RATIO ANALYSIS Data for Barry Computer Co. and its industry averages follow.
a. Calculate the indicated ratios for Barry.
b. Construct the DuPont equation for both Barry and the industry.
c. Outline Barry’s strengths and weaknesses as revealed by your analysis.
d. Suppose Barry had doubled its sales as well as its inventories, accounts receivable, and common equity during 2008. How would that information affect the validity of your ratio analysis?
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Barry Computer Company: Balance Sheet as of December 31, 2008 (In Thousands) |
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|
Cash |
$ 77,500 |
Accounts payable |
$129,000 |
|
Receivables |
336,000 |
Notes payable |
84,000 |
|
Inventories |
241,500 |
Other current liabilities |
117,000 |
|
Total current assets |
$655,000 |
Total current liabilities |
$330,000 |
|
|
|
Long term debt |
256,500 |
|
Net fixed assets |
292,500 |
Common equity |
361,000 |
|
Total assets |
$947,500 |
Total liabilities and equity |
$947,500 |
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Barry Computer Company: Income Statement for Year Ended December 31, 2008 (In Thousands) |
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|
Sales |
|
$1,607,500 |
|
Cost of goods sold |
|
|
|
Materials |
$ 717,000
|
|
|
Labor |
453,000
|
|
|
Heat, light, and power |
68,000
|
|
|
Indirect labor |
113,000
|
|
|
Depreciation |
41,500
|
1,392,500 |
|
Gross profit |
|
$ 215,000 |
|
Selling expenses |
|
115,000 |
|
General and administrative expenses |
|
30,000 |
|
Earnings before interest and taxes (EBIT) |
|
$ 70,000 |
|
Interest expense |
|
24,500 |
|
Earnings before taxes (EBT) |
|
$ 45,500 |
|
Federal and state income taxes(40%) |
|
18,200 |
|
Net income |
|
$ 27,300 |
|
Ratio |
Barry |
Industry Average |
|
Current |
2.0× |
|
|
Quick |
1.3× |
|
|
Days sales outstandinga |
|
35.0 days |
|
Inventory turnover |
|
6.7× |
|
Total assets turnover |
|
3.0× |
|
Profit margin |
|
1.20% |
|
ROA |
3.60% |
|
|
ROE |
9.00% |
|
|
Total debt/total assets |
|
60.00% |
aCalculation is based on a 365 day year.