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 $250,880 Accounts payable $250,880 Receivables 609,280 Other current liabilities 179,200 Inventories 358,400 Notes payable to bank 161,280 Total current assets $1,218,560 Total current liabilities $591,360 Long term debt $465,920 Net fixed assets 573,440 Common equity (73,472 shares) 734,720 Total assets $1,792,000 Total liabilities and equity $1,792,000 Barry Computer Company Income Statement for Year Ended December 31, 2018 (In Thousands) Sales $2,800,000 Cost of goods sold Materials $1,176,000 Labor 588,000 Heat, light, and power 196,000 Indirect labor 252,000 Depreciation 112,000 2,324,000 Gross profit $ 476,000 Selling expenses 336,000 General and administrative expenses $ 28,000 Earnings before interest and taxes (EBIT) $ 112,000 Interest expense 41,933 Earnings before taxes (EBT) $ 70,067 Federal and state income taxes (40 ) 28,027 Net income $ 42,040 Earnings per share $ 0 57219 Price per share on December 31, 2018 $ 14 00 Calculate the indicated ratios for Barry Round your answers to two decimal places Ratio Barry Industry Average Current x 2 07x Quick x 1 42x Days sales outstanding a days 37 82 days Inventory turnover x 8 37x Total assets turnover x 1 73x Profit margin 1 43 ROA 2 47 ROE 6 09 ROIC 7 50 TIE x 2 64x Debt Total capital 47 55 M B 4 40 P E 26 64 EV EBITDA 8 55 a Calculation 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 1 43 Total assets turnover x 1 73x Equity multiplier x x Select the correct option based on Barry's strengths and weaknesses as revealed by your analysis Select IIIIIIIVVItem 19 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 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 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 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 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 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 Suppose Barry had doubled its sales as well as its inventories, accounts receivable, and common equity during 2018 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 ) Select IIIIIIIVVItem 20 If 2018 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 2018 ratios will be misled, and a return to normal conditions in 2019 could hurt the firm's stock price If 2018 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 2018 ratios to be well informed, and a return to normal conditions in 2019 could help the firm's stock price If 2018 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 2018 ratios will be misled, and a continuation of normal conditions in 2019 could hurt the firm's stock price If 2018 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 2018 ratios will be misled, and a return to supernormal conditions in 2019 could hurt the firm's stock price If 2018 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 2018 ratios will be well informed, and a return to normal conditions in 2019 could hurt the firm's stock price

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Jul 25, 2024

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

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	$250,880	Accounts payable	$250,880
Receivables	609,280	Other current liabilities	179,200
Inventories	358,400	Notes payable to bank	161,280
Total current assets	$1,218,560	Total current liabilities	$591,360
		Long-term debt	$465,920
Net fixed assets	573,440	Common equity (73,472 shares)	734,720
Total assets	$1,792,000	Total liabilities and equity	$1,792,000

Barry Computer Company: Income Statement for Year Ended December 31, 2018 (In Thousands)

Sales		$2,800,000
Cost of goods sold
Materials	$1,176,000
Labor	588,000
Heat, light, and power	196,000
Indirect labor	252,000
Depreciation	112,000	2,324,000

Gross profit	$	476,000
Selling expenses		336,000
General and administrative expenses	$	28,000
Earnings before interest and taxes (EBIT)	$	112,000
Interest expense		41,933
Earnings before taxes (EBT)	$	70,067
Federal and state income taxes (40%)		28,027
Net income	$	42,040
Earnings per share	$	0.57219
Price per share on December 31, 2018	$	14.00

Calculate the indicated ratios for Barry. Round your answers to two decimal places.

Ratio	Barry	Industry Average
Current	x	2.07x
Quick	x	1.42x
Days sales outstanding^a	days	37.82 days
Inventory turnover	x	8.37x
Total assets turnover	x	1.73x
Profit margin	%	1.43%
ROA	%	2.47%
ROE	%	6.09%
ROIC	%	7.50%
TIE	x	2.64x
Debt/Total capital	%	47.55%
M/B	%	4.40%
P/E	%	26.64%
EV/EBITDA	%	8.55%

^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 % 1.43%

Total assets turnover x 1.73x

Equity multiplier x x
Select the correct option based on Barry's strengths and weaknesses as revealed by your analysis. -Select-IIIIIIIVVItem 19
1. 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.
2. 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.
3. 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.
4. 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 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.
5. 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.
Suppose Barry had doubled its sales as well as its inventories, accounts receivable, and common equity during 2018. 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.) -Select-IIIIIIIVVItem 20
1. If 2018 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 2018 ratios will be misled, and a return to normal conditions in 2019 could hurt the firm's stock price.
2. If 2018 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 2018 ratios to be well informed, and a return to normal conditions in 2019 could help the firm's stock price.
3. If 2018 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 2018 ratios will be misled, and a continuation of normal conditions in 2019 could hurt the firm's stock price.
4. If 2018 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 2018 ratios will be misled, and a return to supernormal conditions in 2019 could hurt the firm's stock price.
5. If 2018 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 2018 ratios will be well informed, and a return to normal conditions in 2019 could hurt the firm's stock price.