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. 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. Expand each item item below to view the financial statements. Income Statement 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 Balance Sheet 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

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. 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. Expand each item item below to view the financial statements. Income Statement 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 Balance Sheet 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

Financial Accounting: The Impact on Decision Makers

10th Edition

ISBN:9781305654174

Author:Gary A. Porter, Curtis L. Norton

Publisher:Gary A. Porter, Curtis L. Norton

Chapter5: Inventories And Cost Of Goods Sold

Section: Chapter Questions

Problem 5.5P

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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.

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.

Expand each item item below to view the financial statements.

Income Statement

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

Balance Sheet

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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