Cengage Darry computer company Balance Sheet as of December 31, 2014 (In Thousan
ID: 2792981 • Letter: C
Question
Cengage Darry computer company Balance Sheet as of December 31, 2014 (In Thousands) Cash Receivables Inventories $67,200 248,640 194,880 $510,720 Accounts payable Other current liabilities Notes payable $100,800 80,640 73,920 $255,360 Total current assets Total current liabilities Long-term debt Common equity Total liabilities and equity $154,560 262,080 $672,000 Net fixed assets 161,280 Total assets $672,000 Barry Computer Company Income Statement for Year Ended December 31, 2014 (In Thousands) Sales $1,200,000 Cost of goods sold Materials Labor Heat, light, and power Indirect labor Depreciation $528,000 360,000 48,000 60,000 60,000 $1,056,000 $144,000 96,000 24,000 $24,000 12,365 Gross profit Selling expenses General and administrative expenses Earnings before interest and taxes (EBIT)Explanation / Answer
a)
Current Ratio = 510,720/255,360 = 2
Quick Ratio = Cash + Receivables/ Total CL = (67,200+ 248,640)/(255,360)= 1.23
Days Sales outstanding = 365* Receivables/Sales = 365 *248,640/1200000 = 75.62 days
Inventory turnover = COGS/Average Inventory = 1,056,000/194,880=5.41
Total Assets Turnover = Sales/ Total Assets = 1,200,000/672,000 = 1.78
Profit Margin = Net Profit/ Sales= 6981/1200000= 0.58%
ROA = Profit margin * Asset Turnover = 1.78* 0.58% = 1.03%
ROE = Net Income/ Average Shareholders Equity = 6981/262080 = 2.66%
ROIC = EBIT*(1-t)/ Invested Capital = 24,000*(1-40%)/(154560+262080) = 3.45%
TIE = EBIT / Interest Expense = 24,000/ 12,365 = 1.94
Debt/Total Capital = 154,560/(154,560+262,080) = 37.09%
b)
Barrys
Profit Margin = 0.58%
Total Assets Turnover = 1.78
Equity Multiplier = Assets/Equity = 672,000/262,080 = 2.56
ROE = 0.58% * 1.78 * 2.56 = 2.64 %
Industry
NPM = 0.55%
Assets Turn over = 1.97
Equity Multiplier = ?
ROE for Industry = 2.96%
2.96 = 1.97*0.55* X
X= 2.73
c)
On the liquidity front, Barrys does not seem to have as good parameters as industry as seen by current and quick ratios
On the efficiency parameter too, Barrys seem to be underperforming the market as seen by the lower turnover ratios and nearly two times the days sales outstanding implying that Barrys is unable to convert the credit sales into cash sales as fast as industry.
On profitability, Barrys shows a slight better performance as compared to industry. However, the return parameters are not as good as the industry as indicated by ROA, ROIC and ROE.In fact ROIC for the industry is twice that of Barrys indicating lower returns to the capital holders.
On the leverage front, Barrys shows better parameters with TIE at 3.45 compared to industry TIE of 3.2 and Debt to Capital ratio of 37% much lesser than industry Debt to capital ratio of 47.5%
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