Data for Barry Computer Company and its industry averages follow.
a. Calculate the indicated ratios for Barry.
b. Construct the extended Du Pont 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 2002. 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, 2002 (In Thousands)
|
Cash
|
$ 77500
|
Accounts payable
|
$129000
|
|
Receivables
|
336000
|
Notes payable
|
84000
|
|
Inventories
|
241500
|
Other current liabilities
|
117000
|
|
Total current assets
|
$655000
|
Total current liabilities
|
$330000
|
|
Net fixed assets
|
292500
|
Long-term debt
|
256500
|
|
Total assets
|
$947500
|
Common equity
|
361000
|
|
|
Total liabilities and equity
|
$947500
|
Barry Computer Company: Income Statement for Year Ended December 31, 2002
(In Thousands)
|
Sales
|
$1,607,500
|
|
Cost of goods sold
|
1,392,500
|
|
Selling, general, and administrative expenses
|
145,000
|
|
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 assets/current liabilities
|
|
2.0X
|
|
Days sales outstandinga
|
|
35 days
|
|
Sales/inventory
|
|
6.7X
|
|
Sales/fixed assets
|
|
12.1X
|
|
Sales/total assets
|
|
3.0X
|
|
Net income/sales
|
|
1.2%
|
|
Net income/total assets
|
|
3.6%
|
|
Net income/common equity
|
|
9.0%
|
|
Total debt/total assets
|
|
60.0%
|