Ryan boot company analysis. | Business & Finance homework help

 

 

Problem:

 

A. Analyze Ryan Boot Company, using ratio analysis. Compute the ratios.

B. In your analysis, calculate the overall break-even point in sales dollars and the cash break-even point.

 

 

 

 

 

 

Ryan Boot Company Analysis Ratios
		Ryan Boot	Industry
Profit margin	$292,500 ÷ 7,000,000	4.18%	5.75%
Return on assets	$292,500 ÷ 8,130,000	3.60%	6.90%
Return on equity	$292,500 ÷ 2,880,000	10.16%	9.20x
Receivables turnover	$7,000,000 ÷ 3,000,000	2.33x	4.35x
Inventory turnover	$7,000,000 ÷ 1,000,000	7.00x	6.50x
Fixed asset turnover	$7,000,000 ÷ 4,000,000	1.75x	1.85x
Total asset turnover	$7,000,000 ÷ 8,130,000	0.86x	1.20x
Current ratio	$4,130,000 ÷ 2,750,000	1.50x	1.45x
Quick ratio	$3,130,000 ÷ 2,750,000	1.14x	1.10x
Debt to total assets	$5,250,000 ÷ 8,130,000	64.58%	25.05%
Interest coverage	$700,000 ÷ 250,000	2.80x	5.35x
Fixed charge coverage	($700,000 + $200,000)/$250,000 + $200,000 + ($65,000/ (1-.35)  = $900,000/$550,000	1.64x	4.62x

 

 

 

 

Answer:

 

B. BEP in sales dollars

First we must calculate the contribution margin.

CM = Sales – Variable expenses

CM = $7,000,000 – 4,200,000

CM = $2,800,000

 

Contribution Margin Ratio = CM ÷ Sales

CMR = $2,800,000 ÷ 7,000,000

CMR = 40%

 

BEP = Total Fixed Assets ÷ CMR

BEP = $2,100,000 ÷ 40%

BEP = $5,250,000 in sales dollars

 

Cash BEP = same as above accept the non cash expenses would be removed from the fixed assets per the instructor help.

 

Cash BEP = (TFA – Non Cash expenses) ÷ CMR

Cash BEP = ($2,100,000 – 500,000) ÷ 40%

Cash BEP = $1,600,000 ÷ 40%

Cash BEP = $4,000,000