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. Barry Computer Company: Balance Sheet as of December 31, 2021 (in thousands) Cash $ 196,560 Accounts payable Receivables Inventories Total current assets 393,120 423,360 $1,013,040 Other current liabilities Notes payable to bank $ 166,320 136,080 90,720 Total current liabilities $ 393,120 Long-term debt 453,600 Net fixed assets Total assets 498,960 $1,512,000 Common equity (66,528 shares) 665,280 Total liabilities and equity $1,512,000 Barry Computer Company: Income Statement for Year Ended December 31, 2021 (in thousands) Sales Cost of goods sold Materials $2,700,000 Labor Heat, light, and power Indirect labor Gross profit Selling expenses General and administrative expenses Depreciation Earnings before interest and taxes (EBIT) Interest expense $1,188,000 729,000 81,000 162,000 2,160,000 $540,000 270,000 27,000 135,000 $ 108,000 49.896 General and administrative expenses Depreciation Earnings before interest and taxes (EBIT) Interest expense Earnings before taxes (EBT) Federal and state income taxes (25%) Net income Earnings per share 27,000 135,000 $ 108,000 49,896 $ 58,104 14,526 43,578 0.6550 $ 11.00 Price per share on December 31, 2021 a. Calculate the indicated ratios for Barry. Do not round intermediate calculations. Round your answers to two decimal places. Ratio Industry Average Barry Current 2.51x Quick Days sales outstanding Inventory turnover x 1.55x days 25 days x 6.69x Total assets turnover x 2.12x Profit margin % 1.51% ROA % 3.20% ROE % 6.97% ROIC % 7.50% TIE x 2.26x Debt/Total capital % 43.70% 4.10 M/B P/E 19.28 EV/EBITDA 6.83 Days sales outstanding" Inventory turnover Total assets turnover Profit margin ROA ROE ROIC TIE Debt/Total capital M/B P/E EV/EBITDA days 25 days x 6.69x x 2.12x % 1.51% % 3.20% % 6.97% % 7.50% x 2.26x % 43.70% 4.10 19.28 6.83 "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. Profit margin FIRM % x INDUSTRY 1.51% 2.12x Total assets turnover Equity multiplier 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 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. II. 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 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 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. II. 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 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 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. IV. 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. V. 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 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. -Select- d. Suppose Barry had doubled its sales as well as its inventories, 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 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 continuation of normal conditions in 2022 could hurt the firm's stock price. II. 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 meaning. 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. 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. V. 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 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. -Select- d. Suppose Barry had doubled its sales as well as its inventories, accounts receivable, and common equity during 2021. How would that information affect the validity of you 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 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 continuation of normal conditions in 2022 could hurt the firm's stock price. II. 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 meaning. 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. III. 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 average 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. IV. 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 average will have little meaning. Potential investors who look only at 2021 ratios will be misled, and a return to normal conditions in 2022 could hurt the firm's stock price. V. If 2021 represents a period of supernormal growth for the firm, ratios based on this year will be accurate and a comparison between them and industry average. will have substantial meaning. Potential investors need only look at 2021 ratios to be well informed, and a return to normal conditions in 2022 could help the firm's stock price. -Select