Potential Acquisition 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. 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 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.
Potential Acquisition 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. 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 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.
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter5: The Income Statement And The Statement Of Cash Flows
Section: Chapter Questions
Problem 8C: Ethics and Sale of Operating Component It is the end of 2019, and, as an accountant for Newell...
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Potential Acquisition
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.
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 |
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 |
3,612,000 | 4,709,000 | 4,378,000 | 4,995,000 |
- 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.
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