Problem 4-23 Ratio Analysis

Data for Barry Computer Co. and its industry averages follow.

Barry Computer Company:
Balance Sheet as of December 31, 2015 (In Thousands)
Cash	$77,500	Accounts payable	$129,000
Receivables	336,000	Other current liabilities	117,000
Inventories	241,500	Notes payable	84,000
Total current assets	$655,000	Total current liabilities	$330,000
Long-term debt	$256,500
Net fixed assets	292,500	Common equity	361,000
Total assets	$947,500	Total liabilities and equity	$648,000

Barry Computer Company: Income Statement for Year Ended December 31, 2015(In Thousands)
Sales	$1,607,500
Cost of goods sold
Materials	$717000
Labor	453,000
Heat, light, and power	68,000
Indirect labor	113,000
Depreciation	41,500	$1,39,500

Gross profit	$215,000
Selling expenses	115,000
General and administrative expenses	30,000
Earnings before interest and taxes (EBIT)	$70,000
Interest expense	24,500
Earnings before taxes (EBT)	45,500
Federal and state income taxes (40%)	18,200
Net income	$27,300

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

Ratio	Barry	Industry Average
Current	x	2.0x
Quick	x	1.3x
Days sales outstandinga	days	35days
Inventory turnover	x	6.7x
Total assets turnover	x	3.0x
Profit margin	%	1.2%
ROA	%	3.6%
ROE	%	9.0%
ROIC	%	7.5%
TIE	x	3.0x
Debt/Total capital	%	47.0%

Application:Using Ratio Analysis To Inform Organizational Decisions

The Assignment: Barry Computer Company

Prepare a performance report on Barry Computer Company. (Problem 4-23 on pages 131-132 of the course text provides a balance sheet and an income statement for the company.)

• Prepare your performance report to show calculations for the eleven ratios listed on page 131-132, as well as a comparison of your computed ratios with the listed industry averages.
• Write a short memo to your supervisor explaining your findings and your recommendations for improvement.
• Suggest some ways in which the company can plan to improve below industry average ratio performance.
• Explain why your recommendations would be effective.
• Be sure to list your computations in an appendix to your report.