Data for Barry Computer Co. and its industry averages follow.

Select the correct option based on Barry's strengths and weaknesses as revealed by your analysis.

A. The firm's days sales outstanding is more than twice as long as the industry average, indicating that the firm should loosen credit or apply a less stringent collection policy. The total assets turnover ratio is well below the industry average so sales should be increased, assets increased, or both. While the company's profit margin is higher than the industry average, its other profitability ratios are low compared to the industry - net income should be higher given the amount of equity, assets, and invested capital. However, the company seems to be in an average liquidity position and financial leverage is similar to others in the industry.

b. The firm's days sales outstanding is less than the industry average, indicating that the firm should tighten credit or enforce a more stringent collection policy. The total assets turnover ratio is well below the industry average so sales should be increased, assets decreased, or both. While the company's profit margin is lower than the industry average, its other profitability ratios are high compared to the industry - net income should be higher given the amount of equity, assets, and invested capital. However, the company seems to be in an average liquidity position and financial leverage is similar to others in the industry.

c. The firm's days sales outstanding is more than the industry average, indicating that the firm should tighten credit or enforce a more stringent collection policy. The total assets turnover ratio is well above the industry average so sales should be increased, assets increased, or both. While the company's profit margin is higher than the industry average, its other profitability ratios are low compared to the industry - net income should be higher given the amount of equity, assets, and invested capital. However, the company seems to be in an above average liquidity position and financial leverage is similar to others in the industry.

d. The firm's days sales outstanding is comparable to the industry average, indicating that the firm should neither tighten credit nor enforce a more stringent collection policy. The total assets turnover ratio is well below the industry average so sales should be increased, assets increased, or both. While the company's profit margin is higher than the industry average, its other profitability ratios are low compared to the industry - net income should be higher given the amount of equity, assets, and invested capital. However, the company seems to be in a below average liquidity position and financial leverage is similar to others in the industry.

f. The firm's days sales outstanding ratio is more than twice as long as the industry average, indicating that the firm should tighten credit or enforce a more stringent collection policy. The total assets turnover ratio is well below the industry average so sales should be increased, assets decreased, or both. While the company's profit margin is higher than the industry average, its other profitability ratios are low compared to the industry - net income should be higher given the amount of equity, assets, and invested capital. However, the company seems to be in an average liquidity position and financial leverage is similar to others in the industry.

Select the correct option based on Barry's strengths and weaknesses as revealed by your analysis.

Suppose Barry had doubled its sales as well as its inventories, accounts receivable, and common equity during 2016. 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.)

a. If 2016 represents a period of supernormal growth for the firm, ratios based on this year will be distorted and a comparison between them and industry averages will have substantial meaning. Potential investors who look only at 2016 ratios will be well informed, and a return to normal conditions in 2016 could hurt the firm's stock price.

b. If 2016 represents a period of supernormal growth for the firm, ratios based on this year will be distorted and a comparison between them and industry averages will have little meaning. Potential investors who look only at 2016 ratios will be misled, and a return to normal conditions in 2017 could hurt the firm's stock price.

c. If 2016 represents a period of supernormal growth for the firm, ratios based on this year will be accurate and a comparison between them and industry averages will have substantial meaning. Potential investors need only look at 2016 ratios to be well informed, and a return to normal conditions in 2017 could help the firm's stock price.

d. If 2016 represents a period of normal growth for the firm, ratios based on this year will be distorted and a comparison between them and industry averages will have little meaning. Potential investors who look only at 2016 ratios will be misled, and a continuation of normal conditions in 2017 could hurt the firm's stock price.

e. If 2016 represents a period of normal growth for the firm, ratios based on this year will be accurate and a comparison between them and industry averages will have substantial meaning. Potential investors who look only at 2016 ratios will be misled, and a return to supernormal conditions in 2017 could hurt the firm's stock price.

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Cash Receivables Inventories Barry Computer Company: Balance Sheet as of December 31, 2016 (In Thousands) Total current assets Net fixed assets Total assets Sales Cost of goods sold Materials Labor Heat, light, and power Indirect labor $194,940 584,820 389,880 $1,169,640 Depreciation 454,860 $1,624,500 Barry Computer Company: Income Statement for Year Ended December 31, 2016 (In Thousands) Accounts payable Other current liabilities Notes payable to bank Total current liabilities Long-term debt Common equity Total liabilities and equity 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 (40%) Net income $1,254,000 712,500 142,500 228,000 142,500 $2,850,000 $178,695 259,920 162,450 $601,065 $487,350 536,085 $1,624,500 $ 2,479,500 $ 370,500 199,500 57,000 114,000 34,115 79,885 31,954 47,931 $ $ Cash Receivables Inventories Barry Computer Company: Balance Sheet as of December 31, 2016 (In Thousands) Total current assets Net fixed assets Total assets Sales Cost of goods sold Materials Labor Heat, light, and power Indirect labor $194,940 584,820 389,880 $1,169,640 Depreciation 454,860 $1,624,500 Barry Computer Company: Income Statement for Year Ended December 31, 2016 (In Thousands) Accounts payable Other current liabilities Notes payable to bank Total current liabilities Long-term debt Common equity Total liabilities and equity 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 (40%) Net income $1,254,000 712,500 142,500 228,000 142,500 $2,850,000 $178,695 259,920 162,450 $601,065 $487,350 536,085 $1,624,500 $ 2,479,500 $ 370,500 199,500 57,000 114,000 34,115 79,885 31,954 47,931 $ $

Answer rating: 100% (QA)

Based on the information provided The correct answer is a If 2016 represen... View the full answer