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Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250

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BuyFindarrow_forward

Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250
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.)

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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.

a.

Summary Introduction

To Determine: The indicated ratios for Company BCC.

Introduction: Ratio analysis is the procedure of analysing and contrasting financial data by ascertaining important financial statement numerical calculations as opposed to looking at details from each financial statement.

Explanation

Determine the indicated ratios for Company BCC

Using a excel spreadsheet the ratios are determined as the below,

Excel Spreadsheet:

Excel Workings:

b.

Summary Introduction

To Determine: The DuPont equation for Company BCC and industry.

c.

Summary Introduction

To Determine: The strength and weakness of Company BCC.

d.

Summary Introduction

To Determine: The reasons on the information affecting the validity of ratio analysis.

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