Data for Barry Computer Co0 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: Income Statement for Year Ended December 31, 2021 (in thousands) d. Suppose Barry had doubled its sales as well as its inventories, accounts receivabie, 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.) 1. II 2021 represents a period of supernormal growth for the firm, ratios based on this year wal be distortad 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 burt 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 littie meaning. Potential investors who look only at 2021 ratios wil be misled, and a return to normal condtions 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 accurate and a comparison between them and industry averages wili have substantial meaning. Potential investors need oniv look at 2021 ratios to be well informed, and a return to normai condibans in 2022 could help the firm's stock price. IV. If 2021 represents a period of normal growth folthe firm, ratios based on this vear wat be distorted and a comparison between them and incustry averages will have fittie meaning. Potentiat imvestors who look only at 2021 ratios wil be misled, and a continuation of normal conditions in 2022 could hurt the firm's stock price. V. If 2021 represents a period of nocmisl growth for the firm, ratios based on this year will be accurate and a comparison between them and industry sverages will have substantial mearing. Potential investors who look only at 2021 ratios wall be misled, and a retum to supernermat condetions in 2022 couid hurt the firm's viock price. * Colculation is based on a 365 -day year. b. Construct the DuPont equation for both Barry and the industry. Do not round intemediate calcalations, Round vour answers th two decimal places. c. Select the correct option based on Barry's strengths and weaknesses as revealed by your analysis. 1. The firm's days sales outstanding rabo is comparable to the industry average, indicating that the firm should neither tighten creot 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. Whie 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. 11. The firm's days saies outstanding fatio 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 averoge, 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 IIt. The firm's days sales outstanding ratio is more than twice as long as the industry average, indicating that the firm sheuld loosen credit or apply a less stringent coliection policy. The total assets turnover ratio is well below the industry average so sales should be increased, assets increased, or both. While the compary's proft 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 liquidsty postion and financial leverage is similar to others in the industry. IV. The firm's days sales outstanding ratio is less than the industrv average, indicating that the firm should bighten credit or enforce a more stringent collection policy. The total assets turnover fatio is well below the industry average so sales should be increased, assets decreased, or both, While the coinpany'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. Howeves, the company seems to be in an average liquidity position and financial loverage is similar to others in the industry V. The firm's doys sales outstanding ratio is more than the industry average, indicating that the firm should tighten credit or entorce a more strngent collection poicy. The total assets tumover ratio is well above the industry average so sales should be increased, assets incrased, 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, assect, and invested capital. However, the company seems to be in an above average fiquidity position and financial leverage is similar to others in the industry
