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 $ 129,870   Accounts payable $ 158,730 Receivables   476,190   Other current liabilities   173,160 Inventories   432,900   Notes payable to bank   158,730    Total current assets $ 1,038,960      Total current liabilities $ 490,620         Long-term debt   418,470 Net fixed assets   404,040   Common equity (53,391 shares)   533,910 Total assets $ 1,443,000   Total liabilities and equity $ 1,443,000   Barry Computer Company:Income Statement for Year Ended December 31, 2019 (In Thousands)   Sales     $ 1,950,000 Cost of goods sold            Materials $897,000          Labor 585,000          Heat, light, and power 117,000          Indirect labor 97,500          Depreciation 39,000     1,735,500 Gross profit   $ 214,500 Selling expenses     97,500 General and administrative expenses     19,500    Earnings before interest and taxes (EBIT)   $ 97,500 Interest expense     29,293    Earnings before taxes (EBT)   $ 68,207 Federal and state income taxes (25%)     17,052 Net income   $ 51,155 Earnings per share   $ 0.9581 Price per share on December 31, 2019   $ 11.00   Calculate the indicated ratios for Barry. Do not round intermediate calculations. Round your answers to two decimal places. Ratio Barry              Industry Average Current  × 2.08 × Quick  × 1.29 × Days sales outstandinga  days 42  days Inventory turnover  × 4.73 × Total assets turnover  × 1.61 × Profit margin   % 2.45 % ROA   % 3.94 % ROE   % 10.65 % ROIC   % 7.50 % TIE  × 3.43 × Debt/Total capital   % 53.45 % M/B    5.10   P/E    14.26   EV/EBITDA    9.92   aCalculation is based on a 365-day year. 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   % 2.45% Total assets turnover  × 1.61× Equity multiplier  ×  × Select the correct option based on Barry's strengths and weaknesses as revealed by your analysis. The firm's days sales outstanding ratio 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. The firm's days sales outstanding ratio 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. The firm's days sales outstanding ratio 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. The firm's days sales outstanding ratio 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.

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Chapter1: Investments: Background And Issues
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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 $ 129,870   Accounts payable $ 158,730
Receivables   476,190   Other current liabilities   173,160
Inventories   432,900   Notes payable to bank   158,730
   Total current assets $ 1,038,960      Total current liabilities $ 490,620
        Long-term debt   418,470
Net fixed assets   404,040   Common equity (53,391 shares)   533,910
Total assets $ 1,443,000   Total liabilities and equity $ 1,443,000

 

Barry Computer Company:
Income Statement for Year Ended December 31, 2019 (In Thousands)
 
Sales     $ 1,950,000
Cost of goods sold        
   Materials $897,000      
   Labor 585,000      
   Heat, light, and power 117,000      
   Indirect labor 97,500      
   Depreciation 39,000     1,735,500
Gross profit   $ 214,500
Selling expenses     97,500
General and administrative expenses     19,500
   Earnings before interest and taxes (EBIT)   $ 97,500
Interest expense     29,293
   Earnings before taxes (EBT)   $ 68,207
Federal and state income taxes (25%)     17,052
Net income   $ 51,155
Earnings per share   $ 0.9581
Price per share on December 31, 2019   $ 11.00

 

  1. Calculate the indicated ratios for Barry. Do not round intermediate calculations. Round your answers to two decimal places.
    Ratio Barry              Industry Average
    Current  × 2.08 ×
    Quick  × 1.29 ×
    Days sales outstandinga  days 42  days
    Inventory turnover  × 4.73 ×
    Total assets turnover  × 1.61 ×
    Profit margin   % 2.45 %
    ROA   % 3.94 %
    ROE   % 10.65 %
    ROIC   % 7.50 %
    TIE  × 3.43 ×
    Debt/Total capital   % 53.45 %
    M/B    5.10  
    P/E    14.26  
    EV/EBITDA    9.92  

    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   % 2.45%
    Total assets turnover  × 1.61×
    Equity multiplier  ×  ×
  3. Select the correct option based on Barry's strengths and weaknesses as revealed by your analysis.
    1. The firm's days sales outstanding ratio 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.
    2. The firm's days sales outstanding ratio 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.
    3. The firm's days sales outstanding ratio 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.
    4. The firm's days sales outstanding ratio 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.
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