Textbook Problem

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.

1. a. Calculate the indicated ratios for Barry.
2. b. Construct the DuPont equation for both Barry and the industry.
3. c. C Outline Barry’s strengths and weakness as revealed by your analysis.
4. d. Suppose Barry had doubled its sales as Well as its inventories, accounts receivable and common equity during 2018. 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 Calculated are needed.)

Barry Computer Company: Income Statement for Year Ended December 31, 2018 (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
Earnings per share		0.75623
Price per share on December 31, 2018		$ 12.00

Ratio	Barry	Industry Average
Current	_____	2.0×
Quick	_____	1.3×
Days sales outstanding	_____	35 days
Inventory Turnover	_____	6.7×
Total assets turnover	_____	3.0×
Profit margin	_____	1.2%
ROA	_____	3.6%
ROE	_____	9.0%
ROIC	_____	7.5%
TIE	_____	3.0×
Debt/Total capital	_____	47.0%
M/B	_____	4.22
P/E	_____	17.86
EV/EBITDA	_____	9.14

*Calculation is based on a 365-day year.