Cash $ 77,500 Accounts payable $129,000 Receivables 336,000 Other current liabilities 117,000 Inventories 241,500 Notes payable to bank 84,000 Total current assets $ 655,000 Total current liabilities $330,000 Long-term debt 256,500 Net fixed assets 292,500 Common equity (36,100 shares) 361,000 Total assets $ 947,500 Total liabilities and equity $947,500 Barry Computer Company: Income Statement for Year Ended December 31, 2019 (in Thousands) Sales $1,607,500 Cost of goods sold Materials $717,000 Labor 453,000 Heat, light, and power 68,000 Indirect labor 113,000 Depreciation 41,500 1,392,500 Gross profit $ 215,000 Selling expenses 115,000 General and administrative expenses 30,000 Earnings before interest and taxes (EBIT) $ 70,000 Interest expense 21,000 Earnings before taxes (EBT) 49,000 Federal and state income taxes (25%) 12,250 Net income 36,750 Earnings per share 1.018 %24 Earnings per share 1.018 Price per share on December 31, 2019 12.00 Ratio Barry Industry Average Current 2.0X Quick 1.3X Days sales outstanding 35 days Inventory turnover 6.7X Total assets turnover 3.0X Profit margin 1.6% ROA 4.8% ROE 12.1% ROIC 9.4% TIE 3.5X Debt/Total capital 47.0% M/B 4.22X P/E 13.27 EV/EBITDA 9.14 aCalculation is based on 365-day year. %24

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

Chapter12: Fainancial Statement Analysis

Section: Chapter Questions

Problem 18MCQ

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Question

RATIO ANALYSIS Data for Barry Computer Co. and its industry averages follow. The
firm’s debt is priced at par, so the market value of its debt equals its book value. Since
dollars are in thousands, number of shares are shown in thousands too.
a. Calculate the indicated ratios for Barry
b. Construct the DuPont equation for both Barry and the industry.
c. Outline Barry’s strengths and weaknesses as revealed by your analysis.
d. Suppose Barry had doubled its sales as well as its inventories, accounts
receivable, and common equity during 2019. How would that information affect
the validity of your ratio analysis? (Hint: Think about averages and the effects of
rapid growth on ratios if averages are not used. No calculations are needed.)
Barry Computer Company: Balance Sheet as of December 31, 2019 (in Thousands)

Cash
$ 77,500
Accounts payable
$129,000
Receivables
336,000
Other current liabilities
117,000
Inventories
241,500
Notes payable to bank
84,000
Total current assets
$ 655,000
Total current liabilities
$330,000
Long-term debt
256,500
Net fixed assets
292,500
Common equity (36,100 shares)
361,000
Total assets
$ 947,500
Total liabilities and equity
$947,500
Barry Computer Company: Income Statement for Year Ended December
31, 2019 (in Thousands)
Sales
$1,607,500
Cost of goods sold
Materials
$717,000
Labor
453,000
Heat, light, and power
68,000
Indirect labor
113,000
Depreciation
41,500
1,392,500
Gross profit
$ 215,000
Selling expenses
115,000
General and administrative expenses
30,000
Earnings before interest and taxes (EBIT)
$
70,000
Interest expense
21,000
Earnings before taxes (EBT)
49,000
Federal and state income taxes (25%)
12,250
Net income
36,750
Earnings per share
1.018
%24

Earnings per share
1.018
Price per share on December 31, 2019
12.00
Ratio
Barry
Industry Average
Current
2.0X
Quick
1.3X
Days sales outstanding
35 days
Inventory turnover
6.7X
Total assets turnover
3.0X
Profit margin
1.6%
ROA
4.8%
ROE
12.1%
ROIC
9.4%
TIE
3.5X
Debt/Total capital
47.0%
M/B
4.22X
P/E
13.27
EV/EBITDA
9.14
aCalculation is based on 365-day year.
%24

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