Data for Barry Computer Company and its industry averages follow.
Barry Computer Company: Balance Sheet as of December 31, 2001 (In Thousands)
Cash $ 77,500 Accounts payable $ 129,000
Receivables 336,000 Notes payable 84,000
Inventories 241,500 Other current liabilities 117,000
Total current assets $ 655,000 Total current liabilities $ 330,000
Net fixed assets 292,500 Long-term debt 256,500
Common equity 361,000
Total assets $ 947,500 Total liabilities and equity $ 947,500
Barry Computer Company: Income Statement for Year Ended December 31, 2001 (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
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
5
RATIO INDUSTRY AVERAGE
Current assets/current liabilities 2.0
Days sales outstanding 35 days
Sales/inventories 6.7
Sales/total assets 3.0
Net income/sales 1.2%
Net income/total assets 3.6%
Net income/common equity 9.0
Total debt/total assets 60.0%
Questions based on the above Financial Statements
a. Calculate the indicated ratios for Barry. Note: Calculation is based on a 365-day year.
b. Construct the extended Du Pont 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 2001. 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.)
