Question

eBook 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. Barry Computer Company: Balance Sheet as of December 31, 2019 (In Thousands) Cash $ 118,950 Accounts payable $ 100,650 Receivables 256,200 Other current liabilities 100,650 Inventories 228,750 Notes payable to bank 91,500    Total current assets $ 603,900    Total current liabilities $ 292,800 Long-term debt 265,350 Net fixed assets 311,100 Common equity (35,685 shares) 356,850 Total assets $ 915,000 Total liabilities and equity $ 915,000 Barry Computer Company: Income Statement for Year Ended December 31, 2019 (In Thousands) Sales $ 1,500,000 Cost of goods sold    Materials $630,000    Labor 450,000    Heat, light, and power 90,000    Indirect labor 75,000    Depreciation 75,000 1,320,000 Gross profit $ 180,000 Selling expenses 75,000 General and administrative expenses 45,000    Earnings before interest and taxes (EBIT) $ 60,000 Interest expense 18,575    Earnings before taxes (EBT) $ 41,425 Federal and state income taxes (25%) 10,356 Net income $ 31,069 Earnings per share $ 0.8706 Price per share on December 31, 2019 $ 10.00 Calculate the indicated ratios for Barry. Do not round intermediate calculations. Round your answers to two decimal places. Ratio Barry              Industry Average Current × 2.11 × Quick × 1.25 × Days sales outstandinga days 29 days Inventory turnover × 6.88 × Total assets turnover × 1.95 × Profit margin   % 1.94 % ROA   % 3.77 % ROE   % 9.26 % ROIC   % 7.60 % TIE × 3.28 × Debt/Total capital   % 49.40 % M/B    5.00 P/E    13.63 EV/EBITDA    6.79 aCalculation is based on a 365-day year. Construct the DuPont equation for both Barry and the industry. Do not round intermediate calculations. Round your answers to two decimal places. FIRM INDUSTRY Profit margin   % 1.94% Total assets turnover × 1.95× Equity multiplier × × Select the correct option based on Barry's strengths and weaknesses as revealed by your analysis. The firm's days sales outstanding ratio is more than twice as long as the industry average, indicating that the firm should loosen credit or apply a less stringent collection policy. The total assets turnover ratio is well below the industry average so sales should be increased, assets increased, or both. While the company's profit margin is higher than the industry average, its other profitability ratios are low compared to the industry - net income should be higher given the amount of equity, assets, and invested capital. However, the company seems to be in an average liquidity position and financial leverage is similar to others in the industry. The firm's days sales outstanding ratio is less than the industry average, indicating that the firm should tighten credit or enforce a more stringent collection policy. The total assets turnover ratio is well below the industry average so sales should be increased, assets decreased, or both. While the company's profit margin is lower than the industry average, its other profitability ratios are high compared to the industry - net income should be higher given the amount of equity, assets, and invested capital. However, the company seems to be in an average liquidity position and financial leverage is similar to others in the industry. The firm's days sales outstanding ratio is more than the industry average, indicating that the firm should tighten credit or enforce a more stringent collection policy. The total assets turnover ratio is well above the industry average so sales should be increased, assets increased, or both. While the company's profit margin is higher than the industry average, its other profitability ratios are low compared to the industry - net income should be higher given the amount of equity, assets, and invested capital. However, the company seems to be in an above average liquidity position and financial leverage is similar to others in the industry. The firm's days sales outstanding ratio is comparable to the industry average, indicating that the firm should neither tighten credit nor enforce a more stringent collection policy. The total assets turnover ratio is well below the industry average so sales should be increased, assets increased, or both. While the company's profit margin is higher than the industry average, its other profitability ratios are low compared to the industry - net income should be higher given the amount of equity, assets, and invested capital. However, the company seems to be in a below average liquidity position and financial leverage is similar to others in the industry. The firm's days sales outstanding ratio is more than twice as long as the industry average, indicating that the firm should tighten credit or enforce a more stringent collection policy. The total assets turnover ratio is well below the industry average so sales should be increased, assets decreased, or both. While the company's profit margin is higher than the industry average, its other profitability ratios are low compared to the industry - net income should be higher given the amount of equity, assets, and invested capital. Finally, it's market value ratios are also below industry averages. However, the company seems to be in an average liquidity position and financial leverage is similar to others in the industry. -Select-IIIIIIIVVItem 19 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.) If 2019 represents a period of supernormal growth for the firm, ratios based on this year will be distorted and a comparison between them and industry averages will have little meaning. Potential investors who look only at 2019 ratios will be misled, and a return to normal conditions in 2020 could hurt the firm's stock price. If 2019 represents a period of supernormal growth for the firm, ratios based on this year will be accurate and a comparison between them and industry averages will have substantial meaning. Potential investors need only look at 2019 ratios to be well informed, and a return to normal conditions in 2020 could help the firm's stock price. If 2019 represents a period of normal growth for the firm, ratios based on this year will be distorted and a comparison between them and industry averages will have little meaning. Potential investors who look only at 2019 ratios will be misled, and a continuation of normal conditions in 2020 could hurt the firm's stock price. If 2019 represents a period of normal growth for the firm, ratios based on this year will be accurate and a comparison between them and industry averages will have substantial meaning. Potential investors who look only at 2019 ratios will be misled, and a return to supernormal conditions in 2020 could hurt the firm's stock price. If 2019 represents a period of supernormal growth for the firm, ratios based on this year will be distorted and a comparison between them and industry averages will have substantial meaning. Potential investors who look only at 2019 ratios will be well informed, and a return to normal conditions in 2020 could hurt the firm's stock price. -Select-IIIIIIIVVItem 20

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Answer 1

Current Ratio     = Current Assets / Current Liabilities

                        =603,900/292,800

                        = 2.0625

                        =2.06 times

Quick Ratio       = (Cash+ Cash Equivalents+ Short term Investments+ Current Receivables)/Current Liabilities

                        = (118950+0+0+256200)/292800

                        = 1.28125

= 1.28 times

Days Sales Outstanding = (Accounts Receivable/ Total Credit Sales in Accounting Period)*Days in Accounting Period

                                    = (256200/1500000)*365 Days

                                    = 62.342

                                    =62.34 Days

                                    =63 Days (as Days are always rounded off to next one)

Inventory Turnover Ratio = Cost of Goods Sold/ Average Inventory

Average Inventory         = (Opening Stock+ Closing Stock)/2

Since the details of opening Stock is not given it is assumed that Closing Stock is only as Average Inventory.

Inventory Turnover Ratio = (1320000/228750)

                                    = 5.770491803

                                    = 5.77 times

Total Asset Turnover Ratio = Net Sales/ Average Total Assets

                                         = 1500000/915000

                                         = 1.639344262

                                         = 1.64 times

Profit Margin Ratio (%)       = (Net Profit/ Sales)*100

                                          = (31069/1500000)*100

                                          = 2.071266667 %

                                          = 2.07%

Return on Asset Ratio (%) = (Net Income /Average Total Asset)*100

(ROA)                               = (31069/915000)*100

                                        = 3.395519126 %

                                        = 3.40 %

Return on Equity Ratio (%) = (Net Income/ Shareholder’s Equity)*100

(ROE)                                = (31069/356850)*100

                                         = 8.706459297 %

                                         = 8.71%

Return on Invested Capital Ratio (%) = (Net Income- Dividend)/ (Debt+ Equity)*100

(ROIC)                                             = ((31069-0)/ (265350+365850)*100

                                                       = 4.92221166 %

                                                       = 4.92%

Times Interest Earned Ratio       = EBIT/Interest Expenses

                                                = 60000/18575

                                                = 3.230148048

                                                = 3.23 times

Debt to Capital Ratio (%)           = Total Debt / (Total Debt+ Shareholder’s Equity)*100

Here Debt Means Interest Bearing Debts which includes long term and Short term both)

                                                = (91500+265350)/(91500+265350+356850)*100

                                                = 50%

Market to Book Ratio (M/B Ratio)           = Market Capitalisation/ Total Book Value

                                                            = (10*35685 Shares/ 356850)

                                                            = 1 times

P/E Ratio                                              = Share Price/ Earnings per Share

                                                            = 10/0.8706

                                                            = 11.48633127 Times

                                                            = 11.49 Times