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Application: Using Ratio Analysis To Inform Organizational Decisions The Assignment: Barry Computer Company Prepare a performance report on Barry Computer Company. (Problem 4-23 on pages 131-132 of the course text provides a balance sheet and an income statement for the company.) Prepare your performance report to show calculations for the eleven ratios listed on page 131132, as well as a comparison of your computed ratios with the listed industry averages. Write a short memo to your supervisor explaining your findings and your recommendations for improvement. Suggest some ways in which the company can plan to improve below industry average ratio performance. Explain why your recommendations would be effective. Be sure to list your computations in an appendix to your report. 4-23 RATIO ANALYSIS Data for Barry Computer Co. and its industry averages follow. a. Calculate the indicated ratios for Barry. b. Construct the DuPont equation for both Barry and the industry. c. Outline Barry's strengths and weaknesses as revealed by your analysis. d. Suppose Barry had doubled its sales as well as its inventories, accounts receivable, and common equity during 2015. 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.) Barry Computer Company: Balance Sheet as of December 31, 2015 (in Thousands) Cash $ 77,500 Accounts payable $129,000 Receivables 336,000 Other current liabilities 117,000 Inventories 241,500 Notes payable to bank 84,000 Barry Computer Company: Balance Sheet as of December 31, 2015 (in Thousands) Cash $ 77,500 Accounts payable $129,000 Total current assets $655,000 Total current liabilities $330,000 Long-term debt 256,500 Net fixed assets 292,500 Common equity 361,000 Total assets $947,500 Total liabilities and equity $947,500 Barry Computer Company: Income Statement for Year Ended December 31, 2015 (in Thousands) Sales $1,607,500 Cost of goods sold Materials $717,000 Labor 453,000 Heat, light, and power 68,000 Indirect labor 113,000 Depreciation 41,500 1,392,500 Barry Computer Company: Balance Sheet as of December 31, 2015 (in Thousands) Cash $ 77,500 Accounts payable $129,000 Gross profit $ 215,000 Selling expenses 115,000 General and administrative expenses 30,000 Earnings before interest and taxes (EBIT) $ 70,000 Interest expense 24,500 Earnings before taxes (EBT) $ 45,500 Federal and state income taxes (40%) 18,200 Net income $ 27,300 Ratio Barry Industry Average Current _____ 2.0 Quick _____ 1.3 Days sales outstandinga _____ 35 days Inventory turnover _____ 6.7 Ratio Barry Industry Average Total assets turnover _____ 3.0 Profit margin _____ 1.2% a Calculation is based on a 365-day year. Ratio Barry Industry Average ROA _____ 3.6% ROE _____ 9.0% ROIC _____ 7.5% TIE _____ 3.0 Debt/Total capital _____ 47.0%