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

 

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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