Question

RATIO ANALYSIS Data for Barry Computer Co. and its industry averages follow. Barry Computer Company: Balance Sheet as of December 31, 2016 (In Thousands) Cash $114,000 Accounts payable $142,500 Receivables 456,000 Other current liabilities 199,500 Inventories 313,500 Notes payable to bank 71,250    Total current assets $883,500    Total current liabilities $413,250 Long-term debt $299,250 Net fixed assets 541,500 Common equity 712,500 Total assets $1,425,000 Total liabilities and equity $1,425,000 Barry Computer Company: Income Statement for Year Ended December 31, 2016 (In Thousands) Sales $2,850,000 Cost of goods sold    Materials $1,168,500    Labor 769,500    Heat, light, and power 85,500    Indirect labor 313,500    Depreciation 114,000 2,451,000 Gross profit $   399,000 Selling expenses 256,500 General and administrative expenses 85,500    Earnings before interest and taxes (EBIT) $     57,000 Interest expense 32,918    Earnings before taxes (EBT) $     24,082 Federal and state income taxes (40%) 9,633 Net income $     14,449 Calculate the indicated ratios for Barry. Round your answers to two decimal places. Ratio Barry              Industry Average Current x 2.15x Quick x 1.43x Days sales outstandinga days 27.29 days Inventory turnover x 9.93x Total assets turnover x 2.38x Profit margin % 0.47% ROA % 1.13% ROE % 2.16% ROIC % 7.80% TIE x 1.64x Debt/Total capital % 33.61% aCalculation is based on a 365-day year. Construct the DuPont equation for both Barry and the industry. Round your answers to two decimal places. FIRM INDUSTRY Profit margin % 0.47% Total assets turnover x 2.38x Equity multiplier x x Select the correct option based on Barry's strengths and weaknesses as revealed by your analysis. The firm's days sales outstanding 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 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. 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 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. V. The firm's days sales outstanding 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. Suppose Barry had doubled its sales as well as its inventories, accounts receivable, and common equity during 2016. 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 2016 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 2016 ratios will be misled, and a return to normal conditions in 2017 could hurt the firm's stock price. If 2016 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 2016 ratios to be well informed, and a return to normal conditions in 2017 could help the firm's stock price. If 2016 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 2016 ratios will be misled, and a continuation of normal conditions in 2017 could hurt the firm's stock price. If 2016 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 2016 ratios will be misled, and a return to supernormal conditions in 2017 could hurt the firm's stock price. V. If 2016 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 2016 ratios will be well informed, and a return to normal conditions in 2016 could hurt the firm's stock price.

Answer 1

As per rules I am answering the first 4 subparts of the question

Sub Part	Ratio	Formula	Barry
1	Current	Current Assets/Current liabilities	2.14
2	Quick	(cash + securities+ accounts receivable)/ current liabilities	1.38
3	Days sales outstandinga	Receivables*365/Sales	58.40
4	Inventory turnover	Cost of goods sold/ Inventory	7.82

Workings

AutoSave Off) Book1 - Excel Sign in X Comments O Tell me what you want to do Share File Home Insert Draw Page Layout Formulas Data Review View Help 第Insert. Σ A A E = 11 Calibri General 52Delete Conditional Format as Cell Sort& Find & Paste BIU sA - Format 0 00 DD 0 Formatting Table Styles Filter Select Clipboard Font Alignment Number Styles Cells Editing B1 X Ratio A C E F 1 Sub Part Ratio Formula Barry -883500/413250 2 1 Current Assets/Current liabilities (cash+ securities+ accounts receivable)/ current liabilities (114000+456000) /413250 Current Quick 3 2 Days sales outstanding Receivables*365/Sales 456000*365/2850000 4 3 5 4 Cost of goods sold/ Inventory - 2451000/313500 Inventory turnover 6 7 8 9 10 11 12 13 14 15 16 17 Sheet2 Sheet3 Sheet4 Sheet1 Ready 10090