Ratio analysis of Barry Computer Company

Ratio analysis of Barry Computer Company

   Please grant me the permission to give analysis and recommendation of Berry company ratio analysis as compared to that of the ratios prevailing in the industry. The ratio that am analyzing include profitability ratio, turnover ratio and liquidity ratio (Houston, 2009, p. 90).

In terms of liquidity ratio in which I will consider quick and current ratio. Current ratio in Barry Company is 1.98 lower compare to that one of the industry of 2.0, it is recommended that it should be at least 2.0, so Berry Company is stable. Quick ratio in Berry company is 1.25 compared to1.3 of industry there being stable because the company can be able to pay current liabilities from its liquid assets.

In terms of efficiency ratios, Barry Company holds stock for long by 28 days more than the industry which indicates lower level of sales. The Barry company inventory turnover ratio is lower which will lead to lower profitability compared to the industry turnover ratio. The total asset turnover of Barry Company indicates that lower sales are being generated from the utilization of assets compared to that of industry ratio. Berry company profit margin ratio of 1.7% compared to that of industry of 1.2% indicates that the company can control financing of expenses better.

In terms of profitability ratio, Return on assets of Barry Company of 2.88%which is lower compared to 3.6% of industry. Return on Equity of Barry Company of 7.56% is lower to that of industry of 9.0% .This indicates the return of profitability on one shilling of equity capital contributed by shareholders in Barry Company is lower (Houston, 2009, p. 90). Times interest earned ratio of Barry company is 2.86% lower than that of the industry of 3.0% this shows that the number of times that interest can be paid in Berry company is lower.

I would recommend that Barry Company should reduce the stock holding period to increase sales and thus increasing the Company profitability and also increase the rate at which stock are turned into sales. This is because low stock turnover ratio indicates that the stock levels are either very high or they are slow moving this leads to a reduction in the firms profitability (William, 2008, p. 100).

ATTACHMENTS

RATIO ANALYSIS OF BARRY COMPANY

• Current ratio =

Current assets/current liabilities

655000/330000

=1.98

• Quick ratio=

(Current assets-stock)/current liabilities

(655000-241500)/330000

=1.25

• Days sales Outstanding =

(365 Days/cost of sales) *average stock

(365/1392500)*241500

=63 Days

• Inventory turnover=

Cost of sales/average stock

1392500/241500

=5.76

• Total asset turnover=

Annual sales/Total assets

1607500/947500

=1.70

• Profit margin=

(Profit after tax/sales)*100

(27300/1607500)*100

=1.70%

• ROA=

(Net profit/Total Assets)*100

(27300/947500)*100

=2.88%

• ROE=

(Net profit/Equity)*100

(27300/361000)*100

=7.56%

• ROIC=

(Net profit/Net asset)*100

(27300/325000)*100

=8.4%

• TIE=

Profit before interest and tax/interest charges

70000/24500

=2.86%

• Debt/Total capital=

(Long term debt/Total capital)*100

(265500/947500)*100

=28%

REFERENCES

1. Williams,Jan R; Susan F Haka; Mark S Bettner; Joseph V. Carcello (2008).Financial & Managerial Accounting. McGraw-Hill Irwin p.266

2.Houston,Joel F; Brigham, Eugene F. (2009). Fundamentals of Financial    Management{Cincinnati, Ohio} South western College Pub. P 90