Data for Barry Computer Co. and its industry averages follow. Calculate the indi
ID: 2789659 • Letter: D
Question
Data for Barry Computer Co. and its industry averages follow.
Calculate the indicated ratios for Barry. Round your answers to two decimal places.
Calculation is based on a 365-day year.
Construct the DuPont equation for both Barry and the industry. Round your answers to two decimal places.
Select the correct option based on Barry's strengths and weaknesses as revealed by your analysis.
-Select-A, B, C, D, E
A. 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, 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.
B. 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. However, the company seems to be in an average liquidity position and financial leverage is similar to others in the industry.
C. 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, 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.
D. 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, 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.
E. 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, 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.
Suppose Barry had doubled its sales as well as its inventories, accounts receivable, and common equity during 2016. 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-A, B, C, D, E
A. If 2016 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 2016 ratios will be misled, and a continuation of normal conditions in 2017 could hurt the firm's stock price.
B. If 2016 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 2016 ratios will be misled, and a return to supernormal conditions in 2017 could hurt the firm's stock price.
C. If 2016 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 2016 ratios will be well informed, and a return to normal conditions in 2017 could hurt the firm's stock price.
D. If 2016 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 2016 ratios will be misled, and a return to normal conditions in 2017 could hurt the firm's stock price.
E. If 2016 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 2016 ratios to be well informed, and a return to normal conditions in 2017 could help the firm's stock price.
Barry Computer Company: Balance Sheet as of December 31, 2016 (In Thousands) Cash $168,480 Accounts payable $318,240 Receivables 542,880 Other current liabilities 187,200 Inventories 468,000 Notes payable to bank 93,600 Total current assets $1,179,360 Total current liabilities $599,040 Long-term debt $374,400 Net fixed assets 692,640 Common equity 898,560 Total assets $1,872,000 Total liabilities and equity $1,872,000Explanation / Answer
Notes:
1. Quick assets is calculated by subtracting inventory from current assets.
2. Invested capital is calculated by summing up long term debt and common equity. Another method to calculate it is to add non cash working capital to fixed assets.
I've calculated all the ratios for the firm. Student should be now able to select the appropriate option by comparison with industry averages.
Name of ratio Figures Industry average Current ratio(CA/CL) 1,179,360/599,040= 1.97x 1.93x Quick ratio(Quick assets/CL) 711,360/599,040= 1.19x 1.22x DSO[(AR/Sales) x 365] (542,880/2,600,000) x 365= 76.212 days 35.61 days Inventory turnover(COGS/Avg. invenotry) 2,158,000/468,000= 4.61x 6.07x Total assets turnover(Sales/total assets) 2,600,000/1,872,000= 1.39x 1.56x Profit margin(Net income/Net sales) 62,275/2,600,000= 2.4% 2.24% ROA (Net income/total assets) 62,275/1,872,000= 3.33% 3.5% ROE (Net income/owner's equity) 62,275/898,560 = 6.93% 7.7% ROIC(Net income-dividends)/Invested capital 62,275/1,272,960= 4.89% 7.6% TIE(EBIT/I) 130,000/26,208= 4.96x 4.89x Debt/total capital (374,400+599,040)/1,872,000= 52% 35.35%Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.