Carson? Electronics\' management has long viewed BGT Electronics as an industry
ID: 1170239 • Letter: C
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?
Balance Sheet ($000) Carson Electronics, Inc. BGT Electronics, Inc.
Cash $2,010 $1,550
Accounts receivable 4500 6010
Inventories 1490 2470
Current assets $8,000 $10,030
Net fixed assets 15950 24990
Total assets $23,950 $35,020
Accounts payable $2,490 $4,970
Accrued expenses 950 1530
Short-term notes payable 3530 1550
Current liabilities $6,970 $8,050
Long-term debt 8000 4020
Owners' equity 8980 22950
Total liabilities and owners' equity $23,950 $35,020
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.
a. Calculate the following ratios for both Carson and? BGT: ?Carson's current ratio is nothing. ?(Round to two decimal? places.)
Income Statement ($000) Carson Electronics, Inc. BGT Electronics, Inc. Net sales (all credit) $47,970 $69,990 Cost of goods sold (36,040) (42,010) Gross profit $11,930 $27,980 Operating expenses (8,010) (12,040) Net operating income $3,920 $15,940 Interest expense (1,100) (570) Earnings before taxes $2,820 $15,370 Income taxes (35%) (987) (5,380) Net income $1,833 $9,990Explanation / Answer
a) The following Ratios are
Carson BGT
Current Ratio 8000/6970=1.14 10030/4020=2.49
Times Interest Earned 3920/1100 =3.56 15940/570=27.036
Inventory Turnover 36040/1420=25.38 42010/2470=17.06
Total Asset Turnover 47970/23950=2.02 69990/35020=1.99
OPM 3920/47970 =8.17% 15940/69990=22.77%
Operating ROA 3920/23950 =16.36% 15940/35020=45.15%
Debt Ratio 8000/23950 =0.33 4020/35020=0.1147
Fixed Asset Turnover 47970/15950=3.07 69990/24990=2.80
ROE 1833/8980=20.41% 9990/22950=43.53%
The Carson group is having less liquidity as current ratio is just covering enough, although leverage is there with industry standard debt ratio, the interest expense is high compared to its net operating income, one bad quarter and the interest expense cannot be covered and can lead to bankruptcy or liquidating the asset.
The ROE is good however is not matching as compared to its competitor BGT, the reason being overall sales have to be increased. Comparatively all other ratios are intact with respect to strength and profit and loss statement of Carson.
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