Problem
Assume that you were recently hired as a financial analyst by Barry Computer Company, a manufacturer of computer components. Your first task is to conduct a financial statement analysis of the firm covering the last year. Your boss has supplied you with the financial data that appears on the next page.
Perform a complete ratio analysis for Barry Computer Company in comparison with the industry average (i.e., only with respect to ratios for which the industry averages are given). Make sure to take the following steps:
i. Write the formula of each ratio for which the industry average is given and write the formula for the extended Du Pont equation.
ii. Insert the proper numbers in each ratio and calculate the result with 2 decimal places.
iii. Interpret the Du Pont equation and then compare each ratio with the industry average and comment on each ratio.
iv. Sum up your analysis and state the weaknesses and strengths of the company.
v. State what might be done to overcome its weaknesses.