Unit 4 Case Study Guidance

Unit 4 Case Study - LO 4,5,6,7 DECISION CASE 13-5 ACQUISITION DECISION 1 Several measures give an indication as to the company’s liquidity •

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Unformatted text preview: LO 4,5,6,7 DECISION CASE 13-5 ACQUISITION DECISION 1. Several measures give an indication as to the company’s liquidity: • Working capital has nearly doubled over the two-year period, from $88,930,000 in 2007 to $161,820,000 in 2008. • Both the current ratio and the quick ratio have also increased: Current ratio = Current assets/Current liabilities 2008: $324,120/$162,300 = 2.00 to 1 2007: $215,180/$126,250 = 1.70 to 1 Quick ratio = (Cash + Marketable securities + Short-term receivables)/ Current liabilities 2008: ($48,500 + $3,750 + $128,420)/$162,300 = 1.11 to 1 2007: ($24,980 + 0 + $84,120)/$126,250 = 0.86 to 1 • The accounts receivable turnover for 2008 = Net credit sales/Average accounts receivable: $875,250/[($128,420 + $84,120)/2] = 8.24 times, or an average collection period of 360/8.24 = 44 days Whether this is a reasonable number of days outstanding could be partially determined by an examination of the company’s credit terms. • The inventory turnover for 2008 = Cost of goods sold/Average inventory: $542,750/[($135,850 + $96,780)/2] = 4.67 times, or an average number of days sales in inventory of 360/4.67 = 77 days • The cash operating cycle for 2008 is 44 + 77 = 121 days Conclusion:...
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This note was uploaded on 01/07/2011 for the course MBA GB518 taught by Professor None during the Winter '10 term at Kaplan University.

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Unit 4 Case Study - LO 4,5,6,7 DECISION CASE 13-5 ACQUISITION DECISION 1 Several measures give an indication as to the company’s liquidity •

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