Reference no: EM13483284

Data for Barry Computer Company and its industry averages follow.

a. Calculate the indicated ratios for Barry.

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 2002. 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.)

Barry Computer Company: Balance Sheet as of December 31, 2002 (In Thousands)

Cash	$ 77500	Accounts payable	$129000
Receivables	336000	Notes payable	84000
Inventories	241500	Other current liabilities	117000
Total current assets	$655000	Total current liabilities	$330000
Net fixed assets	292500	Long-term debt	256500
Total assets	$947500	Common equity	361000
		Total liabilities and equity	$947500

Barry Computer Company: Income Statement for Year Ended December 31, 2002

(In Thousands)

Sales	$1,607,500
Cost of goods sold	1,392,500
Selling, general, and administrative expenses	145,000
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

Ratio Barry Industry Average

Current assets/current liabilities		2.0X
Days sales outstandinga		35 days
Sales/inventory		6.7X
Sales/fixed assets		12.1X
Sales/total assets		3.0X
Net income/sales		1.2%
Net income/total assets		3.6%
Net income/common equity		9.0%
Total debt/total assets		60.0%