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