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Decision Case 13-5: Acquisition Decision Diversified Industries is a large conglomerate that is continually in the market for new acquisitions. The company has grown rapidly

Decision Case 13-5: Acquisition Decision
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 companys 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 dont want companies that may appear to be a bargain on paper but cant survive in the long run. Second, a new member of our family must be able to come in and make it on its ownthe 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 cant-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.
Heavy Duty Tractors Inc. Heavy Duty Tractors Inc.
Comparative Statements of Financial Position Statement of Income and Retained Earnings
(thousands omitted) For the Year Ended December 31, 2017
31-Dec-17 31-Dec-16 (thousands omitted)
Assets Sales revenue 875,250
Current assets: Cost of goods sold 542,750
Cash 48,500 24,980 Gross profit 332,500
Marketable securities 3,750 - Selling, general, and administrative expenses 255,360
Accounts receivable, net of allowances 128,420 84,120 Operating income 77,140
Inventories 135,850 96,780 Interest expense 45,000
Prepaid items 7,600 9,300 Net income before taxes 32,140
Total current assets 324,120 215,180 Income tax expense 9,250
Long-term investments 55,890 55,890 Net income 22,890
Property, plant, and equipment: Retained earnings, January 1, 2017 169,820
Land 45,000 45,000 192,710
Buildings and equipment, less accumulated depreciation of $385,000 in 2017 and $325,000 in 2016 545,000 605,000 Dividends paid on common stock 10,000
Total property, plant, and equipment 590,000 650,000 Retained earnings, December 31, 2017 182,710
Total assets 970,010 921,070
Liabilities and Stockholders Equity
Current liabilities:
Short-term notes 80,000 60,000
Accounts payable 65,350 48,760
Salaries and wages payable 14,360 13,840
Income taxes payable 2,590 3,650
Total current liabilities 162,300 126,250
Long-term bonds payable, due 2024 275,000 275,000
Stockholders equity:
Common stock, no par 350,000 350,000
Retained earnings 182,710 169,820
Total stockholders equity 532,710 519,820
Total liabilities and stockholders equity 970,010 921,070
Required
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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