Prepare your performance report to show calculations for the 14 ratios as well as a comparison of your computed ratios with the listed industry averages.

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.

Balance Sheet
Cash	___	Current liabilities	___
Accounts receivable	___	Long-term debt	60,000
Inventories	___	Common stock
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
		Long-term debt	256,500
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)
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
Earnings per share		$ 0.75623
Price per share on December 31, 2018		$ 12.00

Ratio	Barry	Industry Average
Current	___	2.0×
Quick	___	1.3×
Days sales outstandinga	___	35 days
Inventory turnover	___	6.7×
Total assets turnover	___	3.0×
Profit margin	___	1.2%
ROA	___	3.6%
ROE	___	9.0%
ROIC	___	7.5%
TIE	___	3.0×
Debt/Total capital	___	47.0%
M/B	___	4.22
P/E	___	17.86
EV/EBITDA	___	9.14
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
Inventories	159	Notes payable	29
Total current assets	$303	Total current liabilities	$ 85
		Long-term debt	50
		Total liabilities	$135
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)
Net sales	$795.0
Cost of goods sold	660.0
Gross profit	$135.0
Selling expenses	73.5
EBITDA	$ 61.5
Depreciation expense	12.0
Earnings before interest and taxes (EBIT)	$ 49.5
Interest expense	4.5
Earnings before taxes (EBT)	$ 45.0
Taxes (40%)	18.0
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?

Comprehensive/Spreadsheet Problem

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.