Plagiarism Scan Report
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Report Genrated Date
11 Sep, 2016
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We have used the financial ratios method to evaluate the performance of Barry Computer Company.
Financial ratios are helpful when determining the company profitability, short and long term
liquidity and to check the performance against set standards. The results from the ratios are
compared with the industry average and based upon findings of the results we conclude that the
performance of the company is below against the industry average. (Appendix) The results from the
current asset and quick ratio show that the company is enjoying strong short term liquidity position
and the result of these ratios are similar to the industry average but the company needs to increase
the worth of current assets so that it does not face the problem of liquidity in near future. The
company credit policy is not effective and there is a need to redefine the credit terms. The result
from the daily outstanding sales shows 76 days while the industry average is 35 days. The company’s
collection period is relatively low which may result in bad debt and other losses. The inventory
turnover ratio is below the industry average. The inventory turnover ratio of the company is quite
low as compared to industry average which means company’s current funds are tied up in the
inventory. The inventory turnover ratio suggests the times the inventory is converted to sales. The
asset turnover ratio of the company is 2 against the industry average of 3. The company needs to
improve its efficiency so that assets can be better utilized to generate more revenue for the company.
Asset turnover ratio shows the efficiency of the company to utilize its assets to generate sales. The
company has net profit margin of 1.70% which is higher than the industry average which is a
positive sign for the company. The company can further improve its profitability by having more
control over its expenses. The company is having return on assets of 2.9% against the 3.6% as per
industry. The company needs to work on the efficiency of utilizing its assets so that more earnings
can be generated. The return on equity is 8% against the industry average of 9%. The company
should generate more earnings so that higher return can be given to the shareholders and potential
investors will also be attracted. Return on capital employed of the company is same as return on
assets as it has no dividend and no additional capital invested. The ratio of industry is quite high as
compared to company’s return on capital employed. Time Interest earned ratio shows the ability of
the company to cover its interest expenses with the earnings. In other words it is the ratio which
shows the extent to which interest is covered by earnings before interest and tax. The Interest
coverage ratio of the company is 3 times which meets the industry norm and thus its shows that
company is efficient in covering its interest cost. The debt to capital ratio sows the leverage of the
company. It shows the extent to which the capita of the company is financed from outside sources.
The higher the ratio, higher is the outside dependency. The company’s debt ratio is quite high as
compared to the industry norm. The total debt forms 62% of total capital of the company. Conclusion
The company needs to hold more current assets and to revise the credit policy. They must utilize the
assets in an effective way to generate more income to improve the performance of the company. The
company funds are tied up in the inventory as the conversion of the inventory into cash is below the
industry average. There is a need that the Management of the company must consider the findings
of ratio analysis and to take action to improve the performance of the company. Appendix
-552450-50165
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Report generated by smallseotools.com