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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