Given the following financial statements, historical ratios, and industry averages, calculate  J & J Company's financial ratios for the most recent year. (Assume a 365-day year.) Analyze its overall financial situation from both a cross-sectional and a time-series viewpoint. Break your analysis into evaluations of the firm's liquidity, activity, debt, profitability, and market.

J & J Company Income Statement for the Year Ended December 31, 2015
Sales revenue	$	10,000,000
Less: Cost of goods sold		7,500,000
Gross profits	$	2,500,000
Less: Operating expenses
Selling expense	$	300,000
General and administrative expenses		650,000
Lease expense		50,000
Depreciation expense		200,000
Total operating expense	$	1,200,000
Operating profits	$	1,300,000
Less: Interest expense		200,000
Net profits before taxes	$	1,100,000
Less: Taxes (rate = 40%)		440,000
Net profits after taxes	$	660,000
Less: Preferred stock dividends		50,000
Earnings available for common stockholders	$	610,000
Earnings per share (EPS)		$3.05

J & J Company Balance Sheet December 31, 2015
Assets		Liabilities and Stockholders* Equity
Cash	$200,000	Accounts payable*	$900,000
Marketable securities	50,000	Notes payable	200,000
Accounts receivable	800,000	Accruals	100,000
Inventories	950,000	Total current liabilities	$1,200,000
Total current assets	$2,000,000	Long-term debt (includes financial leases)	$3,000,000
Gross fixed assets (at cost)	$12,000,000	Preferred stock (25,000 shares, $2 dividend)	$1,000,000
Less: Accumulated depreciation	3,000,000	Common stock (200,000 shares at $3 par)	600,000
Net fixed assets	$9,000,000	Paid-in capital in excess of par value	5,200,000
Other assets	$1,000,000	Retained earnings	1,000,000
Total assets	$12,000,00	Total stockholders* equity	$7,800,000
		Total liabilities and stockholders* equity	$12,000,00
* Annual credit purchases of $6,200,00 were made during the year. * on December 31, 2015, the firm's common stock closed at $39.50 per share.

Historical and Industry Average Ratios for  J & J Company
Ratio	Actual 2013	Actual 2014	Industry average, 2015
Current ratio	1.40	1.55	1.85
Quick ratio	1.00	0.92	1.05
Inventory turnover	9.52	9.21	8.60
Average collection period	45.6 days	36.9 days	35.5 days
Average payment period	59.3 days	61.6 days	46.4 days
Total asset turnover	0.74	0.80	0.74
Debt ratio	0.20	0.20	0.30
Times interest earned ratio	8.2	7.3	8.0
Fixed-payment coverage ratio	4.5	4.2	4.2
Gross profit margin	0.30	0.27	0.25
Operating profit margin	0.12	0.12	0.10
Net profit margin	0.062	0.062	0.053
Return on total assets (ROA)	0.045	0.050	0.040
Return on common equity (ROE)	0.061	0.067	0.066
Earnings per share (EPS)	$1.75	$2.20	$1.50
Price/earnings (P/E) ratio	12.0	10.5	11.2
Market/book (M/B) ratio	1.20	1.05	1.10

Answer rating: 100% (QA)

Liquidity To investigate the organizations liquidity which is its capacity to take care of its present moment liabilities utilizing its transient resources we have current proportion and speedy propor... View the full answer