1 answer

Data for Barry Computer Co. and its industry averages follow. The firm's debt is priced at...

Question:

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 $ 107,360 Accounts payable $ 214,720
Receivables 496,540 Other current liabilities 214,720
Inventories 389,180 Notes payable to bank 80,520
   Total current assets $ 993,080    Total current liabilities $ 509,960
Long-term debt 402,600
Net fixed assets 348,920 Common equity (42,944 shares) 429,440
Total assets $ 1,342,000 Total liabilities and equity $ 1,342,000
Barry Computer Company:
Income Statement for Year Ended December 31, 2019 (In Thousands)
Sales $ 2,200,000
Cost of goods sold
   Materials $1,078,000
   Labor 550,000
   Heat, light, and power 88,000
   Indirect labor 110,000
   Depreciation 66,000 1,892,000
Gross profit $ 308,000
Selling expenses 198,000
General and administrative expenses 22,000
   Earnings before interest and taxes (EBIT) $ 88,000
Interest expense 32,208
   Earnings before taxes (EBT) $ 55,792
Federal and state income taxes (25%) 13,948
Net income $ 41,844
Earnings per share $ 0.9744
Price per share on December 31, 2019 $ 12.00
  1. Calculate the indicated ratios for Barry. Do not round intermediate calculations. Round your answers to two decimal places.
    Ratio Barry              Industry Average
    Current       ? x 1.96x
    Quick       ? × 1.13x
    Days sales outstandinga       ? days 39days
    Inventory turnover        ? × 5.93x
    Total assets turnover        ? × 1.85x
    Profit margin        ? % 1.78%
    ROA        ? % 3.28%
    ROE        ? % 10.83%
    ROIC        ? % 7.80%
    TIE        ?× 2.64x
    Debt/Total capital        ?% 54.44%
    M/B        ? 4.20
    P/E        ? 14.73
    EV/EBITDA        ? 8.42

    aCalculation is based on a 365-day year.
  2. Construct the DuPont equation for both Barry and the industry. Do not round intermediate calculations. Round your answers to two decimal places.
    FIRM INDUSTRY
    Profit margin ? % 1.78%
    Total assets turnover ? × 1.85×
    Equity multiplier ? ×    ? ×
  3. 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 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.
    2. 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.
    3. 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.
    4. 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.
    5. 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.
    6. D) 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.)
    7. 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.
    8. 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 price.
    9. If 2019 represents a period of normal 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 who look only at 2019 ratios will be misled, and a return to supernormal conditions in 2020 could hurt the firm's stock price.
    10. 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.
Business Accounting
< Previous
Next >

Answers

9 Firm Industry 10 Current Ratio = 1.95 1.96X Current Assets Current liabilities 993080 509960 11 12 13 Quick ratio = 60390031 Return on Equity = 41844 9.74% 10.83% Net Income Total Equity 32 429440 33 34 ROIC 66000 15.37% 7.80% EBIT ( 1-T) Total In52 b. Construct the DuPont equation for both Barry and the industry. 53 54 For Barry 55 ROE = Profit Margin * Total assets tu

.

Similar Solved Questions

1 answer
How do you distribute #4(d + 2)#?
How do you distribute #4(d + 2)#?...
Read question...
1 answer
In RNA, uracil forms a complementary base pair with O guanine thymine adenine cytosine
In RNA, uracil forms a complementary base pair with O guanine thymine adenine cytosine...
Read question...
1 answer
Providence Hospital generates monthly performance reports for each of its departments. The hospital must maintain an...
Providence Hospital generates monthly performance reports for each of its departments. The hospital must maintain an adequate staff of attending and on-call physicians at a mes, so physician costs are not affected by the number of patient visits. But all other costs do vary with patient activity, Nu...
Read question...
1 answer
An obligate intracellular organism is one that a. can reproduce outside the host cell b. cannot...
An obligate intracellular organism is one that a. can reproduce outside the host cell b. cannot reproduce outside the host cell c. has its own reproductive machinery d. can live both inside and outside of a host cell...
Read question...
1 answer
Consider the function f(x, y) = -8 – 2y – x+y + x2 + 1972. How...
Consider the function f(x, y) = -8 – 2y – x+y + x2 + 1972. How many relative maxima, relative minima, and saddle points does f(x,y) have? NOTE: ONLY 3 ANSWER TRIES ON THIS PROBLEM. relative minima saddle point relative maxima Submit Answer Tries 0/3 This discussion is closed. Send Feedba...
Read question...
1 answer
Exercise 17-13 Comparing costs under ABC to traditional plantwide overhead rate LO P1, P3 Smythe Co....
Exercise 17-13 Comparing costs under ABC to traditional plantwide overhead rate LO P1, P3 Smythe Co. makes furniture. The following data are taken from its production plans for the year. Direct labor costs Hazardous waste disposal costs $5,340,000 615,000 Expected production Direct labor hours requi...
Read question...
1 answer
Assume that the student has a cup with 13 writing implements: 7 pencils, 4 ball point pens, and 2 felt-tip pens
Assume that the student has a cup with 13 writing implements: 7 pencils, 4 ball point pens, and 2 felt-tip pens. In how many ways can the selection be made if no more than one ball point pen is selected?...
Read question...
1 answer
For the circuit given below, find the Thevenin equivalent as seen by looking into terminals a...
For the circuit given below, find the Thevenin equivalent as seen by looking into terminals a and b, where I. 9 A and R-4 Ω 6Ω RTh VTh...
Read question...
1 answer
In the following, remember that f(n)(x) represents the nth derivative of f, and assume s >...
In the following, remember that f(n)(x) represents the nth derivative of f, and assume s > 0. (a) By giving an appropriately diverse selection of samples functions f, explain why it is reasonable to assume that for “most” functions f, there is some value s for which lim x→∞...
Read question...
1 answer
To calculate the total bending strain energy stored in a beam, with constant El, shown below...
To calculate the total bending strain energy stored in a beam, with constant El, shown below under triangular distributed load we use the equation. wo L MP der Om de 031 (al ) de O 2 de OB * () dx 2GA OL) de OM OM...
Read question...
1 answer
AQ2 Data Units [x] Cost [C] Rev [R] Profit [P] 100 260000 47500 -212500 250 275000...
AQ2 Data Units [x] Cost [C] Rev [R] Profit [P] 100 260000 47500 -212500 250 275000 109375 -165625 500 300000 187500 -112500 800 330000 240000 -90000 1000 350000 250000 -100000 1200 370000 240000 -130000 1300 380000 227500 -152500 As your Division’s Chief econ...
Read question...
1 answer
The answers are in red. Please explain all, esp part d! The average number of miles...
The answers are in red. Please explain all, esp part d! The average number of miles driven on a full tank of gas in a certain model car before its low-fuel light comes on is 331. Assume this mileage follows the normal distribution with a standard deviation of 34 miles. Complete parts a through d bel...
Read question...
2 answers
Perform the operation and write the result in standard form
Perform the operation and write the result in standard form. 1 + i over i - 3 over 4 - iDo I have to multiply top and bottom by i?...
Read question...
1 answer
An enrollee in a PPO plan receives a service out-of-network. What will the PPO plan use...
An enrollee in a PPO plan receives a service out-of-network. What will the PPO plan use to determine payments to the out-of-network provider? A prospective payment Usual, customary, and reasonable (UCR) fee schedule Geo-Access Mapping Cost-sharing tiers Gail has an income of 80% of the federal pover...
Read question...
1 answer
65 kN 45 kN/m 35 kN/m DI El A36 Steel . Factor of safety must be 3.0 with respect to yielding in tension or compression and 3.5 with respect to yielding irn shear. . Determine which beam will b...
65 kN 45 kN/m 35 kN/m DI El A36 Steel . Factor of safety must be 3.0 with respect to yielding in tension or compression and 3.5 with respect to yielding irn shear. . Determine which beam will be lightest. 1) Draw a shear force and moment diagrams of the beam with maximums shown and non -linear curve...
Read question...
1 answer
No more information can be added. This is the entire question. $10100 is wrong answer. DOMAIN...
No more information can be added. This is the entire question. $10100 is wrong answer. DOMAIN 2 - 2.4 Schedule C, Self-Employment: 2.4.7 Depreciation: 2.4.7.2 Luxury Auto Depreciation Limi Question 45 of 100. What is the maximum amount of depreciation that can be claimed on any van placed into servi...
Read question...
1 answer
Jane’s mother has always told her to take good care of her skin and to avoid...
Jane’s mother has always told her to take good care of her skin and to avoid chapping and scratches. Aside from aesthetic reasons, why is this a good idea? Describe the type and function of skin cells....
Read question...