Barry Computer Company: Balance Sheet as of December 31, 2019 (In Thousands) Cash $ 105,735 Accounts payable Receivables 528,675 Other current liabilities Inventories 438,045 Notes payable to bank Total current assets $ 1,072,455 Total current liabilities Long-term debt Net fixed assets 438,045 Common equity (64,951.5 shares) Total assets $ 1,510,500 Total liabilities and equity $ 151,050 181,260 181,260 $ 513,570 347,415 649,515 $ 1,510,500 Barry Computer Company: Income Statement for Year Ended December 31, 2019 (In Thousands) Sales $ 2,850,000 Cost of goods sold Materials $1,197,000 Labor 769,500 Heat, light, and power 85,500 Indirect labor 171,000 Depreciation 142,500 2,365,500 Gross profit $ 484,500 Selling expenses 342,000 General and administrative expenses 57,000 Earnings before interest and taxes (EBIT) $ 85,500 Interest expense 24,319 Earnings before taxes (EBT) 61,181 Federal and state income taxes (25%) 15,295 Net income 45,886 Earnings per share $ 0.7065 Price per share on December 31, 2019 $ 14.00 t a. Calculate the indicated ratios for Barry. Do not round intermediate calculations. Round your answers to two decimal places. Ratio Barry Industry Average Current 2.09 2.02 x Quick 1.23 x 1.18 x Days sales outstandinga 67.72 days 32 days Inventory turnover 2.73 x 7.10 x Total assets turnover 1.89 x 2.13 x Profit margin 1.61 1.50 % ROA 3.04 3.20% ROE 7.06 7.85% ROIC 6.43 8.00% TIE 3.52 x 3.45 x Debt/Total capital 44.87 % 46.37 % M/B 1.4 4.40 P/E 19.82 22.35 EV/EBITDA 5.05 8.47 a Calculation 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. FIRM INDUSTRY Profit margin 1.61 % 1.50% Total assets turnover 1.89 x 2.13x Equity multiplier 2.33 2.46 x x C. Select the correct option based on Barry's strengths and weaknesses as revealed by your analysis. I. 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. II. 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. III. 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. IV. 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 ratias 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. V. 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 d. 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.) I. 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. II. 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 laak only at 2019 ratios will be well informed, and a return to normal conditions in 2020 could hurt the firm's stock price. III. 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. IV. 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. V. 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. -Select- Barry Computer Company: Balance Sheet as of December 31, 2019 (In Thousands) Cash $ 105,735 Accounts payable Receivables 528,675 Other current liabilities Inventories 438,045 Notes payable to bank Total current assets $ 1,072,455 Total current liabilities Long-term debt Net fixed assets 438,045 Common equity (64,951.5 shares) Total assets $ 1,510,500 Total liabilities and equity $ 151,050 181,260 181,260 $ 513,570 347,415 649,515 $ 1,510,500 Barry Computer Company: Income Statement for Year Ended December 31, 2019 (In Thousands) Sales $ 2,850,000 Cost of goods sold Materials $1,197,000 Labor 769,500 Heat, light, and power 85,500 Indirect labor 171,000 Depreciation 142,500 2,365,500 Gross profit $ 484,500 Selling expenses 342,000 General and administrative expenses 57,000 Earnings before interest and taxes (EBIT) $ 85,500 Interest expense 24,319 Earnings before taxes (EBT) 61,181 Federal and state income taxes (25%) 15,295 Net income 45,886 Earnings per share $ 0.7065 Price per share on December 31, 2019 $ 14.00 t a. Calculate the indicated ratios for Barry. Do not round intermediate calculations. Round your answers to two decimal places. Ratio Barry Industry Average Current 2.09 2.02 x Quick 1.23 x 1.18 x Days sales outstandinga 67.72 days 32 days Inventory turnover 2.73 x 7.10 x Total assets turnover 1.89 x 2.13 x Profit margin 1.61 1.50 % ROA 3.04 3.20% ROE 7.06 7.85% ROIC 6.43 8.00% TIE 3.52 x 3.45 x Debt/Total capital 44.87 % 46.37 % M/B 1.4 4.40 P/E 19.82 22.35 EV/EBITDA 5.05 8.47 a Calculation 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. FIRM INDUSTRY Profit margin 1.61 % 1.50% Total assets turnover 1.89 x 2.13x Equity multiplier 2.33 2.46 x x C. Select the correct option based on Barry's strengths and weaknesses as revealed by your analysis. I. 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. II. 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. III. 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. IV. 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 ratias 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. V. 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 d. 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.) I. 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. II. 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 laak only at 2019 ratios will be well informed, and a return to normal conditions in 2020 could hurt the firm's stock price. III. 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. IV. 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. V. 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. -Select