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	$	43,750		Accounts payable	$	122,500
Receivables		245,000		Other current liabilities		140,000
Inventories		183,750		Notes payable to bank		52,500
Total current assets	$	472,500		Total current liabilities	$	315,000
				Long-term debt		175,000
Net fixed assets		402,500		Common equity (38,500 shares)		385,000
Total assets	$	875,000		Total liabilities and equity	$	875,000

Barry Computer Company: Income Statement for Year Ended December 31, 2019 (In Thousands)
Sales			$	1,250,000
Cost of goods sold
Materials	$575,000
Labor	287,500
Heat, light, and power	75,000
Indirect labor	75,000
Depreciation	25,000			1,037,500

Gross profit		$	212,500
Selling expenses			112,500
General and administrative expenses			37,500
Earnings before interest and taxes (EBIT)		$	62,500
Interest expense			17,500
Earnings before taxes (EBT)		$	45,000
Federal and state income taxes (25%)			11,250
Net income		$	33,750
Earnings per share		$	0.8766
Price per share on December 31, 2019		$	13.00

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

   Ratio	Barry	Industry Average
   Current	×	1.47	×
   Quick	×	0.89	×
   Days sales outstandinga	days	34	days
   Inventory turnover	×	7.00	×
   Total assets turnover	×	1.58	×
   Profit margin	%	2.57	%
   ROA	%	4.06	%
   ROE	%	9.33	%
   ROIC	%	7.90	%
   TIE	×	3.67	×
   Debt/Total capital	%	36.04	%
   M/B		3.30
   P/E		17.58
   EV/EBITDA		10.66

   
   ^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	%	2.57%
   Total assets turnover	×	1.58×
   Equity multiplier	×	×

Answer 1

DuPont equation =profit margin*asset turnover*equity multiplier

Firm=2.7*1.43*2.27 =8.77

Industry=2.57*1.58*2.29=9.33

Note:equity multiple of firm =total assets/shareholders equity

Firm equity maultiplier

=$875000/$385000 =2.27

DuPont point analysis classifies RoE into Profit margin, assets turnover ratio and equity multiple.

Industry equity multipier (Total assets/shareholder equity)

=Total assets/Net income * Net income/ Total shareholders funds

=1/ROA * ROE

=2.29