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 $173,400 $71,400 336,600 142,800 Receivables Inventories 214,200 Accounts payable Other current liabilities Notes payable to bank Total current liabilities Long-term debt 122,400 Total current assets $622,200 $438,600 $234,600 Net fixed assets 397,800 Common equity 346,800 Total liabilities and equity $1,020,000 Total assets $1,020,000 Barry Computer Company: Income Statement for Year Ended December 31, 2016 (In Thousands) Sales $1,700,000 Cost of goods sold Materials $731,000 Labor 510,000 Heat, light, and power 51,000 Indirect labor 119,000 Depreciation 34,000 1,445,000 Gross profit $ 255,000 Selling expenses 170,000 General and administrative expenses 17,000 Earnings before interest and taxes (EBIT) $ 68,000 Interest expense 16,422 51,578 Earnings before taxes (EBT) Federal and state income taxes (40%) 20,631 Net income $ 30,947 a. Calculate the indicated ratios for Barry. Round your answers to two decimal places. Ratio Barry Industry Average Current 1.42 x 1.35x Quick 93 X 0.98x Days sales outstanding 72.27 days 34.41 days Inventory turnover 7.94 x 8.17x Total assets turnover 1.67 X 1.84x Profit margin 1.82 % 1.73% ROA 3.03 % 3.19% ROE 8.92 % 9.92% ROIC 4 % 7.10% TIE 4.14 x 4.05x Debt/Total capital 66 % 51.62% 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 Profit margin 1.82 % 1.73% Total assets turnover 1.67 X 1.84x Equity multiplier 2.94 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 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. II. 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. III. The firm's days sales outstanding 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. IV. 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. V. 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. d. 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- I. 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 2016 could hurt the firm's stock price. II. 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. III. 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. IV. 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. V. 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