Your company is considering acquiring a private company (New Co., Inc.). The CFO has asked you to review the financial statements, look for key trends, and develop financial/operational questions to ask the management of New Co. when you meet next week. Calculate average collection period, total asset turnover, inventory turnover, and days in inventory.Calculate average collection period, total asset turnover, inventory turnover, and days in inventory for the four years.Assess the trends in activity of the firm, using your calculations in part 1, over the four year period.Calculate the gross profit margin, operating margin, and net profit margin.Assess the profitability trends of the firm, using your calculations in part 3, over the four- year period.Develop three or four questions to ask the management of New Co. to help your management team understand trends uncovered by the ratio analysis. New Co., Inc. Income Statement 12/31/2212/31/2112/31/2012/31/19Revenue Total Revenue37,651,00040,403,00039,528,00040,339,000Cost of Revenue29,175,00030,963,00030,334,00031,292,000Gross Profit8,476,0009,444,0009,194,0009,047,000 Operating Expenses Selling General and Administrative7,911,0007,493,0007,612,0007,550,000Operating Income or Loss565,0001,947,0001,582,0001,497,000 Income from Continuing Operations Interest Expense75,00072,00080,00090,000Income Before Tax490,0001,875,0001,502,0001,407,000 Income Tax Expense418,000609,000503,000141,000Add Discontinued Operations-1,000-21,000-90,000-13,000Net Income71,0001,245,000909,0001,253,000New Co., Inc. Balance Sheet 12/31/2212/31/2112/31/2012/31/19Current Assets Cash and Cash Equivalents1,101,0002,240,0001,976,0002,432,000Short Term Investments2,196,0001,848,0001,384,0001,539,000Net Receivables1,049,0001,347,0001,162,0001,280,000Inventory5,209,0004,864,0005,051,0005,174,000Other Current Assets274,000217,000313,0001,047,000Total Current Assets9,829,00010,516,0009,886,00011,472,000 Long Term Investments013,00027,0003,000Property Plant and Equipment2,421,0002,293,0002,346,0002,295,000Goodwill425,000425,000425,000425,000Intangible Assets18,00018,00018,00018,000Other Assets356,000591,000817,0001,032,000Total Assets13,049,00013,856,00013,519,00015,245,000 Current Liabilities Accounts Payable4,873,0004,984,0004,450,0005,030,000Short / Current Long Term Debt499,0000350,0000Other Current Liabilities Total Current Liabilities7,817,0007,122,0006,925,0007,777,000 Long Term Debt948,0001,158,0001,168,0001,492,000 Other Liabilities Total Liabilities9,437,0009,147,0009,141,00010,250,000 Stockholders' Equity Total Stockholder Equity3,612,0004,709,0004,378,0004,995,000

Answered: Calculate average collection period,…

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter15: Financial Statement Analysis

Section: Chapter Questions

Problem 60P

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Your company is considering acquiring a private company (New Co., Inc.). The CFO has asked you to review the financial statements, look for key trends, and develop financial/operational questions to ask the management of New Co. when you meet next week. Calculate average collection period, total asset turnover, inventory turnover, and days in inventory.

Calculate average collection period, total asset turnover, inventory turnover, and days in inventory for the four years.
Assess the trends in activity of the firm, using your calculations in part 1, over the four year period.
Calculate the gross profit margin, operating margin, and net profit margin.
Assess the profitability trends of the firm, using your calculations in part 3, over the four- year period.
Develop three or four questions to ask the management of New Co. to help your management team understand trends uncovered by the ratio analysis.

New Co., Inc. Income Statement

	12/31/22	12/31/21	12/31/20	12/31/19
Revenue
Total Revenue	37,651,000	40,403,000	39,528,000	40,339,000
Cost of Revenue	29,175,000	30,963,000	30,334,000	31,292,000
Gross Profit	8,476,000	9,444,000	9,194,000	9,047,000

Operating Expenses
Selling General and Administrative	7,911,000	7,493,000	7,612,000	7,550,000
Operating Income or Loss	565,000	1,947,000	1,582,000	1,497,000

Income from Continuing Operations
Interest Expense	75,000	72,000	80,000	90,000
Income Before Tax	490,000	1,875,000	1,502,000	1,407,000

Income Tax Expense	418,000	609,000	503,000	141,000
Add Discontinued Operations	-1,000	-21,000	-90,000	-13,000
Net Income	71,000	1,245,000	909,000	1,253,000

New Co., Inc. Balance Sheet

	12/31/22	12/31/21	12/31/20	12/31/19
Current Assets
Cash and Cash Equivalents	1,101,000	2,240,000	1,976,000	2,432,000
Short Term Investments	2,196,000	1,848,000	1,384,000	1,539,000
Net Receivables	1,049,000	1,347,000	1,162,000	1,280,000
Inventory	5,209,000	4,864,000	5,051,000	5,174,000
Other Current Assets	274,000	217,000	313,000	1,047,000
Total Current Assets	9,829,000	10,516,000	9,886,000	11,472,000

Long Term Investments	0	13,000	27,000	3,000
Property Plant and Equipment	2,421,000	2,293,000	2,346,000	2,295,000
Goodwill	425,000	425,000	425,000	425,000
Intangible Assets	18,000	18,000	18,000	18,000
Other Assets	356,000	591,000	817,000	1,032,000
Total Assets	13,049,000	13,856,000	13,519,000	15,245,000

Current Liabilities
Accounts Payable	4,873,000	4,984,000	4,450,000	5,030,000
Short / Current Long Term Debt	499,000	0	350,000	0
Other Current Liabilities
Total Current Liabilities	7,817,000	7,122,000	6,925,000	7,777,000

Long Term Debt	948,000	1,158,000	1,168,000	1,492,000

Other Liabilities
Total Liabilities	9,437,000	9,147,000	9,141,000	10,250,000

Stockholders' Equity
Total Stockholder Equity	3,612,000	4,709,000	4,378,000	4,995,000

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