BUS 5110 WAU 7

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University of the People *

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5115

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Finance

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Nov 24, 2024

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Calculations with Omnicalculator.com: 1. Profit Margin Ratio: Formula: Profit Margin Ratio = Net Income / Total Revenue × 100  Fashion Forward : Profit Margin Ratio = 136,500 / 2,500,000 × 100 = 5.46%  Dream Designs : Profit Margin Ratio = 212,500 / 5,400,000 × 100 = 3.94% 2. Return on Assets (ROA): Formula: ROA = Net Income / Total Assets  Fashion Forward : ROA = 136,500 / 2,747,000 = 0.0497 or 4.97%  Dream Designs : ROA = 212,500 / 4,381,250 = 0.0485 or 4.85% 3. Current Ratio: Formula: Current Ratio = Total Current Assets / Total Current Liabilities  Fashion Forward : Current Ratio = 1,297,000 / 1,170,000 = 1.11  Dream Designs : Current Ratio = 2,280,500 / 1,625,750 = 1.40 4. Quick Ratio: Formula: Quick Ratio = (Total Current Assets – Inventory) / Total Current Liabilities  Fashion Forward : Quick Ratio = (1,297,000 − 112,000) / 1,170,000 = 1.01  Dream Designs : Quick Ratio = (2,280,500 − 200,000) / 1,625,750 = 1.28 5. AR Turnover Ratio: Formula: AR Turnover Ratio = Credit Sales / Average Accounts Receivable  Fashion Forward : AR Turnover Ratio = 2,000,000 (200,000 + 150,000) / 2 = 11.43  Dream Designs : AR Turnover Ratio = 4,320,000 (250,000 + 275,000) / 2 = 16.31 6. Average Collection Period: Formula: Average Collection Period = 365 / AR Turnover Ratio 1

 Fashion Forward : Average Collection Period = 365 / 11.43 = 31.93 days  Dream Designs : Average Collection Period = 365 / 16.31 = 22.38 days 7. Inventory Turnover Ratio: Formula: Inventory Turnover Ratio = Cost of Sales / Average Inventory  Fashion Forward : ITR = 1,400,000 (112,000 + 105,000) / 2 = 12.96  Dream Designs : ITR = 3,250,000 (200,000 + 215,000) / 2 = 15.72 8. Average Sales Period: Formula: Average Sales Period = 365 / Inventory Turnover Ratio  Fashion Forward : Average Sales Period = 365 / 12.96 = 28.17 days  Dream Designs : Average Sales Period = 365 15.72 = 23.22 days 9. Debt to Equity Ratio: Formula: Debt to Equity Ratio = Total Liabilities / Total Stockholders Equity  Fashion Forward : Debt to Equity Ratio = 1,345,000 / 1,402,000 = 0.959  Dream Designs : Debt to Equity Ratio = 1,901,250 / 2,480,000 = 0.767 Evaluation : Comparison : While Fashion Forward stands out in terms of profitability due to its elevated profit margin, Dream Designs demonstrates enhanced liquidity, adept AR handling, and effective inventory management. Moreover, Dream Designs presents a more moderated financial framework with its reduced debt to equity proportion. Recommendation : Given the insights from the above assessment, Dream Designs emerges as a potentially more robust and streamlined investment choice in the retail market. Nonetheless, other essential aspects need consideration: 1. Market Position: Gauge the brand value and customer loyalty for both entities. 2

2. Future Projections: Delve into the upcoming business strategies and growth plans of both companies. 3. Management Team: The track record and credibility of the leadership team can be pivotal. 4. Impact on Acquirer: Analysis of what “impact that the purchase will have on the acquirer after the transaction is closed” (CFI Team, 2022, para. 5). This analysis helps determine the impact the purchase will have on stockholders’ shares. 5. External Factors: Factors like prevailing economic conditions, political dynamics, or societal influences that might sway the retail landscape. From the information at hand, Dream Designs would be my suggested pick for investment. That said, a comprehensive due diligence should be the next step before finalizing any decision. References CFI Team. (2022, December 15). M&A Considerations and Implications . Retrieved from Corporate Finance Institute: https://corporatefinanceinstitute.com/resources/valuation/ma-mergers-acquisitions- considerations/ Omni Calculator Staff. (n.d.). Omni Calculator . Retrieved from Omni Calculator: https://www.omnicalculator.com/collections/sales 3

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