Alpha Milk Corp is considering taking over their competitor, Dana Dairy Products, and asked your consultancy firm to perform financial statement analysis to assess feasibility of this strategic initiative. You are given the following key financial ratios, the firm’s income statement and the balance sheet. You can assume that there are 365 days in a year.a) Using the information provided for 31 Dec 2005, calculate the following: net working capital, current ratio, quick ratio, inventory turnover, average collection period, total debt ratio, gross profit margin, net profit margin, return on total assets, return on equity.b) Evaluate the company’s performance against industry average ratios and compare with last year’s results.To answer, please refer to pictures attached Question 3Alpha Milk Corp is considering taking over their competitor, Dana DairyProducts, and asked your consultancy firm to perform financial statementanalysis to assess feasibility of this strategic initiative. You are given thefollowing key financial ratios, the firm's income statement and the balancesheet. You can assume that there are 365 days in a year.Dana Dairy Products Key RatiosIndustryAverageCurrent RatioQuick RatioAverage collection PeriodInventory TurnoverDebt RatioTimes Interest EarnedGross Profit MarginNet Profit MarginReturn on total assetsReturn on Equity1.30.823 days21.764.7%4.813.6%1.0%2.9%8.2%Sales RevenueLess: Cost of Goods SoldActual20041.00.7530 days1950%5.5Gross ProfitsLess: Operating ExpensesOperating ProfitsLess: Interest ExpenseNet Profits Before TaxesLess: Taxes (40%)Net Profits After Taxes12.0%0.5%Income StatementDana Dairy ProductsFor the Year Ended December 31, 20052.0%4.0%Actual2005$100,00087,000$13,00011,000$2,000500$1,500600$900See Next Page CashAccounts ReceivableInventoriesTotal Current AssetsGross Fixed AssetsLess: Accumulated DepreciationNet Fixed AssetsTotal AssetsBalance SheetDana Dairy ProductsDecember 31, 2005AssetsAccounts PayableAccrualsTotal Current LiabilitiesLong-term DebtTotal LiabilitiesLiabilities & Stockholders' Equity$35,00013,250Common StockRetained EarningsTotal Stockholders' EquityTotal Liabilities & Stockholders Equity$ 1,0008,9004,350$14,25021,750$36,000$ 9,0006,675$15,6754,125$19,8001,00015,200$16,200$36,000

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Answered: Alpha Milk Corp is considering taking…

Entrepreneurial Finance

6th Edition

ISBN:9781337635653

Author:Leach

Publisher:Leach

Chapter2: Developing The Business Idea

Section: Chapter Questions

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Question

Alpha Milk Corp is considering taking over their competitor, Dana Dairy Products, and asked your consultancy firm to perform financial statement analysis to assess feasibility of this strategic initiative. You are given the following key financial ratios, the firm’s income statement and the balance sheet. You can assume that there are 365 days in a year.

a) Using the information provided for 31 Dec 2005, calculate the following: net working capital, current ratio, quick ratio, inventory turnover, average collection period, total debt ratio, gross profit margin, net profit margin, return on total assets, return on equity.

b) Evaluate the company’s performance against industry average ratios and compare with last year’s results.

To answer, please refer to pictures attached

Question 3
Alpha Milk Corp is considering taking over their competitor, Dana Dairy
Products, and asked your consultancy firm to perform financial statement
analysis to assess feasibility of this strategic initiative. You are given the
following key financial ratios, the firm's income statement and the balance
sheet. You can assume that there are 365 days in a year.
Dana Dairy Products Key Ratios
Industry
Average
Current Ratio
Quick Ratio
Average collection Period
Inventory Turnover
Debt Ratio
Times Interest Earned
Gross Profit Margin
Net Profit Margin
Return on total assets
Return on Equity
1.3
0.8
23 days
21.7
64.7%
4.8
13.6%
1.0%
2.9%
8.2%
Sales Revenue
Less: Cost of Goods Sold
Actual
2004
1.0
0.75
30 days
19
50%
5.5
Gross Profits
Less: Operating Expenses
Operating Profits
Less: Interest Expense
Net Profits Before Taxes
Less: Taxes (40%)
Net Profits After Taxes
12.0%
0.5%
Income Statement
Dana Dairy Products
For the Year Ended December 31, 2005
2.0%
4.0%
Actual
2005
$100,000
87,000
$13,000
11,000
$2,000
500
$1,500
600
$900
See Next Page

Cash
Accounts Receivable
Inventories
Total Current Assets
Gross Fixed Assets
Less: Accumulated Depreciation
Net Fixed Assets
Total Assets
Balance Sheet
Dana Dairy Products
December 31, 2005
Assets
Accounts Payable
Accruals
Total Current Liabilities
Long-term Debt
Total Liabilities
Liabilities & Stockholders' Equity
$35,000
13,250
Common Stock
Retained Earnings
Total Stockholders' Equity
Total Liabilities & Stockholders Equity
$ 1,000
8,900
4,350
$14,250
21,750
$36,000
$ 9,000
6,675
$15,675
4,125
$19,800
1,000
15,200
$16,200
$36,000

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