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    Barry Computer Co.; Carter Corporation; Pierce furnishing

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    Baker brothers have a DSO of 40 days. The company's average daily sales are $20,000.
    What is the level of its accounts receivable? Assume there are 365 days in a year.

    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 2004. How would that information affect the validity of your ratio analysis? (A 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, 2004 (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 256,000
    Common equity 361,000
    Total Assets $947,500 Total liabilities & equity $947, 500

    Barry Computer Company: income statement for year ended December 31, 2004 (in thousands).

    Sales $1,607,500
    Cost of goods sold 1,392,500
    Selling general and admin
    Expenses 145,000
    Earnings before interest &
    Taxes $ 70,000
    Interest expense 24,500
    Earnings before taxes $ 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 outstanding 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%

    Carter Corporation's sales are expected to increase from $5 million in 2004 to $6 million in 2005, or by 20%. Its assets totaled $3 million at the end of 2004. Carter is at full capacity, so its assets must grow at the same rate as projected sales. At the end of 2004, current liabilities were $1 million, consisting of $250,000 of accounts payable, $500,000 of notes payable, and $250,000 of accruals. The after-tax profit margin is forecasted payout ratio is 70 percent.

    a) Use the AFN formula to forecast Carter's additional funds needed for the coming year.
    b) What would be the additional funds needed if the company's year-end 2004 assets had been $4 million? Assume that all other numbers are the same. Why is this AFN different from the one found in question A. Is the company's capitol intensity the same or different?

    Pierce furnishings generated $2.0 million in sales during 2004, and its year-end total assets were $1.5 million. Also, at year-end 2004, current liabilities were $500,000, consisting of $200,000 of notes payable, $200,000 of accounts payable, and $100,000 of accruals. Looking ahead to 2005, the company estimates that its assets must increase by 75 cents for every $1 increase in sales. Pierces profit margin is 5 percent, and its payout ratio is 60 percent. How large a sales increase can the company achieve without having to raise funds externally.

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    Baker brothers have a DSO of 40 days. The company's average daily sales are $20,000.
    What is the level of its accounts receivable? Assume there are 365 days in a year.

    DSO or Days sales outstanding is used to appraise accounts receivable, and it is calculated by dividing accounts receivable by average daily sales to find the number of days' sales that are tied up in receivables.

    DSO = Receivables
    Average sales per day

    So, in order to find accounts receivable, we replace the equation with the information given.

    40 days = Receivables
    $20,000
    40 days x $20,000 = Receivables x $20,000
    $20,000
    $800,000 = Receivables

    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 2004. How would that information affect the validity of your ratio analysis? (A 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, 2004 (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 256,000
    Common equity 361,000
    Total Assets $947,500 Total liabilities & equity $947, 500

    Barry Computer Company: income statement for year ended December 31, 2004 (in thousands).

    Sales $1,607,500
    Cost of goods sold 1,392,500
    Selling general and admin
    Expenses 145,000
    Earnings before interest &
    Taxes $ 70,000
    Interest expense 24,500
    Earnings before taxes $ 45,500
    Federal and state income taxes (40%) 18,200
    Net income $ 27,300

    Ratio Barry Industry average

    Current assets/current liabilities 1.98x 2.0x
    Days sales outstanding 76 days 35 days
    Sales/inventory 6.7x 6.7x
    Sales/fixed assets 5.5x 12.1x
    Sales/total assets ...

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