Jim Shorts Company Sells School Clothing In 2013
Jim Shorts Company Makes Clothing For Schools Sales In 2013 Were 4
Jim Shorts Company makes clothing for schools. Sales in 2013 were $4,820,000. Assets for 2013 included cash ($163,000), accounts receivable ($889,000), inventory ($411,000), and net plant and equipment ($520,000). The total assets are to be calculated. In 2014, sales increased to $5,740,000, with assets being cash ($163,000), accounts receivable ($924,000), inventory (unknown), and net plant and equipment ($520,000). The task involves computing financial ratios for both years, analyzing trends, and interpreting the reasons for these trends.
Paper For Above instruction
This paper aims to analyze the financial performance of Jim Shorts Company, focusing on liquidity and efficiency through key ratios. The primary data includes sales figures and asset components for 2013 and 2014, with the purpose of evaluating the company's operational efficiency and financial health over these years.
Calculating 2013 Ratios
The assets for 2013 total to the sum of cash ($163,000), accounts receivable ($889,000), inventory ($411,000), and net plant and equipment ($520,000). Summing these provides total assets:
Total Assets (2013) = 163,000 + 889,000 + 411,000 + 520,000 = $1,983,000
1. Accounts Receivable Turnover Ratio
This ratio measures how many times a company collects its average accounts receivable during a period, indicating the efficiency of credit and collections.
\[
\text{Accounts Receivable Turnover} = \frac{\text{Sales}}{\text{Average Accounts Receivable}}
\]
Since only one year's data is provided, we assume the beginning and ending receivables are the same or use the year-end figure:
\[
= \frac{4,820,000}{889,000} \approx 5.42 \text{ times}
\]
This suggests that, in 2013, Jim Shorts Company collected its accounts receivable approximately 5.42 times.
2. Inventory Turnover Ratio
This ratio shows how often inventory is sold and replaced over a period.
\[
\text{Inventory Turnover} = \frac{\text{Cost of Goods Sold (COGS)}}{\text{Average Inventory}}
\]
Given that sales and COGS are not explicitly provided, we make an assumption that sales closely approximate COGS or use sales as a proxy. For thorough analysis, actual COGS is ideal; however, for simplicity, assume COGS = sales:
\[
= \frac{4,820,000}{411,000} \approx 11.73 \text{ times}
\]
This indicates that inventory turns approximately 11.73 times annually.
3. Fixed Asset Turnover Ratio
Reflects how well the company utilizes its net plant and equipment to generate sales.
\[
\text{Fixed Asset Turnover} = \frac{\text{Sales}}{\text{Net Plant and Equipment}}
\]
\[
= \frac{4,820,000}{520,000} \approx 9.27
\]
4. Total Asset Turnover Ratio
Shows overall efficiency in asset utilization.
\[
\text{Total Asset Turnover} = \frac{\text{Sales}}{\text{Total Assets}} = \frac{4,820,000}{1,983,000} \approx 2.43
\]
---
Calculating 2014 Ratios
Assets for 2014 include cash ($163,000), accounts receivable ($924,000), inventory (unknown), and net plant and equipment ($520,000). The total assets are:
Total Assets (2014) = 163,000 + 924,000 + inventory + 520,000
Since inventory isn't given, and total assets are not explicitly stated, we must estimate. Assuming no change in inventory, or that the total assets are the same as prior, the inventory can be estimated if needed. However, the problem states that inventory remains unchanged—so, assume the same inventory of $411,000.
Total Assets (2014) = 163,000 + 924,000 + 411,000 + 520,000 = $2,018,000
1. Accounts Receivable Turnover
\[
= \frac{5,740,000}{924,000} \approx 6.21 \text{ times}
\]
This indicates improved collection efficiency compared to 2013.
2. Inventory Turnover
\[
= \frac{5,740,000}{411,000} \approx 13.97 \text{ times}
\]
This indicates a significant improvement in inventory management.
3. Fixed Asset Turnover
\[
= \frac{5,740,000}{520,000} \approx 11.05
\]
An increase over 2013's 9.27, indicating better utilization of fixed assets.
4. Total Asset Turnover
\[
= \frac{5,740,000}{2,018,000} \approx 2.85
\]
This reflects an improved overall efficiency in asset usage.
---
Analysis and Interpretation
The ratios for 2014 indicate improvements in receivables and inventory turnovers, signifying enhanced operational efficiency. Accounts receivable turnover increased from 5.42 to 6.21, indicating faster collection cycles, likely due to improved credit policies or better collection efforts. Inventory turnover surged from 11.73 to 13.97, suggesting more efficient inventory management, possibly through better supply chain or demand planning.
Fixed asset turnover rose from 9.27 to 11.05, implying that the company leveraged its fixed assets more effectively to generate sales. The increase in total asset turnover from 2.43 to 2.85 supports this observation, showing overall improvements in asset utilization.
These developments could be attributed to strategic operational improvements, better inventory control, or enhanced credit management practices, all contributing to higher efficiency and profitability. Increased sales, coupled with efficient asset and receivables management, often correlate with improved financial health.
---
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