Answered step by step
Verified Expert Solution
Question
1 Approved Answer
RATIO ANALYSIS Data for Barry Computer Co. and its industry averages follow. Barry Computer Company: Balance Sheet as of December 31, 2016 (In Thousands) Cash
RATIO ANALYSIS
Data for Barry Computer Co. and its industry averages follow.
Barry Computer Company: | |||
Balance Sheet as of December 31, 2016 (In Thousands) | |||
Cash | $78,400 | Accounts payable | $78,400 |
Receivables | 196,000 | Other current liabilities | 94,080 |
Inventories | 164,640 | Notes payable to bank | 62,720 |
Total current assets | $439,040 | Total current liabilities | $235,200 |
Long-term debt | $227,360 | ||
Net fixed assets | 344,960 | Common equity | 321,440 |
Total assets | $784,000 | Total liabilities and equity | $784,000 |
Barry Computer Company: Income Statement for Year Ended December 31, 2016 (In Thousands) | ||
Sales | $1,400,000 | |
Cost of goods sold | ||
Materials | $560,000 | |
Labor | 420,000 | |
Heat, light, and power | 70,000 | |
Indirect labor | 154,000 | |
Depreciation | 42,000 | 1,246,000 |
Gross profit | $154,000 |
Selling expenses | 98,000 |
General and administrative expenses | 14,000 |
Earnings before interest and taxes (EBIT) | $42,000 |
Interest expense | 27,283 |
Earnings before taxes (EBT) | $14,717 |
Federal and state income taxes (40%) | 5,887 |
Net income | $8,830 |
- Calculate the indicated ratios for Barry. Round your answers to two decimal places.
Ratio Barry Industry Average Current x 1.92x Quick x 1.14x Days sales outstandinga days 23.88 days Inventory turnover x 8.92x Total assets turnover x 2.12x Profit margin % 0.59% ROA % 1.25% ROE % 3.05% ROIC % 7.80% TIE x 1.49x Debt/Total capital % 46.14% - Construct the DuPont equation for both Barry and the industry. Round your answers to two decimal places.
FIRM INDUSTRY Profit margin % 0.59% Total assets turnover x 2.12x Equity multiplier x x - Select the correct option based on Barry's strengths and weaknesses as revealed by your analysis.-Select-IIIIIIIVVItem 16
- The firm's days sales outstanding 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 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 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. 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 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.
- Suppose Barry had doubled its sales as well as its inventories, accounts receivable, and common equity during 2016. 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 17
- If 2016 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 2016 ratios will be misled, and a return to normal conditions in 2017 could hurt the firm's stock price.
- If 2016 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 2016 ratios to be well informed, and a return to normal conditions in 2017 could help the firm's stock price.
- If 2016 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 2016 ratios will be misled, and a continuation of normal conditions in 2017 could hurt the firm's stock price.
- If 2016 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 2016 ratios will be misled, and a return to supernormal conditions in 2017 could hurt the firm's stock price.
- If 2016 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 2016 ratios will be well informed, and a return to normal conditions in 2017 could hurt the firm's stock price.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started