Prepare a performance report on Barry Computer Company
This must be in excel and word document to explain.
- Prepare your performance report to show calculations for the 14 ratios listed on page 141, as well as a comparison of your computed ratios with the listed industry averages.
- Write a short memo to your supervisor explaining your findings and your recommendations for improvement.
- Suggest some ways in which the company can plan to improve below industry average ratio performance.
- Explain why your recommendations would be effective.
- Be sure to list your computations in an appendix to your report.
- The memo portion of this assignment will typically be 2 pages in length as a general expectation/estimate. You can show your calculations of financial ratios in a supplemental appendix to your memo.
BALANCE SHEET ANALYSIS Complete the balance sheet and sales information using the following financial data:
Total assets turnover: 1.5×
Days sales outstanding: 36.5 daysa
Inventory turnover ratio: 5×
Fixed assets turnover: 3.0×
Current ratio: 2.0×
Gross profit margin on sales: (Sales − Cost of goods sold)/Sales = 25%
aCalculation is based on a 365-day year.
|Accounts receivable||___||Long-term debt||60,000|
|Fixed assets||___||Retained earnings||97,500|
|Total assets||$300,000||Total liabilities and equity|
|Sales||___||Cost of goods sold||___|
4-23 RATIO ANALYSIS Data for Barry Computer Co. and its industry averages follow. The firm’s debt is priced at par, so the market value of its debt equals its book value. Since dollars are in thousands, number of shares are shown in thousands too.
a. Calculate the indicated ratios for Barry.
b. Construct the DuPont equation for both Barry and the industry.
c. Outline Barry’s strengths and weaknesses as revealed by your analysis.
d. Suppose Barry had doubled its sales as well as its inventories, accounts receivable, and common equity during 2018. How would that information affect the validity of your ratio analysis? (Hint: Think about averages and the effects of rapid growth on ratios if averages are not used. No calculations are needed.)
|Barry Computer Company: Balance Sheet as of December 31, 2018 (in Thousands)|
|Cash||$ 77,500||Accounts payable||$129,000|
|Receivables||336,000||Other current liabilities||117,000|
|Inventories||241,500||Notes payable to bank||84,000|
|Total current assets||$ 655,000||Total current liabilities||$330,000|
|Net fixed assets||292,500||Common equity (36,100 shares)||361,000|
|Total assets||$ 947,500||Total liabilities and equity||$947,500|
|Barry Computer Company: Income Statement for Year Ended December 31, 2018 (in Thousands)|
|Cost of goods sold|
|Heat, light, and power||68,000|
|Gross profit||$ 215,000|
|General and administrative expenses||30,000|
|Earnings before interest and taxes (EBIT)||$ 70,000|
|Earnings before taxes (EBT)||$ 45,500|
|Federal and state income taxes (40%)||18,200|
|Net income||$ 27,300|
|Earnings per share||$ 0.75623|
|Price per share on December 31, 2018||$ 12.00|
|Days sales outstandinga||___||35 days|
|Total assets turnover||___||3.0×|
|aCalculation is based on a 365-day year.|
4-24 DuPONT ANALYSIS A firm has been experiencing low profitability in recent years. Perform an analysis of the firm’s financial position using the DuPont equation. The firm has no lease payments but has a $2 million sinking fund payment on its debt. The most recent industry average ratios and the firm’s financial statements are as follows:
|Industry Average Ratios|
|Current ratio||3×||Fixed assets turnover||6×|
|Debt-to-capital ratio||20%||Total assets turnover||3×|
|Times interest earned||7×||Profit margin||3%|
|EBITDA coverage||9×||Return on total assets||9%|
|Inventory turnover||10×||Return on common equity||12.86%|
|Days sales outstandinga||24 days||Return on invested capital||11.50%|
|aCalculation is based on a 365-day year.|
|Balance Sheet as of December 31, 2018 (Millions of Dollars)|
|Cash and equivalents||$ 78||Accounts payable||$ 45|
|Accounts receivable||66||Other current liabilities||11|
|Total current assets||$303||Total current liabilities||$ 85|
|Gross fixed assets||225||Common stock||114|
|Less depreciation||78||Retained earnings||201|
|Net fixed assets||$147||Total stockholders’ equity||$315|
|Total assets||$450||Total liabilities and equity||$450|
|Income Statement for Year Ended December 31, 2018 (Millions of Dollars)|
|Cost of goods sold||660.0|
|Earnings before interest and taxes (EBIT)||$ 49.5|
|Earnings before taxes (EBT)||$ 45.0|
|Net income||$ 27.0|
a. Calculate the ratios you think would be useful in this analysis.
b. Construct a DuPont equation, and compare the company’s ratios to the industry average ratios.
c. Do the balance sheet accounts or the income statement figures seem to be primarily responsible for the low profits?
d. Which specific accounts seem to be most out of line relative to other firms in the industry?
e. If the firm had a pronounced seasonal sales pattern or if it grew rapidly during the year, how might that affect the validity of your ratio analysis? How might you correct for such potential problems?
4-25 RATIO ANALYSIS The Corrigan Corporation’s 2017 and 2018 financial statements follow, along with some industry average ratios.
a. Assess Corrigan’s liquidity position, and determine how it compares with peers and how the liquidity position has changed over time.
b. Assess Corrigan’s asset management position, and determine how it compares with peers and how its asset management efficiency has changed over time.
c. Assess Corrigan’s debt management position, and determine how it compares with peers and how its debt management has changed over time.
d. Assess Corrigan’s profitability ratios, and determine how they compare with peers and how its profitability position has changed over time.
e. Assess Corrigan’s market value ratios, and determine how its valuation compares with peers and how it has changed over time. Assume the firm’s debt is priced at par, so the market value of its debt equals its book value.
Student uses Excel spreadsheet, and the formulas and calculations are correct.
Student provides a thorough and detailed analysis explaining the findings for areas that could be improved, analyzing which of the fourteen ratios indicate an area for improvement, and includes strong rationale to support each selection.
Student provides comprehensive and actionable recommendations for areas that could be improved, identifying areas of deficiency (ratios below industry standards listed), and provides evidence furnished through analysis of ratio components and illustrative examples from the course readings and/or outside research.
Student provides a thorough and detailed rationale to support each recommendation using illustrative examples from outside research, weekly course readings, and his/her professional experiences to validate why the proposed actions are potentially effective.
Writing exhibits strong evidence of thoughtful critical analysis and thinking; careful examination is made of assumptions and possible biases, with detailed supporting rationale. Writing synthesizes the classroom experiences and content; analyzes patterns or connections between theory and practice; and draws logical conclusions based on well-reasoned arguments. New questions may be presented based on synthesis of ideas and input.
Student effectively and directly integrates discussion/assignment content with relevant and compelling personal experiences, additional research, or current events from credible news sources. Specifically adds a new and/or different insight or perspective on the subject area(s) being discussed or treated in the assignment.