Carson Electronics management has long viewed BGT Electronics as an industry leader and uses this firm as

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Question:

Carson Electronics’ management has long viewed BGT Electronics as an industry leader and uses this firm as a model firm for analyzing its own performance. The balance sheets and income statements for the two firms are found below:

	Carson Electronics, Inc. Balance Sheet ($000)	BGT Electronics, Inc. Balance Sheet ($000)
Cash	$ 2,000	$ 1,500
Accounts Receivable	4,500	6,000
Inventories	1,500	2,500
Current Assets	$ 8,000	$ 10,000
Net Fixed Assets	16,000	25,000
Total Assets	$ 24,000	$ 35,000

Accounts Payable	$ 2,500	$ 5,000
Accrued Expenses	1,000	1,500
Short-term Notes Payable	3,500	1,500
Current Liabilities	$ 7,000	$ 8,000
Long-term Debt	8,000	4,000
Owners’ Equity	9,000	23,000
Total Liabilities and Owners’ equity	$ 24,000	$ 35,000

	Carson Electronics, Inc. Income Statement ($000)	BGT Electronics, Inc. Income Statement ($000)
Net Sales (all credit)	$ 48,000	$ 70,000
Cost of Goods Sold	(36,000)	(42,000)
Gross Profit	$ 12,000	$ 28,000
Operating Expenses	(8,000)	(12,000)
Net Operating Income	$ 4,000	$ 16,000
Interest Expense	(1,150)	(550)
Earnings before taxes	$ 2,850	$ 15,450
Income Taxes (40%)	(1,140)	(6,180)
Net Income	$ 1,710	$ 9,270

a. Calculate the following ratios for both Carson and BGT:

Current ratio

Times interest earned

Inventory turnover

Total Asset turnover

Operating profit margin

Operating return on assets

Debt ratio

Average collection period

Fixed asset turnover

Return on equity

b. Analyze the differences you observe between the two firms. Comment on what you view as weaknesses in the performance of Carson as compared to BGT that Carson’s management might focus on to improve its operations.

c. What other data might you incorporate in your analysis to get a better picture of the comparison?

d. Which ratios would be particularly useful to creditors, managers, shareholders, and bondholders?

e. How would you use industry ratios and peer comparisons when the firm you are analyzing is the industry leader? When the firm you are analyzing is an average-size firm in this market?