Ch 04: End-of-Chapter Problems - Analysis of Financial Statements Data for Barry Computer Co. and its industry averages follow. The firm's debt is priced at par, so the market value of its debt equals its book value. Since dollars are in thousands, number of shares are shown in thousands too. Barry Computer Company: Balance Sheet as of December 31, 2019 (In Thousands) Cash $ 47,250 Accounts payable $151,200 Receivables Inventories. 245,700 Other current liabilities 122,850 217,350 Notes payable to bank 47,250 Total current assets $510,300 Total current liabilities $321,300 Long-term debt 217,350 Net fixed assets Total assets 434,700 Common equity (40,635 shares) 406,350 $945,000 Total liabilities and equity $945,000 Barry Computer Company: Income Statement for Year Ended December 31, 2019 (In Thousands) Sales Cost of goods sold Materials $1,750,000 $822,500 437,500 Labor Heat, light, and power Indirect labor Depreciation 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 (25%) Net income Earnings per share Price per share on December 31, 2019 122,500 140,000 35,000 1,557,500 $ 192,500 87,500 52,500 $ 52,500. 15,215 $ 37,285 9,321 $27,964 $ 0.6882 $ 11.00 a. Calculate the indicated ratios for Barry. Do not round intermediate calculations. Round your answers to two decimal places. Ratio Current Quick Barry x x Industry Average 1.56x 0.85x Days sales outstanding" days 24 days Inventory turnover 8.79x Total assets turnover 2.20x Profit margin 26 1.49% ROA 3.29% ROE % 7.32% ROIC 7.00% TIE 3.36x Debt/Total capital 38.34% M/B 3.10 P/E 18.57 EV/EBITDA 9.63 "Calculation is based on a 365-day year. b. Construct the DuPont equation for both Barry and the industry. Do not round intermediate calculations. Round your answers to two decimal places. Profit margin Total assets turnover FIRM % x INDUSTRY 1.49% 2.20x Equity multiplier c. Select the correct option based on Barry's strengths and weaknesses as revealed by your analysis. 1. The firm's days sales outstanding ratio 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. II. The firm's days sales outstanding ratio 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. Chapter Problems - Analysis of Financial Statements ect the correct option based on Barry's strengths and weaknesses as revealed by your analysis. 1. The firm's days sales outstanding ratio 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. 11. The firm's days sales outstanding ratio 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. III. 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. Finally, it's market value ratios are also below industry averages. However, the company seems to be in an average liquidity position and financial leverage is similar to others in the industry. IV. The firm's days sales outstanding ratio 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. V. The firm's days sales outstanding ratio 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. -Select- Suppose Barry had doubled its sales as well as its inventories, accounts receivable, and common equity during 2019. 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.) 1. If 2019 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 2019 ratios will be well informed, and a return to normal conditions in 2020 could hurt the firm's stock price. 11. If 2019 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 2019 ratios will be misled, and a return to normal conditions in 2020 could hurt the firm's stock price. III. If 2019 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 2019 ratios to be well informed, and a return to normal conditions in 2020 could help the firm's stock price. IV. If 2019 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 2019 ratios will be misled, and a continuation of normal conditions in 2020 could hurt the firm's stock ham and industry averages will