Ryan Boots also has $65,000 per year in sinking fund obligations associated with its bond issue. The sinking fund represents an annual repayment of the principal amount of the bond. It is not tax-deductible.

a. Analyze Ryan Boot Company, using ratio analysis. Compute the ratios on the prior page for Ryan and compare them to the industry data that is given. Discuss the weak points, strong points, and what you think should be done to improve the company’s performance.
b. In your analysis, calculate the overall break-even point in sales dollars and the cash break-even point. Also compute the degree of operating leverage, degree of financial leverage, and degree of combined leverage. (Use footnote 2 for DOL and footnote 3 in the chapter for DCL.)
c. Use the information in parts a and b to discuss the risk associated with this company. Given the risk, decide whether a bank should lendfunds to Ryan Boot.
Ryan Boot Company is trying to plan the funds needed for 20X2. The management anticipates an increase in sales of 20 percent, which can be absorbed without increasing fixed assets.
d. What would be Ryan’s needs for external funds based on the current balance sheet? Compute RNF (required new funds). Notes payable (current) and bonds are not part of the liability calculation.
e. What would be the required new funds if the company brings its ratios into line with the industry average during 20X2? Specifically examine receivables turnover, inventory turnover, and the profit margin. Use the new values to recompute the factors in RNF (assume liabilities stay the same).
f. Do not calculate, only comment on these questions. How would required new funds change if the company
(1) Were at full capacity?
(2) Raised the dividend payout ratio?
(3) Suffered a decreased growth in sales?
(4) Faced an accelerated inflation rate?

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Assets Cash Marketable securities Accounts receivable. Inventory Gross plant and equipment Less. Accumulated depreciation... Total assets. RYAN BOOT COMPANY Balance Sheet December 31, 20X1 $ 50,000 80,000 3,000,000 1,000,000 6,000,00 2,000,000 $8,130,000 Liabilities and Stockholders' Equity $2,200,000 150,000 400,000 2,500,000 1,700,000 Accounts payable.. Accrued expenses. Notes payable (current). Bonds (10%) ... Common stock (1.7 million shares, par value $1). Retained earnings.. Total liabilities and stockholders' equity. 1,180,000 $8,130,000