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please help me to understand this scenario:


"You work in the mergers and acquisitions

department of a large conglomerate who is looking to invest in a retail business. Two companies, Fashion Forward and Dream Designs, are the final two options being considered. You have the most recent available income statements and two years of balance sheets for each company "


  Income Statements 

 Fashion Forward    Dream Designs 

12/31/2018 12/31/2018  

Revenue 

Credit Sales                           2,000,000 4,320,000         

Non-Credit Sales                  500,000                  1,080,000

Total Revenue                   2,500,000                  5,400,000

 

Cost of Sales                     1,400,000                 3,250,000

Gross Profit                   1,100,000                  2,150,000


 Operating Expenses   

Research and Development   50,000                  200,000  

Selling, General, and Admin.   750,000                  1,600,000  

Total Operating Expenses              800,000                  1,800,000


 Earnings Before Interest and Taxes   300,000                     350,000


 Interest Expense                      (18,000)                     (50,000)  

Income Before Tax                       282,000                      300,000  

Income Tax Expense                    (145,500)                      (87,500)  

Net Income                       136,500                      212,500

                                      



  Balance Sheets   

fashion Forward    Fashion Forward    Dream Designs   Dream Designs 

12/31/2018 12/31/2017 12/31/2018 12/31/2017  

Current Assets 

Cash and Cash Equivalents       950,000                     980,000                 1,710,000                 1,705,000

 Accounts Receivable                200,000                     150,000                     250,000                     275,000

 Inventory                       112,000                     105,000                     200,000                     215,000  

Other Current Assets                 35,000                       50,000                     120,500                     100,000  

Total Current Assets                  1,297,000                 1,285,000                 2,280,500                 2,295,000

Property, Plant and Equipment  635,000                     700,000                     850,000                     900,000

 Goodwill                       750,000                     750,000                 1,150,000                 1,150,000  

Other Long-Term Assets            65,000                       70,000                     100,750                     105,000  

Total Assets                   2,747,000                 2,805,000                 4,381,250                 4,450,000


 Current Liabilities 

 Accounts Payable                 545,000                     535,000                     845,750                     875,000  

Short-Term Debt                         25,000                           -                          50,000                       60,000

 Other Current Liabilities            600,000                     510,000                     730,000                     740,000  Total Current Liabilities              1,170,000                 1,045,000                 1,625,750                 1,675,000  Long-Term Debt                         75,000                                -                       120,500                     130,000

 Other Long-Term Liabilities          100,000                       75,000                     155,000                     165,000

 Total Liabilities                   1,345,000                 1,120,000                 1,901,250                 1,970,000


 Stockholders Equity   

Common Stock                       500,000                     775,000                     749,500                     942,750  Preferred Stock                       150,000                     294,500                     390,000                     409,250  Retained Earnings                     752,000                     615,500                 1,340,500                 1,128,000  

Total Stockholders Equity       1,402,000                 1,685,000                 2,480,000                 2,480,000


Total Liabilities and   2,747,000      2,805,000                 4,381,250                 4,450,000

Stockholders Equity




teach me how to compute the following ratios for each company:

  • a)Profit Margin Ratio
  • b)Return on Assets
  • c)Current Ratio
  • d)Quick Ratio
  • e)AR Turnover Ratio
  • f)Average Collection Period
  • g)Inventory Turnover Ratio
  • h)Average Sales Period
  • i)Debt to Equity Ratio

j) help me to explain how the computations were performed 

k)kindly help me to evaluate the results for each company and explain what each ratio means

L) how do i compare and contrast the companies. 

m)please Based on the analysis help me to: 1) recommend which company the organization should pursue

2) how can i support my conclusions so that it includes other factors that can be considered

Top Answer

PLEASE NOTE: OTHER FACTORS TO CONSIDER INCLUDE a. integration b. employees... View the full answer

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[f) Average Collection Period=(Average accounts receivable/ credit sales)*365 days
This is the average number of days required to collect invoiced amounts from customers
Average account recivable...

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