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Data for Barry Computer Co. and its industry averages follow.
The firm's debt is priced at par, so the market value of its debt
equals its book value. Since dollars are in thousands, number of
shares are shown in thousands too.
| Barry Computer Company: |
| Balance Sheet as of December 31, 2019 (In
Thousands) |
|
| Cash |
$ |
249,900 |
|
Accounts payable |
$ |
249,900 |
| Receivables |
|
678,300 |
|
Other current liabilities |
|
232,050 |
| Inventories |
|
428,400 |
|
Notes payable to bank |
|
89,250 |
| Total current assets |
$ |
1,356,600 |
|
Total current liabilities |
$ |
571,200 |
|
|
|
|
Long-term debt |
|
357,000 |
| Net fixed assets |
|
428,400 |
|
Common equity (85,680 shares) |
|
856,800 |
| Total assets |
$ |
1,785,000 |
|
Total liabilities and equity |
$ |
1,785,000 |
Barry Computer Company:
Income Statement for Year Ended December 31, 2019 (In
Thousands) |
|
| Sales |
|
|
$ |
2,550,000 |
| Cost of goods sold |
|
|
|
|
| Materials |
$1,020,000 |
|
|
|
| Labor |
714,000 |
|
|
|
| Heat, light, and power |
178,500 |
|
|
|
| Indirect labor |
102,000 |
|
|
|
| Depreciation |
51,000 |
|
|
2,065,500 |
| Gross profit |
|
$ |
484,500 |
| Selling expenses |
|
|
280,500 |
| General and administrative expenses |
|
|
76,500 |
| Earnings before interest and taxes
(EBIT) |
|
$ |
127,500 |
| Interest expense |
|
|
35,700 |
| Earnings before taxes (EBT) |
|
$ |
91,800 |
| Federal and state income taxes (25%) |
|
|
22,950 |
| Net income |
|
$ |
68,850 |
| Earnings per share |
|
$ |
0.8036 |
| Price per share on December 31, 2019 |
|
$ |
13.00 |
- Calculate the indicated ratios for Barry. Do not round
intermediate calculations. Round your answers to two decimal
places.
| Ratio |
Barry |
Industry Average |
| Current |
× |
2.35 |
× |
| Quick |
× |
1.68 |
× |
| Days sales outstandinga |
days |
45 |
days |
| Inventory turnover |
× |
6.24 |
× |
| Total assets turnover |
× |
1.70 |
× |
| Profit margin |
% |
2.52 |
% |
| ROA |
% |
4.29 |
% |
| ROE |
% |
8.55 |
% |
| ROIC |
% |
7.50 |
% |
| TIE |
× |
3.48 |
× |
| Debt/Total capital |
% |
35.35 |
% |
| M/B |
|
5.30 |
|
| P/E |
|
18.38 |
|
| EV/EBITDA |
|
9.96 |
|
aCalculation is based on a 365-day year.
- Construct the DuPont equation for both Barry and the industry.
Do not round intermediate calculations. Round your answers to two
decimal places.
|
FIRM |
INDUSTRY |
| Profit margin |
% |
2.52% |
| Total assets turnover |
× |
1.70× |
| Equity multiplier |
× |
× |
- Select the correct option based on Barry's strengths and
weaknesses as revealed by your analysis.
- The firm's days sales outstanding ratio 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.
- The firm's days sales outstanding ratio 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 ratio 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 ratio 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. Finally, it's market value ratios are also below
industry averages. However, the company seems to be in an average
liquidity position and financial leverage is similar to others in
the industry.
-Select-IIIIIIIVVItem 19
- Suppose Barry had doubled its sales as well as its inventories,
accounts receivable, and common equity during 2019. 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.)
- If 2019 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 2019 ratios will be misled, and a return
to supernormal conditions in 2020 could hurt the firm's stock
price.
- If 2019 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 2019 ratios will be well
informed, and a return to normal conditions in 2020 could hurt the
firm's stock price.
- If 2019 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 2019 ratios will be misled,
and a return to normal conditions in 2020 could hurt the firm's
stock price.
- If 2019 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 2019 ratios to be well informed, and a
return to normal conditions in 2020 could help the firm's stock
price.
- If 2019 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 2019 ratios will be misled,
and a continuation of normal conditions in 2020 could hurt the
firm's stock price.
-Select-IIIIIIIVVItem 20
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