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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
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