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

• 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

h Assignment / Financials 2 Balance Sheets Income Statements Fashion Forward Dream Designs Dream Designs 3 Fashion Forward Dream Designs Fashion Forward 31/12/2017 31/12/2018 31/12/2018 31/12/2018 31/12/2017 31/12/2018 4 5 Revenue Current Assets Cash and Cash Equivalents 980,000 Credit Sales 2,000,000 4,320,000 950,000 1,710,000 1,705,000 Non-Credit Sales 1,080,000 250,000 500,000 Accounts Receivable 200,000 150,000 275,000 8 Total Revenue 2,500,000 200,000 5,400,000 Inventory 112,000 105,000 215,000 Other Current Assets 35,000 50,000 120,500 100,000 10 Cost of Sales 11 | Gross Profit 1,400,000 Total Current Assets 3,250,000 1,297,000 1,285,000 2,280,500 2,295,000 2,150,000 Property, Plant and Equipment 850,000 1,100,000 635,000 700,000 900,000 12 Goodwill 750,000 750,000 1,150,000 1,150,000 13 | Operating Expenses 14 Research and Development Other Long-Term Assets 65,000 70,000 100,750 105,000 50,000 Total Assets 2,747,000 4,450,000 200,000 2,805,000 4,381,250 15 | Selling, General, and Administrative 16 | Total Operating Expenses 750,000 1,600,000 800,000 1,800,000 Current Liabilities Accounts Payable 17 545,000 535,000 845,750 875,000 Short-Term Debt 18 Earnings Before Interest and Taxes 350,000 300,000 25,000 50,000 60,000 19 Other Current Liabilities 600,000 510,000 730,000 740,000 20 Interest Expense (18,000) (50,000) Total Current Liabilities 1,170,000 1,045,000 1,625,750 1,675,000 21 | Income Before Tax 282,000 300,000 Long-Term Debt 75,000 120,500 130,000 (145,500) 22 Income Tax Expense (87,500) Other Long-Term Liabilities 100,000 155,000 165,000 75,000 23 | Net Income Total Liabilities 212,500 136,500 1,345,000 1,120,000 1,901,250 1,970,000 24 Stockholders Equity 25 26 Common Stock 942,750 500,000 775,000 749,500 Preferred Stock 27 150,000 409,250 294,500 390,000 Retained Earnings 28 752,000 615,500 1,128,000 1,340,500 Total Stockholders Equity 29 1,402,000 1,685,000 2,480,000 2,480,000 30 Total Liabilities and Stockholders Equity 31 2,747,000 2,805,000 4,381,250 4,450,000 32