Determine which of two distributors, Morgan Supply or Peachtree Supply, you would recommend to be purchased by your company. Following is specific information about this assignment,

Your company is considering purchasing one of two general line distributors and has offered a similar price to each distributor. Each distributor has stated that the offered price will be accepted if it is tendered. Each distributor is privately owned.

After the purchase, your company plans to operate the purchased distributor.

One distributor, Morgan Supply, is located in Greenville, South Carolina. The other distributor, Peachtree Supply, is located in Macon, Georgia.

Your company has conducted an extensive due-diligence analysis of both Morgan Supply and Peachtree Supply and has examined each companys brand, social relationships, culture fit, etc. An extensive economic analysis has been conducted.

Your company has now instructed you to conduct only a financial analysis, of Morgan Supply and Peachtree Supply.

Balance Statements, Income statements, and a Cash Flow

Statements of the two firms for the years 20XX, 20YY and

20ZZ are presented below.

Your instructor has provided a financial ratio analysis of the two firms for each respective year. However, you will be required to calculate certain ratios.

Questions:

(b) Based only on your financial analysis, which of the two firms should be purchased by your company? Explain.

(c) Next, suppose that your company will not acquire the $1 million of Morgan's 20XX long-term debt.

Balance Sheets for Morgan Supply

	Dec 31, 20XX	Dec 31, 20YY	Dec 31, 20ZZ
Current Assets
Cash	3,100	35,100	80,000
Short-term Investments	200,000	28,000	117,000
Accounts Receivables	325,100	195,300	134,500
Inventories	505,800	460,300	364,200
Prepaid Expenses	50,000	22,000	25,000
Total Current Assets	1,084,000	740,700	720,700
Fixed Assets
Property, Plant & Equipment	2,206,900	1,374,800	1,251,300
Less Accumulated Depreciation	345,100	200,100	100,000
Net Property, Plant & Equipment	1,861,800	1,174,700	1,151,300
Goodwill, net	62,500	75,000	87,500
Total Assets	3,008,300	1,990,400	1,959,500
Current Liabilities
Accounts Payable	418,600	462,100	440,000
Current Maturity-Long Term Debt	69,000	63,000	58,000
Accrued Payroll	50,000	38,000	39,000
Income Taxes Payable	12,000	8,000	5,000
Other Accrued Expenses	8,000	15,000	7,000
Total Current Liabilities	557,600	586,100	549,000
Long-term Liabilities
Long-Term Debt	1,050,400	1,102,900	1,147,000
Total Liabilities	1,608,000	1,689,000	1,696,000
Stockholders Equity
Common Stock	1,000	1,000	1,000
Additional Paid-in Capital	1,350,000	400,000	400,000
Retained Earnings	49,300	(99,600)	(137,500)
Total Owners Equity	1,384,300	301,400	263,500
Total Liabilities & Owners Equity	3,008,300	1,990,400	1,959,500

Income Statements for Morgan Supply

Dec 31,

20XX

Dec 31,

20YY

Dec 31,

20ZZ

Net Sales

2,600,000

1,900,000

1,600,000

Cost of Goods Sold

1,404,000

1,121,000

960,000

Gross Profit (Margin)

1,196,000

779,000

640,000

Operating Expenses

Salaries & Wages

360,500

250,500

210,720

Vehicle Expenses

34,000

21,000

21,000

Occupancy & Utilities

45,000

32,000

26,000

Depreciation

157,500

112,600

106,100

Advertising

15,000

10,000

5,000

Selling, General &

Administrative

Expense

286,500

210,400

165,900

Total Operating

Expenses

898,500

636,500

534,720

Operating Income

297,500

142,500

105,280

Non-operating

Expenses

Interest Expense

85,000

91,000

99,000

Interest income

11,400

6,400

12,500

Income Before Taxes

223,900

57,900

18,700

Taxes

75,000

20,000

7,000

Net Income

148,900

37,900

11,780

Cash Flow Statements for Morgan Supply

Dec 31, 20XX

Dec 31, 20YY

Cash Flow from Operating

Activities

Net income

148,900

37,900

Adjustments:

Depreciation

157,500

112,600

Changes in assets and liabilities

Accounts receivable

(129,800)

(60,800)

Inventories

(45,500)

(96,100)

Prepaid expenses

(28,000)

3,000

Accounts payable

(43,500)

22,100

Income taxes payable

4,000

3,000

Accrued payroll

12,000

(1,000)

Other accrued expenses

(7,000)

8,000

Net cash provided by operating

activities

68,600

28,700

Cash Flow from Investing

Activities

Short term investments

(172,000)

89,000

Additions to property, plant &

Equipment

(832,100)

(123,500)

Net cash used in investing

Activities

(1,004,100)

(34,500)

Cash Flow from financing

Activities

Capital stock issue

950,000

0

Short-term debt

6,000

5,000

Long-term debt

(52,500)

(44,100)

Net cash used by financing

activities

903,500

(39,100)

Net (decrease) in cash

(32,000)

(44,900)

Cash, beginning of year

35,100

80,000

Cash, end of year

3,100

35,100

Balance Sheet Statement for Peach tree

	Dec 31, 20XX	Dec 31, 20YY	Dec 31, 20ZZ
Current Assets
Cash	104,800	141,700	115,000
Short-term Investments	0	0	0
Accounts Receivables	295,000	241,400	165,800
Inventories	372,500	357,600	314,800
Prepaid Expenses	21,000	23,400	15,200
Total Current Assets	793,300	764,100	610,800
Fixed Assets
Property, Plant & Equipment	1,526,820	1,308,520	1,265,520
Less Accumulated Depreciation	832,520	776,520	718,520
Net Property, Plant & Equipment	694,300	532,000	547,000
Goodwill, net	0	0	0
Total Assets	1,487,600	1,296,100	1,157,800
Current Liabilities
Accounts Payable	210,600	227,100	218,000
Current Maturity-Long Term Debt	2,200	2,000	1,800
Accrued Payroll	57,000	49,000	47,000
Income Taxes Payable	29,000	23,000	32,000
Other Accrued Expenses	13,800	6,800	12,000
Total Current Liabilities	312,600	307,900	310,800
Long-term Liabilities	18,800	15,700	26,000
Long-Term Debt	43,000	45,000	47,000
Total Liabilities	374,400	368,600	383,800
Stockholders Equity
Common Stock
Additional Paid-in Capital	300,500	300,500	300,500
Retained Earnings	812,700	627,000	473,500
Total Owners Equity	1,113,200	927,500	774,000
Total Liabilities & Owners Equity	1,487,600	1,269,100	1,157,800

Income statement for Peachtree

Dec 31,

20XX

Dec 31,

20YY

Dec 31,

20ZZ

Net Sales

2,360,000

2,160,000

2,280,000

Cost of Goods Sold

1,604,800

1,488,200

1,573,200

Gross Profit (Margin)

755,200

671,800

706,800

Operating Expenses

Salaries & Wages

183,700

165,100

170,800

Vehicle Expenses

46,000

41,400

38,900

Occupancy & Utilities

52,500

47,300

50,100

Depreciation

56,000

58,000

52,000

Advertising

12,000

8,000

10,000

Selling, General &

Administrative

Expense

127,000

123,000

119,000

Total Operating

Expenses

477,200

442,800

440,800

Operating Income

278,000

229,000

266,000

Non-operating

Expenses

Interest Expense

3,900

4,100

4,300

Interest income

6,600

6,600

6,400

Income Before Taxes

280,700

231,500

268,100

Taxes

95,000

78,000

91,000

Net Income

185,700

153,500

177,100

Cash Flow Statements for Peachtree Supply

	Dec 31, XXX	Dec 31, YYY
Cash Flow from Operating Activities
Net income	185,700	153,500
Adjustments:
Depreciation	56,000	58,000
Changes in assets and liabilities
Accounts receivable	(53,600)	(75,600)
Inventories	(14,900)	(42,800)
Prepaid expenses	2,400	(8,200)
Accounts payable	(16,500)	9,100
Income taxes payable	6,000	(9,000)
Accrued payroll	8,000	2,000
Other accrued expenses	7,000	(5,200)
Net cash provided by operating activities	180,100	81,800
Cash Flow from Investing Activities
Short term investments	0	0
Additions to property, plant & Equipment	(218,300)	(43,000)
Net cash used in investing Activities	(218,300)	(43,000)
Cash Flow from financing activities
Capital stock issue	0	0
Short-term debt	200	200
Long-term debt	1,100	(12,100)
Net cash used by financing activities	1,300	(1,800)
Net (decrease) in cash	(36,900)	26,700
Cash, beginning of year	141,700	115,000
Cash, end of year	104,800	141,700