Question

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, 2018 (In Thousands)
Cash	$60,950		Accounts payable	$97,520
Receivables	225,515		Other current liabilities	85,330
Inventories	134,090		Notes payable to bank	67,045
Total current assets	$420,555		Total current liabilities	$249,895
			Long-term debt	$182,850
Net fixed assets	188,945		Common equity (17,675.5 shares)	176,755
Total assets	$609,500		Total liabilities and equity	$609,500

Barry Computer Company: Income Statement for Year Ended December 31, 2018 (In Thousands)
Sales			$1,150,000
Cost of goods sold
Materials	$529,000
Labor	287,500
Heat, light, and power	46,000
Indirect labor	126,500
Depreciation	57,500		1,046,500

Gross profit	$	103,500
Selling expenses		57,500
General and administrative expenses	$	11,500
Earnings before interest and taxes (EBIT)	$	34,500
Interest expense		14,628
Earnings before taxes (EBT)	$	19,872
Federal and state income taxes (40%)		7,949
Net income	$	11,923
Earnings per share	$	0.67455
Price per share on December 31, 2018	$	11.00

1. Calculate the indicated ratios for Barry. Round your answers to two decimal places.

   Ratio	Barry	Industry Average
   Current	x	1.73x
   Quick	x	1.12x
   Days sales outstandinga	days	34.08 days
   Inventory turnover	x	9.19x
   Total assets turnover	x	2.20x
   Profit margin	%	0.99%
   ROA	%	2.17%
   ROE	%	7.49%
   ROIC	%	7.80%
   TIE	x	2.39x
   Debt/Total capital	%	59.47%
   M/B	%	4.10%
   P/E	%	18.62%
   EV/EBITDA	%	6.19%

   
   ^aCalculation is based on a 365-day year.
   
2. Construct the DuPont equation for both Barry and the industry. Round your answers to two decimal places.

   	FIRM	INDUSTRY
   Profit margin	%	0.99%
   Total assets turnover	x	2.20x
   Equity multiplier	x	x

3. Select the correct option based on Barry's strengths and weaknesses as revealed by your analysis.
   -Select-IIIIIIIVVItem 19
   1. 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.
   2. 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.
   3. 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.
   4. 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.
   5. 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.

Answer 1

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.