management ratios. Whether any problems seeming to this analysis.

b)

Expert Solution

Explanation of Solution

Calculation of asset management ratios:

Average collection period=Average accounts receivablesNet credit sales×365=$320,000$3,000,000×365=38.93 days

Inventory turnover=Cost of goods soldAverage inventory=$1,800,000$1,040,000=1.73

Total asset turnover=Net salesTotal assets=$3,000,000$2,400,000=1.25

The average collection period of company J is 38.93 as compared to 35 days of industry showing that it takes longer period to collect receivables.

The inventory turnover is less and it is a good sign for company J and asset turnover is slightly lower than industry so it indicates a slight underperformance of company J.

Answer 15

b)

Summary Introduction

To evaluate: Company J’s performance by examining key asset management ratios. Whether any problems seeming to this analysis.

Answer 16

b)

Expert Solution

Explanation of Solution

Calculation of asset management ratios:

Average collection period=Average accounts receivablesNet credit sales×365=$320,000$3,000,000×365=38.93 days

Inventory turnover=Cost of goods soldAverage inventory=$1,800,000$1,040,000=1.73

Total asset turnover=Net salesTotal assets=$3,000,000$2,400,000=1.25

The average collection period of company J is 38.93 as compared to 35 days of industry showing that it takes longer period to collect receivables.

The inventory turnover is less and it is a good sign for company J and asset turnover is slightly lower than industry so it indicates a slight underperformance of company J.

Answer 17

b)

Expert Solution

Answer 18

b)

Expert Solution

Answer 19

Expert Solution

Answer 20

c)

Summary Introduction

To evaluate: Company J’s financial risk by examining equity multiplier, times interest earned ratio as compared to industry averages.

c)

Expert Solution

Explanation of Solution

Calculation of times interest earned and equity multiplier:

Times interest earned=EBITInterest expense=$340,000$117,800=2.88

Equity multiplier=1+DE=1+$1,650,000$750,000=3.2

Hence, the times interest earned by company is lower than industry so it is a negative sign shows a higher interest payments and equity multiplier also indicates a higher debt.

Answer 21

c)

Summary Introduction

To evaluate: Company J’s financial risk by examining equity multiplier, times interest earned ratio as compared to industry averages.

Answer 22

c)

Expert Solution

Explanation of Solution

Calculation of times interest earned and equity multiplier:

Times interest earned=EBITInterest expense=$340,000$117,800=2.88

Equity multiplier=1+DE=1+$1,650,000$750,000=3.2

Hence, the times interest earned by company is lower than industry so it is a negative sign shows a higher interest payments and equity multiplier also indicates a higher debt.

Answer 23

c)

Expert Solution

Answer 24

c)

Expert Solution

Answer 25

Expert Solution

Answer 26

d)

Summary Introduction

To evaluate: Profitability of Company J as compared to industry averages.

d)

Expert Solution

Explanation of Solution

Calculation of profit margin:

Profit margin=Net incomeNet sales=$133,320$3,000,000=4.44%

Hence, the profitability of company J is 4.4% as compared to profitability of industry with 4% which is a positive and able to generate higher profits.

Quick ratio=($3.0−$1.0+$1.0)($1.5)=2.0x

Hence, the current ratio and quick ratios are 2.67x and 2.0x, both ratios rise.

Answer 27

d)

Summary Introduction

To evaluate: Profitability of Company J as compared to industry averages.

Answer 28

d)

Expert Solution

Explanation of Solution

Calculation of profit margin:

Profit margin=Net incomeNet sales=$133,320$3,000,000=4.44%

Hence, the profitability of company J is 4.4% as compared to profitability of industry with 4% which is a positive and able to generate higher profits.

Quick ratio=($3.0−$1.0+$1.0)($1.5)=2.0x

Hence, the current ratio and quick ratios are 2.67x and 2.0x, both ratios rise.

Answer 29

d)

Expert Solution

Answer 30

d)

Expert Solution

Answer 31

Expert Solution

Answer 32

e)

Summary Introduction

To discuss: Overall performance of Company J.

e)

Expert Solution

Explanation of Solution

An excessive inventory is being carried by company J and this results in a lesser asset turnover with a weak liquidity position. In all these areas a prospective development is required and the company has outperformed the average firm in the industry in doing this.

Answer 33

e)

Summary Introduction

To discuss: Overall performance of Company J.

Answer 34

e)

Expert Solution

Explanation of Solution

An excessive inventory is being carried by company J and this results in a lesser asset turnover with a weak liquidity position. In all these areas a prospective development is required and the company has outperformed the average firm in the industry in doing this.

Answer 35

e)

Expert Solution

Answer 36

e)

Expert Solution

Answer 37

Expert Solution

Answer 38

f)

Summary Introduction

To perform: DuPont analysis of Company J.

f)

Expert Solution

Explanation of Solution

Calculation of ROE:

ROE=Net profit margin×Total asset turnover×Equity multiplier=$133,320$3,000,000×$3,000,000$2,400,000×$2,400,000$750,000=17.8%

Hence, ROE is 17.8% and the main area for improvement is total asset turnover.

Answer 39

f)

Summary Introduction

To perform: DuPont analysis of Company J.

Answer 40

f)

Expert Solution

Explanation of Solution

Calculation of ROE:

ROE=Net profit margin×Total asset turnover×Equity multiplier=$133,320$3,000,000×$3,000,000$2,400,000×$2,400,000$750,000=17.8%

Hence, ROE is 17.8% and the main area for improvement is total asset turnover.

Answer 41

f)

Expert Solution

Answer 42

f)

Expert Solution

Answer 43

Expert Solution

Answer 44

g)

Summary Introduction

To discuss: Factors most likely to account price earnings ratio of Company J compared to industry averages.

g)

Expert Solution

Explanation of Solution

The main factor is the advanced amount of financial risk possessed by firm and also may be supposed as having a lower growth potential than the average firm, although there is no direct proof provided in the information to suggest this.

Answer 45

g)

Summary Introduction

To discuss: Factors most likely to account price earnings ratio of Company J compared to industry averages.

Answer 46

g)

Expert Solution

Explanation of Solution

The main factor is the advanced amount of financial risk possessed by firm and also may be supposed as having a lower growth potential than the average firm, although there is no direct proof provided in the information to suggest this.