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RATIO ANALYSIS Data for Barry Computer Co. and its industry averages follow. 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 2015. 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, 2015 (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 361,000 Total assets $947,500 Total liabilities and equity $947,500 Barry Computer Company: Income Statement for Year Ended December 31, 2015 (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 24,500 Earnings before taxes (EBT) $45,500 Federal and state income taxes (40%) 18,200 Net income $27,300 Ratio Barry Industry Average Current _____ 2.0× Quick _____ 1.3× Days sales outstandinga _____ 35 days Inventory turnover _____ 6.7× a Calculation is based on a 365-day year Total assets turnover _____ 3.0× Profit margin _____ 1.20% ROA _____ 0 ROE _____ 9.00% ROIC _____ 0 TIE _____ 3.0× Debt/Total capital _____ 47.00%

BuyFind

Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
Publisher: Cengage Learning
ISBN: 9781285867977
BuyFind

Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
Publisher: Cengage Learning
ISBN: 9781285867977

Solutions

Chapter
Section
Chapter 4, Problem 23P
Textbook Problem

RATIO ANALYSIS Data for Barry Computer Co. and its industry averages follow.

  1. a. Calculate the indicated ratios for Barry.
  2. b. Construct the DuPont equation for both Barry and the industry.
  3. c. Outline Barry’s strengths and weaknesses as revealed by your analysis.
  4. d. Suppose Barry had doubled its sales as well as its inventories, accounts receivable, and common equity during 2015. 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, 2015 (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 361,000
Total assets $947,500 Total liabilities and equity $947,500

Barry Computer Company: Income Statement for Year Ended December 31, 2015 (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 24,500
Earnings before taxes (EBT) $45,500
Federal and state income taxes (40%) 18,200
Net income $27,300
Ratio Barry Industry Average
Current _____ 2.0×
Quick _____ 1.3×
Days sales outstandinga _____ 35 days
Inventory turnover _____ 6.7×
aCalculation is based on a 365-day year
Total assets turnover _____ 3.0×
Profit margin _____ 1.20%
ROA _____ 0
ROE _____ 9.00%
ROIC _____ 0
TIE _____ 3.0×
Debt/Total capital _____ 47.00%

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Chapter 4 Solutions

Fundamentals of Financial Management (MindTap Course List)
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