Homework Answers
We have reviewed Jim's financial statements and have a few suggestions. Jim's Frame gallery has too much debt(debt to net worth ratio (11.16) is very high), and not generating enough profits ($7500) and overall expenses of firm are very high. quick ratio ((CA-Inventory)/CL) is also much below the industry average of 0.95 indicating that frame galley has more liabilities than assets. This indicates to investors or lenders that you already have a lot of debt and as well as you have high expenses and low profits.
Recommendation is to lower the margin so you can decreases prices and overall sell large number of products and generate more income than current scenario. You can also lower your own wages and when in future you become financially well off you can again raise you wages.
Below are some ratios calculated which are very low as compared to industry averages.
Current ratio 1.74
quick ratio 0.56
debt to net worth ratio 11.16 (very high as compared to average)
return on equity 0.6
net profit on sales 1.5%
net profit to equity 0.6
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