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 CompanyAnalysis Ratios Ryan BootIndustryProfit margin$292,500 ÷ 7,000,0004.18%5.75%Return on assets$292,500 ÷ 8,130,0003.60%6.90%Return on equity$292,500 ÷ 2,880,00010.16%9.20xReceivables turnover$7,000,000 ÷ 3,000,0002.33×4.35xInventory turnover$7,000,000 ÷ 1,000,0007.00×6.50xFixed asset turnover$7,000,000 ÷ 4,000,0001.75×1.85xTotal asset turnover$7,000,000 ÷ 8,130,0000.86×1.20xCurrent ratio$4,130,000 ÷ 2,750,0001.50×1.45xQuick ratio$3,130,000 ÷ 2,750,0001.14×1.10xDebt to total assets$5,250,000 ÷ 8,130,00064.58%25.05%Interest coverage$700,000 ÷ 250,0002.80×5.35xFixed charge coverage($700,000 + $200,000)/$250,000 + $200,000 + ($65,000/ (1-.35) = $900,000/$550,0001.64×4.62xAnswer:
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
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