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

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