firm\'s debt is priced at par, so the market value of its debt equals its book v
ID: 2818382 • Letter: F
Question
firm's debt is priced at par, so the market value of its debt equals its book value. Since dol lars are in thousands, number of shares are shown in thousands too. 4-23 RATIO ANALYSIS Data for Barry Computer Co. and its industry averages follow. The 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 2018. 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.) Barry Computer Company: Balance Sheet as of December 31, 2018 (in Thousands) 77,500 336,000 241,500 $ 655,000 Accounts payable Other current liabilities Notes payable to bank $129,000 117,000 84,000 $330,000 256,500 361,000 $947,500 Cash Receivables Inventories Total current liabilities Long-term debt Common equity (36,100 shares) Total liabilities and equity Total current assets Net fixed assets Total assets 292,500 $ 947,500Explanation / Answer
Current ratio= Current Assets/ Current Liabilities= 655000/330000=1.98
Quick Ratio= (Cash+Receivables)/Current Liabilities= (77500+336000)/330000= 1.25
Days sale outstanding= 365/ Receivables turnover= 365/ (Sales/ Average receivables)= 365/ (1607500/336000)=76.29
Inventory turnover = Cost of goods sold/ Inventory= 1392500/241500= 5.76
Total asset turnover= Sales/ total assets= 1607500/947500=1.69
Profit margin= Net income/ Sales = 27300/1607500= 1.70%
ROA= Net income/ Total Assets= 27300/ 947500= 2.88%
ROE= Net income/ Total equity= 27300/361000= 7.56%
ROIC= (Net income - Dividends) / (Debt + Equity) = (27300-0) / 947500= 2.88%
Debt/ Total capital = Total debt/ total capital = (330000+256500)/947500= 61.90%
M/B ratio = Market value of firm(debt+equity)/ Book value of firm(debt+equity) = (330000 + 256500 + 12*36100)/(330000 + 256000 + 361000) = 1.076
P/E= Price per share/ Earning per share= 12/ 0.75623= 15.8681
EV/ EBITDA= (Market value of debt + market value of equity - cash and investments )/ EBITDA= (330000 + 256500 + 12*36100 - 77500)/ 70000 =13.46
b. Dupont equation
Return on Equity= Net Profit Margin x Asset Turnover Ratio x Financial Leverage
= (Net Income / Sales) x (Sales / Total Assets) x (Total Assets / Total Equity)
= (27300/1607500) * (1607500/947500) * ( 947500/ 361000)= 1.7% * 1.69 * 2.62 ( for Barry)
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