Problem:
A. Analyze Ryan Boot Company, using ratio analysis. Compute the ratios.
B. In your analysis, calculate the overall break-even point in sales dollars and the cash break-even point.
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Ryan Boot Company Analysis Ratios
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Ryan Boot
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Industry
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Profit margin
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$292,500 ÷ 7,000,000
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4.18%
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5.75%
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Return on assets
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$292,500 ÷ 8,130,000
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3.60%
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6.90%
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Return on equity
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$292,500 ÷ 2,880,000
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10.16%
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9.20x
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Receivables turnover
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$7,000,000 ÷ 3,000,000
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2.33x
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4.35x
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Inventory turnover
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$7,000,000 ÷ 1,000,000
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7.00x
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6.50x
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Fixed asset turnover
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$7,000,000 ÷ 4,000,000
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1.75x
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1.85x
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Total asset turnover
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$7,000,000 ÷ 8,130,000
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0.86x
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1.20x
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Current ratio
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$4,130,000 ÷ 2,750,000
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1.50x
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1.45x
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Quick ratio
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$3,130,000 ÷ 2,750,000
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1.14x
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1.10x
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Debt to total assets
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$5,250,000 ÷ 8,130,000
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64.58%
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25.05%
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Interest coverage
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$700,000 ÷ 250,000
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2.80x
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5.35x
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Fixed charge coverage
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($700,000 + $200,000)/$250,000 + $200,000 + ($65,000/ (1-.35) = $900,000/$550,000
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1.64x
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4.62x
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A. Analyze Ryan Boot Company, using ratio analysis. Compute the ratios.
B. In your analysis, calculate the overall break-even point in sales dollars and the cash break-even point
Answer:
B. BEP in sales dollars
First we must calculate the contribution margin.
CM = Sales - Variable expenses
CM = $7,000,000 - 4,200,000
CM = $2,800,000
Contribution Margin Ratio = CM ÷ Sales
CMR = $2,800,000 ÷ 7,000,000
CMR = 40%
BEP = Total Fixed Assets ÷ CMR
BEP = $2,100,000 ÷ 40%
BEP = $5,250,000 in sales dollars
Cash BEP = same as above accept the non cash expenses would be removed from the fixed assets per the instructor help.
Cash BEP = (TFA - Non Cash expenses) ÷ CMR
Cash BEP = ($2,100,000 - 500,000) ÷ 40%
Cash BEP = $1,600,000 ÷ 40%
Cash BEP = $4,000,000