What is break-even in sales dollars?
Ryan Boot Company (review of Chapters 2 through 5) (multiple LO's from Chapters 2 through 5) RYAN BOOT COMPANY Balance Sheet December 31, 20X1 Liabilities and Stockholders' Equity $ 50,000 Accounts payable $2,200,000 Assets Cash.... Marketable securities 80,000 Accrued expenses 150,000 Accounts receivable 3,000,000 Notes payable (current) 400,000 Inventory 1,000,000 Bonds (10%) 2,500,000 Gross plant and equipment Less 6,000,00 1,700,000 Common stock (1.7 million shares, par value $1) Accumulated depreciation.. 2,000,000 Retained earnings 1,180,000 Total liabilities and stockholders' equity $8,130,000 Total assets $8,130,000 Income Statement-20X1 Sates (credit) Fixed costs* Variable costs (0.60). Earnings before interest and taxes. Less: Interest.. Earnings before taxes Less: Taxes @ 35%. Earnings after taxes Dividends (40% payout). $7,000,000 2,100,000 4,200,000 700,000 250,000 450,000 157,500 $ 292,500 117,000 *Fixed costs include (a) lease expense of $200,000 and (b) depreciation of $500,000. Note: Ryan Boots also has $65,000 per year in sinking fund obligations associated with its bond issue. The sinking fund represents an annual repayment of the principal amount of the bond. It is not tax-deductible. Comprehensive Problem 1 (Continued) Ratios Ryan Boot (to be filled in) Profit margin... Return on assets. Return on equity Receivables turnover Inventory turnover... Fixed-asset turnover Total-asset turnover Current ratio.. Quick ratio. Debt to total assets. Interest coverage... Fixed charge coverage. Industry 5.75% 6.90% 9.20% 4.35X 6.50X 1.85% 1.20x 1.45X 1.10X 25.05% 5.35X 4.62X a. b. Analyze Ryan Boot Company, using ratio analysis. Compute the ratios on the prior page for Ryan and compare them to the industry data that is given. Discuss the weak points, strong points, and what you think should be done to improve the company's performance. In your analysis, calculate the overall break-even point in sales dollars and the cash break-even point. Also compute the degree of operating leverage, degree of financial leverage, and degree of combined leverage. (Use footnote 2 for DOL and footnote 3 in the chapter for DCL.) Use the information in parts a and b to discuss the risk associated with this company. Given the risk. decide whether a bank should lend funds to Rvan Boot. c. a. b. Analyze Ryan Boot Company, using ratio analysis. Compute the ratios on the prior page for Ryan and compare them to the industry data that is given. Discuss the weak points, strong points, and what you think should be done to improve the company's performance. In your analysis, calculate the overall break-even point in sales dollars and the cash break-even point. Also compute the degree of operating leverage, degree of financial leverage, and degree of combined leverage. (Use footnote 2 for DOL and footnote 3 in the chapter for DCL.) Use the information in parts a and b to discuss the risk associated with this company. Given the risk, decide whether a bank should lend funds to Ryan Boot. C. Extra Credit (worth up to 5 points) Ryan Boot Company is trying to plan the funds needed for 20X2. The management anticipates an increase in sales of 20 percent, which can be absorbed without increasing fixed assets. d. What would be Ryan's needs for external funds based on the current balance sheet? Compute RNF (required new funds). Notes payable (current) and bonds are not part of the liability calculation
