Case Study:

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.

Compute the following ratios for each company:

• Profit Margin Ratio
• Return on Assets
• Current Ratio
• Quick Ratio
• AR Turnover Ratio
• Average Collection Period
• Inventory Turnover Ratio
• Average Sales Period
• Debt to Equity Ratio

For this assignment:

• Compute all required amounts and explain how the computations were performed
• Evaluate the results for each company and explain what each ratio means
• Compare and contrast the companies.
• Based on your analysis:
  • recommend which company the organization should pursue
  • Thoroughly support your conclusion, including what other factors should be considered
  • Be specific.

Superior papers will:

• Perform all calculations correctly.
• Articulate how the calculations were performed.
• Evaluate the ratios computed and explain the meaning of the ratios.
• Compare the companies.
• Recommend which company to pursue, supported by well-thought-out rationale and considering any other factors that could impact the recommendation.

BUS 5110 Written Assignment 7 Financials Income Statements Fashion Forward Dream Designs 12/31/2018 12/31/2018 Revenue Credit Sales Non-Credit Sales Total Revenue 2,000,000 500,000 2,500,000 4,320,000 1,080,000 5,400,000 Cost of Sales Gross Profit 1,400,000 1,100,000 3,250,000 2,150,000 Operating Expenses Research and Development Selling, General, and Administrative Total Operating Expenses 50,000 750,000 800,000 200,000 1,600,000 1,800,000 Earnings Before Interest and Taxes 300,000 350,000 Interest Expense Income Before Tax Income Tax Expense Net Income (18,000) 282,000 (145,500) 136,500 (50,000) 300,000 (87,500) 212,500 Fashion Forward 12/31/2018 Balance Sheets Fashion Forward Dream Designs 12/31/2017 12/31/2018 Dream Designs 12/31/2017 Current Assets Cash and Cash Equivalents Accounts Receivable Inventory Other Current Assets Total Current Assets Property, Plant and Equipment Goodwill Other Long-Term Assets Total Assets 950,000 200,000 112,000 35,000 1,297,000 635,000 750,000 65,000 2,747,000 980,000 150,000 105,000 50,000 1,285,000 700,000 750,000 70,000 2,805,000 1,710,000 250,000 200,000 120,500 2,280,500 850,000 1,150,000 100,750 4,381,250 1,705,000 275,000 215,000 100,000 2,295,000 900,000 1,150,000 105,000 4,450,000 535,000 Current Liabilities Accounts Payable Short-Term Debt Other Current Liabilities Total Current Liabilities Long-Term Debt Other Long-Term Liabilities Total Liabilities 545,000 25,000 600,000 1,170,000 75,000 100,000 1,345,000 510,000 1,045,000 845,750 50,000 730,000 1,625,750 120,500 155,000 1,901,250 875,000 60,000 740,000 1,675,000 130,000 165,000 1,970,000 75,000 1,120,000 Stockholders Equity Common Stock Preferred Stock Retained Earnings Total Stockholders Equity 500,000 150,000 752,000 1,402,000 775,000 294,500 615,500 1,685,000 749,500 390,000 1,340,500 2,480,000 942,750 409,250 1,128,000 2,480,000 Total Liabilities and Stockholders Equity 2,747,000 2,805,000 4,381,250 4,450,000