Brooks Plumbing Products Inc. (BPP) manufactures plumbing fixtures and other home improvement products that are sold in Home Depot and Walmart as well as hardware stores. BPP has a solid reputation for providing value products, good quality, and a good price. The company has been approached by an investment banking firm representing a third company, Garden Specialties Inc. (GSI), that is interested in acquiring BPP. The acquiring firm (GSI) is a retailer of garden supplies; it sees the potential synergies of the combined firm and is willing to pay BPP shareholders $38 cash per share for their stock, which is greater than the current stock price; the stock has traded at about $35 in recent months. Summary financial information about BPP follows.

Required

Evaluate BPP as a company using financial ratio analysis. Because the calculation of some ratios requires the averaging of balances, you may assume for simplicity that the balances in 2017 are the same as those in 2018.

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BROOKS PLUMBING PRODUCTS INC. Selected Financial Information For the Years Ended December 31 2019 Industry Average 2019 2018 $ 3,456,227 $ 79,919,778 56,778,465 39,665,416 Cash Accounts receivable 87,294,771 Inventory Long-lived assets 59,883,645 Gross book value 167,278,377 143,778,377 95,887,302 188,465,338 67,335,209 120,995,274 37,885,302 87,641,369 12,990,336 638,776,465 477,491,001 134,765,229 38% Net book value 100,620,809 170,587,409 68,734,002 119,045,766 31,997,364 125,941,338 23,500,000 667,534,771 498,657,788 102,667,355 38% Replacement cost Liquidation value Current liabilities Long-term debt Shareholders' equity Capital expenditures Sales Cost of sales Operating expense* Income tax rate 38.0% $18,766,493 $2,750,000 $35.78 25,689,554 $15,664,254 $1,250,000 $22.99 22,763,554 Depreciation expense Dividends Year-end stock price Number of outstanding shares Sales multiplier Free cash flow multiplier Earnings multiplier Cost of capital 1.40 8.80 13.50 5.2% 5.2% Accounts receivable turnover 5.50 8.60 Inventory turnover Current ratio 1.90 Quick ratio 1.10 Cash flow ratio 1.40 Free cash flow ratio 1.10 Gross margin percentage Return on assets (net book value) Return on equity Earnings per share 33.0% 19.0% 28.0% $2.33