Chapter 4 Homework Answers

Chapter 4 Homework Answers - 9. a. Jackson's current ratio...

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CHAPTER 4 EVALUATION OF FIRM PERFORMANCE SOLUTIONS TO PROBLEMS: 1. a. Accounts receivable = $219,178 b. Average inventory = $173,333 6. a. Sales = $20,000,000 b. Total assets = $10,000,000 c. Total debt = $4,000,000 d. Current liabilities = $1,200,000 e. Current assets = $2,400,000 f. Fixed assets = $7,600,000 g. Inventories = $1,200,000 h. Accounts receivable = $1,096,000 (rounded to the nearest $1,000) i. Cash = $104,000 7. a. Current ratio = 2x Quick ratio = 1.33x b. Current ratio = 2.2x Quick ratio = 1.4x Both the current and quick ratios rise, even though real liquidity has declined (cash balances are cut in half). c. Current ratio = 2.5x Quick ratio = 1.5x Both the current and the quick ratios rise. d. Current ratio = 2.67x Quick ratio = 2.0x Both the current and the quick ratios rise. e. These examples illustrate how easy it is far a firm to manipulate its current and quick ratios, if necessary. Consequently, conclusions based on these ratios should be viewed with caution. 17
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Chapter 4 – Evaluation of Firm Performance
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Unformatted text preview: 9. a. Jackson's current ratio is 1.88x compared to the industry average of 2.5 times. Jackson's quick ratio is 0.66x compared to an industry average of 1.1x. Jackson has net working capital of $750,000. b. The company has an average collection period of 38.9 days compared to an industry average of 35 days. The company's inventory turnover ratio is only 1.73x compared to an industry average of 2.4x. c. The company's times interest earned ratio is 2.89x compared to the industry average of 3.5x. The company's total assets to stockholders' equity ratio is 3.2x compared to the industry average of 3.0x. d. Jackson's net profit margin of 4.44% exceeds the industry average of 4.0%. The company's return on investment of 5.56% is only slightly below the industry average of 5.6%. e. f. ROI = 0.05555 or 5.6% ROE = 0.1778 or 17.8% g. 18. Enter the known values for the DuPont decomposition formula for ROE: 18...
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Chapter 4 Homework Answers - 9. a. Jackson's current ratio...

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