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. Cash Receivables Inventories Barry Computer Company: Balance Sheet as of December 31, 2018 (In Thousands) Total current assets Net fixed assets Total assets $102,600 456,000 239,400 $798,000 342,000 $1,140,000 Accounts payable Other current liabilities Notes payable to bank Total current liabilities Long-term debt Common equity (49,020 shares) Total liabilities and equity $193,800 171,000 57,000 $421,800 $228,000 490,200 $1,140,000 Barry Computer Company: Income Statement for Year Ended December 31, 2018 (In Thousands) Barry Computer Company: Income Statement for Year Ended December 31, 2018 (In Thousands) Sales Cost of goods sold Materials Labor Heat, light, and power Indirect labor Depreciation Gross profit Selling expenses General and administrative expenses Earnings before interest and taxes (EBIT) Interest expense Earnings before taxes (EBT) Federal and state income taxes (40%) Net income Earnings per share Price per share on December 31, 2018 $860,000 580,000 120,000 140,000 80,000 $ $ $ $ $ $2,000,000 1,780,000 220,000 100,000 60,000 60,000 25,080 34,920 13,968 20,952 $ 0.42742 $ 13.00 a. Calculate the indicated ratios for Barry. Round your answers to two decimal places. Ratio Barry Industry Average Current Quick Days sales outstandinga Inventory turnover Total assets turnover Profit margin ROA ROE ROIC TIE Debt/Total capital M/B P/E EV/EBITDA Profit margin Total assets turnover X Equity multiplier X days X X % % % % X % % % % % X 1.82x X 1.26x 39.63 days 8.95x 1.94x 1.00% 1.93% 4.55% 8.00% acalculation is based on a 365-day year. b. Construct the DuPont equation for both Barry and the industry. Round your answers to two decimal places. FIRM INDUSTRY 2.36x 37.66% 3.30% 32.97% 8.13% 1.00% 1.94x X c. Select the correct option based on Barry's strengths and weaknesses as revealed by your analysis. -Select- + I. 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. II. 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. III. 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. IV. 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. V. 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. d. 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- I. 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 2018 could hurt the firm's stock price. II. 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. III. 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. IV. 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. V. 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. 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. Cash Receivables Inventories Barry Computer Company: Balance Sheet as of December 31, 2018 (In Thousands) Total current assets Net fixed assets Total assets $102,600 456,000 239,400 $798,000 342,000 $1,140,000 Accounts payable Other current liabilities Notes payable to bank Total current liabilities Long-term debt Common equity (49,020 shares) Total liabilities and equity $193,800 171,000 57,000 $421,800 $228,000 490,200 $1,140,000 Barry Computer Company: Income Statement for Year Ended December 31, 2018 (In Thousands) Barry Computer Company: Income Statement for Year Ended December 31, 2018 (In Thousands) Sales Cost of goods sold Materials Labor Heat, light, and power Indirect labor Depreciation Gross profit Selling expenses General and administrative expenses Earnings before interest and taxes (EBIT) Interest expense Earnings before taxes (EBT) Federal and state income taxes (40%) Net income Earnings per share Price per share on December 31, 2018 $860,000 580,000 120,000 140,000 80,000 $ $ $ $ $ $2,000,000 1,780,000 220,000 100,000 60,000 60,000 25,080 34,920 13,968 20,952 $ 0.42742 $ 13.00 a. Calculate the indicated ratios for Barry. Round your answers to two decimal places. Ratio Barry Industry Average Current Quick Days sales outstandinga Inventory turnover Total assets turnover Profit margin ROA ROE ROIC TIE Debt/Total capital M/B P/E EV/EBITDA Profit margin Total assets turnover X Equity multiplier X days X X % % % % X % % % % % X 1.82x X 1.26x 39.63 days 8.95x 1.94x 1.00% 1.93% 4.55% 8.00% acalculation is based on a 365-day year. b. Construct the DuPont equation for both Barry and the industry. Round your answers to two decimal places. FIRM INDUSTRY 2.36x 37.66% 3.30% 32.97% 8.13% 1.00% 1.94x X c. Select the correct option based on Barry's strengths and weaknesses as revealed by your analysis. -Select- + I. 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. II. 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. III. 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. IV. 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. V. 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. d. 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- I. 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 2018 could hurt the firm's stock price. II. 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. III. 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. IV. 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. V. 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