your company is considering the possible acquisition of growth inc financial stateme 544569
Your company is considering the possible acquisition of Growth Inc. Financial statements of Growth Inc. are shown below and on the following page.
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2001 |
2002 |
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Assets |
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Current assets: |
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Cash |
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Accounts receivable, less allowance |
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of $750 for doubtful accounts |
99,021 |
83,575 |
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Inventories, FIFO |
63,414 |
74,890 |
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Prepaid expenses |
834 |
1,170 |
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Total current assets |
227,615 |
171,599 |
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Investments and other assets |
379 |
175 |
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Property, plant, and equipment: |
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Land and land improvements |
6,990 |
6,400 |
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Buildings |
63,280 |
59,259 |
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Machinery and equipment |
182,000 |
156,000 |
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Less: Accumulated depreciation |
252,270 |
221,659 |
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Net property, plant, and equipment |
110,000 |
98,000 |
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Total assets |
142,270 |
123,659 |
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Liabilities and Stockholders’ Equity |
$370,264 |
$295,433 |
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Current liabilities: |
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Accounts payable |
$ 32,730 |
$ 26,850 |
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Federal income taxes |
5,300 |
4,800 |
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Accrued liabilities |
30,200 |
24,500 |
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Current portion of long-term debt |
5,500 |
5,500 |
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Total current liabilities |
73,730 |
61,650 |
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Long-term debt |
76,750 |
41,900 |
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Other long-term liabilities |
5,700 |
4,300 |
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Deferred federal income taxes |
16,000 |
12,000 |
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Total liabilities |
172,180 |
119,850 |
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Stockholders’ equity: |
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Capital stock |
44,000 |
43,500 |
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Retained earnings |
154,084 |
132,083 |
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Total stockholders’ equity |
198,084 |
175,583 |
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Total liabilities and stockholders’ equity |
$ 370,264 |
$ 295,433 |
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GROWTH INC. |
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2001 |
2000 |
1999 |
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Revenues |
$578,530 |
$523,249 |
$556,549 |
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Costs and expenses: |
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Cost of products sold |
495,651 |
457,527 |
482,358 |
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Selling, general, and administrative |
35,433 |
30,619 |
29,582 |
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Interest and debt expense |
4,308 |
3,951 |
2,630 |
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535,392 |
492,097 |
514,570 |
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Income before income taxes |
43,138 |
31,152 |
41,979 |
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Provision for income taxes |
20,120 |
12,680 |
17,400 |
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Net income |
$ 23,018 |
$ 18,472 |
$ 24,579 |
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Net income per share |
$ 2.27 |
$ 1.85 |
$ 2.43 |
Partial footnotes: Under the LIFO method, inventories have been reduced by approximately $35,300 and $41,100 at December 31, 2001 and 2000, respectively, from current cost, which would be reported under the first-in, first-out method.
The effective tax rates were 36.6%, 30.7%, and 31.4%, respectively, for the years ended December 31, 2001, 2000, and 1999.
Required a. Compute the following for 2001, without considering the LIFO reserve:
Liquidity
1. Days’ sales in inventory
2. Merchandise inventory turnover
3. Inventory turnover in days
4. Operating cycle
5. Working capital
6. Current ratio
7. Acid-test ratio
8. Cash ratio
Debt
1. Debt ratio
2. Debt/equity ratio
3. Times interest earned
Profitability
1. Net profit margin
2. Total asset turnover
3. Return on assets
4. Return on total equity
b. Compute the ratios in part (a), considering the LIFO reserve.
c. Comment on the apparent liquidity, debt, and profitability, considering both sets of ratios.
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