Diversified Industries is a large conglomerate that is continually in the market for new acquisitions. The company has grown rapidly over the last ten years through buyouts of medium-size companies. Diversified does not limit itself to companies in any one industry, but looks for firms with a sound financial base and the ability to stand on their own financially.

The president of Diversified recently told a meeting of the company's officers: ''I want to impress two points on all of you. First, we are not in the business of looking for bargains. Diversified has achieved success in the past by acquiring companies with the ability to be a permanent member of the corporate family. We don't want companies that may appear to be a bargain on paper but can't survive in the long run. Second, a new member of our family must be able to come in and make it on its own-the parent is not organized to be a funding agency for struggling subsidiaries.''

Ron Dixon is the vice president of acquisitions for Diversified, a position he has held for five years. He is responsible for making recommendations to the board of directors on potential acquisitions. Because you are one of his assistants, he recently brought you a set of financials for a manufacturer, Heavy Duty Tractors Inc. Dixon believes that Heavy Duty is a ''can't-miss'' opportunity for Diversified and asks you to confirm his hunch by performing basic financial statement analysis on the company. The most recent comparative balance sheets and income statement for the company follow.

Required
1. How liquid is Heavy Duty Tractors? Support your answer with any ratios that you believe are necessary to justify your conclusion. Also indicate any other information that you would want to have in making a final determination on its liquidity.
2. In light of the president's comments, should you be concerned about the solvency of Heavy Duty Tractors? Support your answer with the necessary ratios. How does the maturity date of the outstanding debt affect your answer?
3. Has Heavy Duty demonstrated the ability to be a profitable member of the Diversified family? Support your answer with the necessary ratios.
4. What will you tell your boss? Should he recommend to the board of directors that Diversified put in a bid for Heavy Duty Tractors?

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Heavy Duty Tractors Inc. Comparative Statements of Financial Position (thousands omitted) December 31, 2017 December 31, 2016 Assets Current assets: 48,500 3,750 128,420 135,850 7,600 $324,120 55,890 24,980 Cash Marketable securities Accounts receivable, net of allowances Inventories Prepaid items 84,120 96,780 9,300 $215,180 55,890 Total cument assets Property, plant, and equipment: 45,000 Land Buildings and equipment, less accumulated 45,000 depreciation of $385,000 in 2017 and $325,000 in 2016 Total property, plant, and equipment 545,000 $590,000 $970,010 605,000 $650,000 $921,070 Total assets Liabilities and Stockholders' Equity Current liabilities Short-term notes Accounts payable Salaries and wages payable Income taxes payable 80,000 65,350 14,360 2,590 $162,300 $275,000 60,000 48,760 13,840 3,650 $126,250 $275,000 Total curent liabilities Long-term bonds payable, due 2024 Stockholders' equity $350,000 169,820 $519,820 $921,070 Common stock, no par Retained earnings $350,000 182,710 $532,710 $970,010 Total stockholders' equity Total liabilities and stockholders' equity Heavy Duty Tractors Inc. Statement of Income and Retained Earnings For the Year Ended December 31, 2017 (thousands omitted) Sales revenue Cost of goods sold S875,250 542,750 $332,500 255,360 77,140 45,000 $ 32,140 9,250 $ 22,890 169,820 $192,710 10,000 $182,710 Gross profit Selling, general, and administrative expenses Operating income Interest expense Net income before taxes Income tax expense Net income Retained eamings, January 1, 2017 Dividends paid on common stock Retained eamings, December 31, 2017