"How to calculate the ratios using the income statement and the balance sheet? Please also explain how each are derived at."

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 availableincome statements and two years of balance sheetsfor each company.

Income Statement

Fashion Forward Dream Designs

12/13/2018 12/31/2018

Revenue

Credit Sales 2,000,000 4,320,000

Non-Credit Sales 500,000 1,080,000

Total Revenue 2,500,000 5,400,000

Cost of Sales 1,400,000 3,250,000

Gross Profit 1,100,000 2,150,000

Operating Expenses

Research and Development 50,000 200,000

Selling, General and Administrative 750,000 1,600,000

Total Operating Expenses 800,000 1,800,000

Earnings Before Interest and Taxes 300,000 350,000

Interest Expense (18,000) (50,000)

Income Before Tax 282,000 300,000

Income Tax Expense (145,500) (87,500)

Net Income 136,500 212,500

Balance Sheet

Fashion For Fashion For Dream Des Dream Des

12/13/2018 12/31/2017 12/31/2018 12/31/2017

Current Assets

Cash and Cash Equival 950,000 980,000 1,710,000 1,705,000

Accounts Receivable 200,000 150,000 250,000 275,000

Inventory 112,000 105,000 200,000 215,000

Other Current Assets 35,000 50,000 120,000 100,000

Total Current Assets 1,297,000 1,285,000 2,280,000 2,295,000

Property, Plant and Equip 635,000 700,000 850,000 900,000

Goodwill 750,000 750,000 1,150,000 1,150,000

Other Long-term Assets 65,000 70,000 100,000 105,000

Total Assets 2,747,000 2,805,000 4,381,250 4,450,000

Current Liabilities

Accounts Payable 545,000 535,000 845,750 875,000

Short-Term Debt 25,000 - 50,000 60,000

Other Current Liabilities 600,000 510,000 730,000 740,000

Total Current Liabilities 1,170,000 1,045,000 1,625,750 1,675,000

Long-Term Debt 75,000 - 120,000 130,000

Other Long-Term Liabilities 100,000 75,000 155,000 165,000

Total Liabilities 1,345,000 1,120,000 1.901,250 1,970,000

Stockholders Equity

Common Stock 500,000 775,000 749,500 942,750

Preferred Stock 150,000 294,500 390,000 409,250

Retained Earnings 752,000 615,500 1,340,500 1,128,000

Total Stockholders Equity 1,402,000 1,685,000 2,480,000 2,480,000

Total Liab. & Stockholders Equ. 2,747,000 2,805,000 4,381,250 4,450,000

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:

orecommend which company the organization should pursue

oThoroughly support your conclusion, including what other factors should be considered

oBe specific.