Data for Barry Computer Co. and its industry averages follow.
Barry Computer Company: Balance Sheet as of December 31, 2014 (In Thousands) Cash $139,080 Accounts payable $139,080 Receivables 382,470 Other current liabilities 115,900 Inventories 231,800 Notes payable 127,490 Total current assets $753,350 Total current liabilities $382,470 Long-term debt $266,570 Net fixed assets 405,650 Common equity 509,960 Total assets $1,159,000 Total liabilities and equity $1,159,000
Barry Computer Company:
Income Statement for Year Ended December 31, 2014 (In Thousands) Sales $1,900,000 Cost of goods sold Materials $779,000 Labor 418,000 Heat, light, and power 95,000 Indirect labor 190,000 Depreciation 57,000 $1,539,000
Gross profit $361,000 Selling expenses 228,000 General and administrative expenses 19,000 Earnings before interest and taxes (EBIT) $114,000 Interest expense 26,657 Earnings before taxes (EBT) 87,343 Federal and state income taxes (40%) 34,937 Net income $52,406
1. Calculate the indicated ratios for Barry. Round your answers to two decimal places.
Ratio Barry Industry Average Current x 1.99x Quick x 1.35x Days sales outstandinga days 34.99days Inventory turnover x 8.44x Total assets turnover x 1.91x Profit margin % 2.63% ROA % 5.02% ROE % 10.93% ROIC % 7.90% TIE x 3.20x Debt/Total capital % 47.00%
aCalculation is based on a 365-day year.
2. Construct the Du Pont equation for both Barry and the industry. Round your answers to two decimal places.
FIRM INDUSTRY Profit margin % 2.63% Total assets turnover x 1.91x Equity multiplier
3. Outline Barry's strengths and weaknesses as revealed by your analysis. Select One below
a. 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 and assets. However, the company seems to be in an average liquidity position and financial leverage is similar to others in the industry.
b. 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 and assets. However, the company seems to be in an above average liquidity position and financial leverage is similar to others in the industry.
c. 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 and assets. However, the company seems to be in a below average liquidity position and financial leverage is similar to others in the industry.
d. 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 and assets. However, the company seems to be in an average liquidity position and financial leverage is similar to others in the industry.
e. 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 and assets. 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 2014. 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 one below
a. If 2014 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 2014 ratios will be misled, and a return to supernormal conditions in 2013 could hurt the firm's stock price.
b. If 2014 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 2014 ratios will be well informed, and a return to normal conditions in 2013 could hurt the firm's stock price.
c. If 2014 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 2014 ratios will be misled, and a return to normal conditions in 2013 could hurt the firm's stock price.
d. If 2014 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 2014 ratios to be well informed, and a return to normal conditions in 2013 could help the firm's stock price.
e. If 2014 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 2014 ratios will be misled, and a continuation of normal conditions in 2013 could hurt the firm's stock price.
Data for Barry Computer Co. and its industry averages follow.
| Barry Computer Company: | ||||
| Balance Sheet as of December 31, 2014 (In Thousands) | ||||
| Cash | $139,080 | Accounts payable | $139,080 | |
| Receivables | 382,470 | Other current liabilities | 115,900 | |
| Inventories | 231,800 | Notes payable | 127,490 | |
| Total current assets | $753,350 | Total current liabilities | $382,470 | |
| Long-term debt | $266,570 | |||
| Net fixed assets | 405,650 | Common equity | 509,960 | |
| Total assets | $1,159,000 | Total liabilities and equity | $1,159,000 | |
| Barry Computer Company: Income Statement for Year Ended December 31, 2014 (In Thousands) | |||
| Sales | $1,900,000 | ||
| Cost of goods sold | |||
| Materials | $779,000 | ||
| Labor | 418,000 | ||
| Heat, light, and power | 95,000 | ||
| Indirect labor | 190,000 | ||
| Depreciation | 57,000 | $1,539,000 | |
| Gross profit | $361,000 | |
| Selling expenses | 228,000 | |
| General and administrative expenses | 19,000 | |
| Earnings before interest and taxes (EBIT) | $114,000 | |
| Interest expense | 26,657 | |
| Earnings before taxes (EBT) | 87,343 | |
| Federal and state income taxes (40%) | 34,937 | |
| Net income | $52,406 |
1. Calculate the indicated ratios for Barry. Round your answers to two decimal places.
| Ratio | Barry | Industry Average |
| Current | x | 1.99x |
| Quick | x | 1.35x |
| Days sales outstandinga | days | 34.99days |
| Inventory turnover | x | 8.44x |
| Total assets turnover | x | 1.91x |
| Profit margin | % | 2.63% |
| ROA | % | 5.02% |
| ROE | % | 10.93% |
| ROIC | % | 7.90% |
| TIE | x | 3.20x |
| Debt/Total capital | % | 47.00% |
aCalculation is based on a 365-day year.
2. Construct the Du Pont equation for both Barry and the industry. Round your answers to two decimal places.
| FIRM | INDUSTRY | |
| Profit margin | % | 2.63% |
| Total assets turnover | x | 1.91x |
| Equity multiplier |
3. Outline Barry's strengths and weaknesses as revealed by your analysis. Select One below
a. 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 and assets. However, the company seems to be in an average liquidity position and financial leverage is similar to others in the industry.
b. 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 and assets. However, the company seems to be in an above average liquidity position and financial leverage is similar to others in the industry.
c. 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 and assets. However, the company seems to be in a below average liquidity position and financial leverage is similar to others in the industry.
d. 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 and assets. However, the company seems to be in an average liquidity position and financial leverage is similar to others in the industry.
e. 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 and assets. 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 2014. 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 one below
a. If 2014 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 2014 ratios will be misled, and a return to supernormal conditions in 2013 could hurt the firm's stock price.
b. If 2014 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 2014 ratios will be well informed, and a return to normal conditions in 2013 could hurt the firm's stock price.
c. If 2014 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 2014 ratios will be misled, and a return to normal conditions in 2013 could hurt the firm's stock price.
d. If 2014 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 2014 ratios to be well informed, and a return to normal conditions in 2013 could help the firm's stock price.
e. If 2014 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 2014 ratios will be misled, and a continuation of normal conditions in 2013 could hurt the firm's stock price.
Related questions
Data for Barry Computer Co. and its industry averages follow.
| Barry Computer Company: | ||||
| Balance Sheet as of December 31, 2012 (In Thousands) | ||||
| Cash | $159,750 | Accounts payable | $191,700 | |
| Receivables | 559,125 | Notes payable | 95,850 | |
| Inventories | 415,350 | Other current liabilities | 127,800 | |
| Total current assets | $1,134,225 | Total current liabilities | $415,350 | |
| Long-term debt | $479,250 | |||
| Net fixed assets | 463,275 | Common equity | 702,900 | |
| Total assets | $1,597,500 | Total liabilities and equity | $1,597,500 | |
| Barry Computer Company: Income Statement for Year Ended December 31, 2012 (In Thousands) | |||
| Sales | $2,250,000 | ||
| Cost of goods sold | |||
| Materials | $922,500 | ||
| Labor | 630,000 | ||
| Heat, light, and power | 67,500 | ||
| Indirect labor | 180,000 | ||
| Depreciation | 45,000 | $1,845,000 | |
| Gross profit | $405,000 | |
| Selling expenses | 225,000 | |
| General and administrative expenses | 67,500 | |
| Earnings before interest and taxes (EBIT) | $112,500 | |
| Interest expense | 43,133 | |
| Earnings before taxes (EBT) | 69,367 | |
| Federal and state income taxes (40%) | 27,747 | |
| Net income | $41,620 |
Calculate the indicated ratios for Barry. Round your answers to two decimal places.
| Ratio | Barry | Industry Average |
| Current | x | 2.70x |
| Quick | x | 1.75x |
| Days sales outstandinga | days | 42.38days |
| Inventory turnover | x | 5.91x |
| Total assets turnover | x | 1.59x |
| Net profit margin | % | 1.73% |
| ROA | % | 2.74% |
| ROE | % | 6.30% |
| Total debt/total assets | % | 56.52% |
aCalculation is based on a 365-day year.
Construct the extended Du Pont equation for both Barry and the industry. Round your answers to two decimal places.
| FIRM | INDUSTRY | |
| Net profit margin | % | 1.73% |
| Total assets turnover | x | 1.59x |
| Equity multiplier |
