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Unformatted text preview: GB518: Financial Accounting Principles and Analysis (Decision Case 13.5 Acquisition Decision) Travis Dorso GB518- Unit 4 Decision Case Professor Wendy W. Achilles, PhD, CPA 1. The company seems to be in a state of decent liquidity however each of the measures of liquidity mentioned should be compared with industry averages. One area of concern is the large increase in both receivables and inventories from the prior year. The company could be experiencing collection problems. 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 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 The inventory turnover for 2008 = Cost of goods sold/Average inventory: $542,750/ ($135,850 + $96,780)/2 = 4.67 The inventory turnover for 2008 = Cost of goods sold/Average inventory: $542,750/ ($135,850 + $96,780)/2 = 4....
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