Click here to read the eBooK: Ratio AnalysIS RATIO ANALYSIS Data for Barry Compu

Question

Click here to read the eBooK: Ratio AnalysIS RATIO ANALYSIS Data for Barry Computer Co. and its industry averages follow Barry Computer Company: Balance Sheet as of December 31, 2016 (In Thousands) $156,465 695,400 434,625 $1,286,490 $278,160 191,235 104,310 Total current liabilities $573,705 $504,165 660,630 Total abilities and equity $1,738,500 Cash Receivables Inventories Accounts payable Other current liabilities Notes payable to bank Total current assets Long-term debt Net fixed assets 452,010 Common equity Total assets $1,738,500

Explanation / Answer

current ratio = current assets/ current liabilities

=$1286490/$573705

=2.24

quick ratio: current assets - inventories/ current liabilities

= $1286490 - $434625/ 573705

=1.48

Day's sales outstanding :

accounts receivable/ Average credit sales per day

= $695400/ $2850000 *365

= 89 DAYS

Inventory turnover :

COGS / inventory = $2422500/434625

= 5.57

Total assets turnover :

COGS/TOTAL ASSETS

= $2422500/$1738500

=1.39

profit margin :

NI/ SALES

= $32100/ $28560000

= 1.13%

ROA :

net income/ total assets :

= $32,100/$1738500

= 1.85%

ROE :

NET INCOME/ EQUITY

= 4.5%

ROIC:

NET INCOME/ CAPITAL EMPLOYED

= $32100/ $1738500

=1.846%

TIMES INTEREST EARNED :

EBIT/ EBT

= $114000/$53500

=2.13

DEBT/TOTAL CAPITAL

= $504165/ $1738500

= 29%

DU PONT FORMULA:

PROFIT MARGIN* TOTAL ASSETS TURNOVER * EQUITY MULTIPLIER

= NI/SALES * SALES/ TOTAL ASSETS * ASSETS/ EQUITY

=$32100/ $2850000 * 2850000/$1738500 * $1738500/ $660630

= 0.0113 * 1.639 * 2.63

=4.87%

INDUSTRY EQUITY MULTIPLER =

NI/SALES * SALES /ASSETS * ASSETS /EQUITY = RETURN ON EQUITY

=1.07 * 1.81 * X = 5.4

X = 2.78

C. THE CORRECT OPTION IS OPTION II. due to it's days sales outstanding bneing higher. the firm ahs to tighten credit policy amd enforce tighter collection period.so the otehr options were ruled out as they discussed about loosening credit policy and days sales outstanding is more trhan industry average as indiacted in the answer.

d. THE CORRECT OPTION IS OPTION V.

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