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Suppose Barry had doubled its sales as well as its inventories, accounts receivable, income and equity during 2019. How would that information affect the validity of the ratio analysis? Keeping in mind averages and the effects of rapid growth and ratios if averages are not used. No calculations are needed.

Suppose Barry had doubled its sales as well as its inventories, accounts receivable, income and equity during 2019. How would that information affect the validity of the ratio analysis? Keeping in mind averages and the effects of rapid growth and ratios if averages are not used. No calculations are needed.

Intermediate Financial Management (MindTap Course List)
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter7: Analysis Of Financial Statements
Section: Chapter Questions
Problem 1Q: Define each of the following terms: Liquidity ratios: current ratio; quick, or acid test,...
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Suppose Barry had doubled its sales as well as its inventories, accounts receivable, income and equity during 2019. How would that information affect the validity of the ratio analysis? Keeping in mind averages and the effects of rapid growth and ratios if averages are not used. No calculations are needed. 

Cash Accounts receivable Inventories Fixed assets Total assets Sales Cash 11 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. Receivables Inventories $300,000 4-23 RATIO ANALYSIS 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 dol- lars are in thousands, number of shares are shown in thousands too. Total current assets Net fixed assets Total assets Long-term debt Common stock Retained earnings Total liabilities and equity Cost of goods sold d. Suppose Barry had doubled its sales as well as its inventories, accounts receivable, and common equity during 2019. 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, 2019 (in Thousands) $ 77,500 Accounts payable Other current liabilities 336,000 241,500 Notes payable to bank $ 655,000 Total current liabilities Long-term debt Common equity (36,100 shares) Total liabilities and equity 60,000 292,500 $ 947,500 97,500 $129,000 117,000 84,000 $330,000 256,500 361,000 $947,500
Transcribed Image Text:Cash Accounts receivable Inventories Fixed assets Total assets Sales Cash 11 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. Receivables Inventories $300,000 4-23 RATIO ANALYSIS 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 dol- lars are in thousands, number of shares are shown in thousands too. Total current assets Net fixed assets Total assets Long-term debt Common stock Retained earnings Total liabilities and equity Cost of goods sold d. Suppose Barry had doubled its sales as well as its inventories, accounts receivable, and common equity during 2019. 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, 2019 (in Thousands) $ 77,500 Accounts payable Other current liabilities 336,000 241,500 Notes payable to bank $ 655,000 Total current liabilities Long-term debt Common equity (36,100 shares) Total liabilities and equity 60,000 292,500 $ 947,500 97,500 $129,000 117,000 84,000 $330,000 256,500 361,000 $947,500
EPIFCEFFI 4-24 wei Sales Cost of goods sold Materials Labor Heat, light, and power Indirect labor Depreciation Barry Computer Company: Income Statement for Year Ended December 31, 2019 (in Thousands) Gross profit Selling expenses General and administrative expenses Earnings before interest and taxes (EBIT) Interest expense Earnings before taxes (EBT) Federal and state income taxes (25%) Net income Earnings per share Price per share on December 31, 2019 Ratio Current Quick Days sales outstandingª Inventory turnover Total assets turnover Profit margin ROA ROE ROIC TIE Debt/Total capital M/B P/E Chapter 4 Analysis of Financial Statements Current ratio Debt-to-capital ratio Barry ||||||||||||| EV/EBITDA - Calculation is based on a 365-day year. $717,000 453,000 68,000 113,000 41,500 Industry Average Ratios 3X 20% 2.0X 1.3X 35 days 6.7X 3.0X 1.6% 4.8% 12.1% 9.4% 3.5X 47.0% 4.22X 13.27 9.14 $1,607,500 1,392,500 Ş 215,000 115,000 30,000 70,000 21,000 49,000 12,250 36,750 Fixed assets turnover Total assets turnover Ş Industry Average Ş Ş $ $ DUPONT ANALYSIS A firm has been experiencing low profitability in recent years. Perform an analysis of the firm's financial position using the DuPont equation. The firm has no lease payments but has a $2 million sinking fund payment on its debt. The most recent industry average ratios and the firm's financial statements are as follows: 1.018 12.00 6X 141
Transcribed Image Text:EPIFCEFFI 4-24 wei Sales Cost of goods sold Materials Labor Heat, light, and power Indirect labor Depreciation Barry Computer Company: Income Statement for Year Ended December 31, 2019 (in Thousands) Gross profit Selling expenses General and administrative expenses Earnings before interest and taxes (EBIT) Interest expense Earnings before taxes (EBT) Federal and state income taxes (25%) Net income Earnings per share Price per share on December 31, 2019 Ratio Current Quick Days sales outstandingª Inventory turnover Total assets turnover Profit margin ROA ROE ROIC TIE Debt/Total capital M/B P/E Chapter 4 Analysis of Financial Statements Current ratio Debt-to-capital ratio Barry ||||||||||||| EV/EBITDA - Calculation is based on a 365-day year. $717,000 453,000 68,000 113,000 41,500 Industry Average Ratios 3X 20% 2.0X 1.3X 35 days 6.7X 3.0X 1.6% 4.8% 12.1% 9.4% 3.5X 47.0% 4.22X 13.27 9.14 $1,607,500 1,392,500 Ş 215,000 115,000 30,000 70,000 21,000 49,000 12,250 36,750 Fixed assets turnover Total assets turnover Ş Industry Average Ş Ş $ $ DUPONT ANALYSIS A firm has been experiencing low profitability in recent years. Perform an analysis of the firm's financial position using the DuPont equation. The firm has no lease payments but has a $2 million sinking fund payment on its debt. The most recent industry average ratios and the firm's financial statements are as follows: 1.018 12.00 6X 141
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