9. Problem 4.23 (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, the number of shares is shown in thousands too. Barny Computer Company: acalculation is based on a 365 -day year. b. Construct the Dupont equation for both Barry and the industry. Do not round intermediate calculations. Round your answers to two decimal places. \begin{tabular}{l|cc|} \hline Profit margin & FRM & 1NDUSTRY \\ \hline Total assets turnover & 6 & 1.51% \\ \hline Equity multiplier & & 1.88x \\ \hline \end{tabular} c. Select the correct option based on Barry's strengths and weaknesses as revealed by your analysis. 1. The firm's days sales outstanding ratio is more than the industry average, indicating that the firm should tighten credit of 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. II. 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 safes 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 firancial leverage is similar to others in the industry. III. The firm's days sales outstanding ratio is more than twice as long as the industry average, indic. ing 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, ite other profitability ratios are low compared to the industry - net income should be higher given the amount of equity, assets, and irvested capital. Finally, it's market value ratios are also below industry averages. However, the company seems to be in an average liquidity position and finandal leverage is similar to others in the industry. TV. 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. Whilo 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 irvested capital. However, the company seems to be in an average liquidity. position and finandal leverape is similar to others in the industry. V. The firm's days sales outstanding rato 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 indestry a net income should be higher given the amount of equity, assets, and invested capital. However, the company seems to be in an average liguidity position and financial leverage is similar to others in the industry. d. Suppose Barry had doubled its sales as well as its inventorien, accounts receivable, and common equity during 2021 . 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.) I. If 2021 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 meanin0. Potential investors who look only at 2021 ratios will be misled, and a return to supernormal conditions in 2022 could hurt the firm's stock price. II. If 2021 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 2021 ratios will be well informed, and a return to normal conditions in 2022 could hurt the firm's stock price. III. If 2021 reptesents 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 2021 ratios will be misled, and a return to norral conditions in 2022 could hurt the firm's stock price. TV. If 2021 represents a period of supernormal growth for the firm, ratios based on this year will be accurate and a comparison between thern and industry averages will have substantial meaning. Potential investors need only look at 2021 ratios to be well informed, and a return to nermal. conditions in 2022 could help the firm's stock price. V. If 2021 represents a period of normal growth for the firm, fatios based on this year will be distorted and a coenparison between them and industry averages will have little meaning. Potential investors who look only at 2021 ratios will be misfed, and a continuation of normal conditions in 2022. coold hurt the firm's stock price