RATIO ANALYSIS OF BERRY COMPANY

RATIO ANALYSIS OF BERRY 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%

PERFORMANCE REPORT

• 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(Williams, 2008).
• 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.
• Berry Company holds stock for long by 28 days more than the industry which indicates lower level of sales(Williams, 2008).
• The Berry company inventory turnover ratio is lower which will lead to lower profitability compared to the industry turnover ratio.
• The total asset turnover of Berry Company indicates that lower sales is 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.
• Return on assets of Berry company of 2.88%which is lower compared to 3.6% of industry(Houston, 2009).
• Return on Equity of Berry 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 Berry company is lower.
• Times interest earned ratio of Berry 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.

RECOMMENDATIONS

• The company should reduce the stock holding period to increase sales and thus increasing the Company profitability.
• Berry company should increase the rate at which stock are turned into sales (Houston, 2009). 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.

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