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	$113,520		Accounts payable	$212,850
Receivables	425,700		Other current liabilities	227,040
Inventories	312,180		Notes payable to bank	156,090
Total current assets	$851,400		Total current liabilities	$595,980
			Long-term debt	$397,320
Net fixed assets	567,600		Common equity (42,570 shares)	425,700
Total assets	$1,419,000		Total liabilities and equity	$1,419,000

Barry Computer Company: Income Statement for Year Ended December 31, 2018 (In Thousands)
Sales			$2,150,000
Cost of goods sold
Materials	$903,000
Labor	451,500
Heat, light, and power	150,500
Indirect labor	193,500
Depreciation	86,000		1,784,500

Gross profit	$	365,500
Selling expenses		215,000
General and administrative expenses	$	64,500
Earnings before interest and taxes (EBIT)	$	86,000
Interest expense		39,732
Earnings before taxes (EBT)	$	46,268
Federal and state income taxes (40%)		18,507
Net income	$	27,761
Earnings per share	$	0.65213
Price per share on December 31, 2018	$	10.00Calculate the indicated ratios for Barry. Round your answers to two decimal places. Ratio Barry              Industry Average Total assets turnover x 1.80x Profit margin   % 1.21% ROA   % 2.17% ROE   % 6.94% ROIC   % 7.30% TIE x 2.13x Debt/Total capital   % 55.92% M/B   % 5.00% P/E   % 17.73% EV/EBITDA   % 7.58%

Answer 1

Calculation of Barry Company's Ratios :

1.  Total assets turnover = Sales / Total assets = $2,150,000 / $1,419,000 = 1.52x

(Note: The Actual ratio uses Average Total assets, but here we are only given the balance of Total assets as at the end of the year)

2.  Profit margin : Net Profit margin = Net Income / Revenue = ($27,761 / $2,150,000) x 100 = 1.29%

Gross Profit margin = Gross Profit / Revenue = ($365,500 / $2,150,000) x 100 = 17%

3. ROA = Net income / Total assets

= (Sales / Total assets) x (Net Income / Sales) = Total assets turnover x Net Profit margin = 1.52 x 1.29 (we've calculated these figures above)

ROA = 1.96%

4. ROE = Net Income / Average Total Equity = ($27,761 / $425,700) x 100 = 6.52%

5. ROIC = Net Operating Profit after Tax (NOPAT) / Invested capital =>(which is :Common equity + Long term debt)

NOPAT = EBIT x (1 - Tax rate) = 86,000 x (1 - 0.40) = $51,600

ROIC = $51,600 / 425,700 + 397,320 = (51,600 / 823,020) x 100 = 6.27%

6. TIE (Times Interest Earned) or Interest Coverage Ratio = EBIT / Interest Expenses = $86,000 / $39,732 = 2.16x

7. Debt/Total capital = Debt / (Debt + Common Equity) = $397,320 / ($397,320 + $425,700) = ($397,320 / $823,020) x 100 =  48.28%

8. M/B or Market Value / Book Value = Market price per share / Book value per share

Price per share given = $10

Book value per share = Book value of Equity / number of shares = $425,700 / 42,570 = $10

M/B = $10 / $10 = 100%

9. P/E or Price/Earnings = Price per share / Earnings per share = ($10 / $0.65213) x 100 = 1533.44% (This ratio is normally expressed in decimal)

10. EV / EBITDA :

EV (Enterprise Value) = Market value of common equity + Market value of Debt - Cash and marketable investments

= ($10 x 42,570 shares) + $397,320 - $113,520 = $709,500

EBITDA = EBIT + Depreciation = $86,000 + 86,000 = $172,000

EV / EBITDA = ($709,500 / $172,000) x 100 = 412.50%

(Note : Even though calculation is required in percentage terms, this ratio is not normally expressed in percentage, but rather in decimal form)