You are a financial analyst with Moore Components Parts Inc. $($MCP$).$ All of the MCP$$s sales are on credit. One part of your job is to analyze prospective customers and to approve or decline them for sales on credit. The typical terms of your company$$s credit sales require payment within $30$ days of delivery. Your boss, Ms$.$ Kelley has asked you to review the financial statements of a prospective customer, the Alpha Beta Computer Company $($ABC$).$ In this role, the focus of your analysis is on the customer$$s ability to pay their invoices on time and in full.

$($Refer to the ABC financial statements.$)$ When analyzing ABC, you notice that inventory turnover is lower than in prior years. Provide three explanations that would be consistent with this observation. Explain whether these changes are of concern to you and what the effect might be$,$ if any, on MCP$$s ability to collect on credit sales in a timely manner and in accordance with agreed terms. You also notice that accounts receivable turnover this year is lower than in prior years. Please provide three explanations that would be consistent with this observation. Explain whether these would be of concern to you. Please prepare your written comments in a clear and concise memorandum to Ms$.$ Kelley. $($Use a standard memorandum format.$)$ You must make a recommendation and explain your reasoning. You can recommend approval for credit sales to ABC, you can recommend declining credit sales to ABC, or you recommend sales with modified terms. You cannot recommend cash only sales, as that would be impractical in the industry. Comprehensive Problem $2$

Alpha Beta Computer Company

Income Statement $($in Thousands$)$

$201720182019$

Sales $($all on credit$)$ $$1,500,000$ $$1,800,000$ $$2,160,000$

Cost of goods sold $950,0001,120,0001,300,000$

Gross profit $$550,000$ $$680,000$ $$860,000$

Selling & administrative expenses $380,000490,000590,000$

Operating profit $($EBIT$)$ $$170,000$ $$190,000$ $$270,000$

Interest expense $30,00040,00085,000$

Net income before taxes $$140,000$ $$150,000$ $$185,000$

Taxes $46,12048,72064,850$

Net income $$93,880$ $$101,280$ $$120,150$

Alpha Beta Computer Company

Balance Sheet $($in Thousands$)$

Assets $201720182019$

Cash $$20,000$ $$30,000$ $$20,000$

Marketable securities $30,00035,00050,000$

Accounts receivable $150,000230,000330,000$

Inventory $250,000350,000480,000$

Total current assets $$450,000$ $$645,000$ $$880,000$

Net plant & equipment $550,000720,0001,169,000$

Total Assets $$1,000,000$ $$1,365,000$ $$2,049,000$

Liabilities & Stockholders' Equity

Accounts payable $$100,000$ $$280,000$ $$355,000$

Accrued expenses $100,000110,000300,000$

Total current liabilites $$200,000$ $$390,000$ $$655,000$

Long$-$term liabilities $250,000331,120550,740$

Total liabilities $$450,000$ $$721,120$ $$1,205,740$

Common stock $($$$10$ par value$)400,000400,000460,000$

Capital paid in excess of par $50,00050,00080,000$

Retained earnings $100,000193,880303,260$

Total stockholders' equity $550,000$$ $643,880$$ $843,260$$

Total Liabilities & Stockolders' Equity $$1,000,000$ $$1,365,000$ $$2,049,000$

Accounts Receivable Turnover $10\mathrm{.}007\mathrm{.}836\mathrm{.}55$

Inventory Turnover $6\mathrm{.}005\mathrm{.}144\mathrm{.}50$