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	$102,960		Accounts payable	$118,800
Receivables	316,800		Other current liabilities	79,200
Inventories	205,920		Notes payable to bank	79,200
Total current assets	$625,680		Total current liabilities	$277,200
			Long-term debt	$174,240
Net fixed assets	166,320		Common equity	340,560
Total assets	$792,000		Total liabilities and equity	$792,000

Barry Computer Company: Income Statement for Year Ended December 31, 2016 (In Thousands)
Sales			$1,200,000
Cost of goods sold
Materials	$540,000
Labor	276,000
Heat, light, and power	48,000
Indirect labor	84,000
Depreciation	60,000		1,008,000

Gross profit		$ 192,000
Selling expenses		108,000
General and administrative expenses		12,000
Earnings before interest and taxes (EBIT)		$ 72,000
Interest expense		19,166
Earnings before taxes (EBT)		$ 52,834
Federal and state income taxes (40%)		21,134
Net income		$ 31,700

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

   Ratio	Barry	Industry Average
   Current	x	2.21x
   Quick	x	1.48x
   Days sales outstandinga	days	45.03 days
   Inventory turnover	x	6.36x
   Total assets turnover	x	1.80x
   Profit margin	%	2.47%
   ROA	%	4.45%
   ROE	%	10.34%
   ROIC	%	7.90%
   TIE	x	3.71x
   Debt/Total capital	%	42.07%

   ^aCalculation is based on a 365-day year.
2. Construct the DuPont equation for both Barry and the industry. Round your answers to two decimal places.

   	FIRM	INDUSTRY
   Profit margin	%	2.47%
   Total assets turnover	x	1.80x
   Equity multiplier	x	x

3. Select the correct option based on Barry's strengths and weaknesses as revealed by your analysis. -Select-IIIIIIIVVItem 16
   1. 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.
   2. 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.
   3. 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.
   4. 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.
   5. 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.
4. 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
   1. 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.
   2. 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.
   3. 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.
   4. 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.
   5. 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.