Question

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	$	69,000		Accounts payable	$	89,700
Receivables		269,100		Other current liabilities		69,000
Inventories		207,000		Notes payable to bank		41,400
Total current assets	$	545,100		Total current liabilities	$	200,100
				Long-term debt		138,000
Net fixed assets		144,900		Common equity (35,190 shares)		351,900
Total assets	$	690,000		Total liabilities and equity	$	690,000

Barry Computer Company: Income Statement for Year Ended December 31, 2019 (In Thousands)
Sales			$	1,000,000
Cost of goods sold
Materials	$430,000
Labor	250,000
Heat, light, and power	70,000
Indirect labor	70,000
Depreciation	20,000			840,000

Gross profit		$	160,000
Selling expenses			90,000
General and administrative expenses			20,000
Earnings before interest and taxes (EBIT)		$	50,000
Interest expense			15,180
Earnings before taxes (EBT)		$	34,820
Federal and state income taxes (25%)			8,705
Net income		$	26,115
Earnings per share		$	0.7421
Price per share on December 31, 2019		$	10.00

1. Calculate the indicated ratios for Barry. Do not round intermediate calculations. Round your answers to two decimal places.

   Ratio	Barry	Industry Average
   Current	×	2.75	×
   Quick	×	1.63	×
   Days sales outstandinga	days	47	days
   Inventory turnover	×	5.18	×
   Total assets turnover	×	1.69	×
   Profit margin	%	2.49	%
   ROA	%	4.21	%
   ROE	%	8.25	%
   ROIC	%	8.00	%
   TIE	×	3.20	×
   Debt/Total capital	%	33.17	%
   M/B		3.00
   P/E		16.35
   EV/EBITDA		9.25

   
   ^aCalculation is based on a 365-day year.
   
2. 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	%	2.49%
   Total assets turnover	×	1.69×
   Equity multiplier	×	×

Answer 1

Current Ratio= Current Asset / Current Liability

                        = 545100/200100

                        = 2.72

  Quick Ratio= Cash + Receivables / Current Liabilities

                       = (69000 + 269100)/200100

                       =1.69

Days Sales Outstanding= (Accounts receivable ÷ Annual revenue) × Number of days in the year

                                          = (269100/1000000) *365

                                          =98.22 Days

Inventory Turnover= (Cost of Goods Sold)/(Average Inventory)

                                  = 840000/207000

                                   =4.06

Total Asset Turnover= Net Sales/ Average Total Assets

                                     =1000000/690000

                                     =1.45

Profit Margin= Net Income/ Total Sales X 100

                        =(26115/1000000)*100

                        =2.61%

ROA = Net Income / Average Assets

         = 26115/690000

          =3.78%

ROE= Net Income/Shareholder’s Equity

       = 26115/351900

         =7.42%

ROIC= Operating Income or EBIT(1-Tax Rate)/ Invested Capital

        = 34820(0.75)/ 690000

       =3.78%

TIE= EBIT/ Total Interest

      =50000/15180

      =3.29

Debt/Total Capital= 339000/690000

                  =49.13%

M/B= Market Capitalization / Net Book Value

          = Net Book Value = Total Assets – Total Liabilities

         = Price of share * No. of shares / Total Assets – Total Liabilities

          = (10*35190)/(690000-339000)

          =1.00

P/E= 10/0.7421

      =13.48

EV/EBITDA= (690000-69000)/ 180000

                    = 3.45

b. Profit margin= 2.61%

    Total Asset turnover= 1.45

    Equity Multiplier= Assets/ Shareholders Equity

                                = 690000/351900

                                  =1.96

Du Pont of barry

ROE=NPM×Asset Turnover×Equity Multiplier

       =2.61% *1.45 *1.96

       =7.42%

Equity Multiplier for Industry

ROE=NPM×Asset Turnover×Equity Multiplier

8.25%=2.49% * 1.69 *Equity Multiplier

Equity Multiplier= 1.96