Written Assignment Unit 7
MBA Business Administration
University of the People
BUS 5110-Managerial Accounting
Dr. Zelealem Tadesse
October 20, 2021
Case Study:
You work in the mergers and acquisitions department of a large conglomerate who is looking to
invest in a retail business. Two companies, Fashion Forward and Dream Designs, are the final
two options being considered. You have the most recent available income statements and two
years of balance sheets for each company.
Compute the following ratios for each company:
Profit Margin Ratio
Return on Assets
Current Ratio
Quick Ratio
AR Turnover Ratio
Average Collection Period
Inventory Turnover Ratio
Average Sales Period
Debt to Equity Ratio
For this assignment:
Compute all required amounts and explain how the computations were performed. Evaluate the
results for each company and explain what each ratio means. Compare and contrast the
companies. Based on your analysis: recommend which company the organization should pursue
Thoroughly support your conclusion, including what other factors should be considered. Be
specific.
, Ration Analysis
Ratio analysis refers to the analysis of various pieces of financial information in the financial
statements of a business (Corporate Finance Institute, 2020). These analyses are critical to assess
various aspects of a business like liquidity, profitability, and solvency.
Profit Margin Ratio
The profit margin shows the profit generated for each dollar in net sales (Corporate Finance
Institute, 2020).
Profit Margin Ratio = Net Income / Total Revenue
Fashion Forward = 136,,500,000 = 5.46%
Dream Designs = 212,,400,000 = 3.94%
Fashion-forward have a greater profit margin than dream designs meaning it's more profitable.
Return on assets
Return on assets is a ratio of net income to average total assets. This ratio tells us how efficiently
the firm is employing its assets.
Return on Assets = Net Income / Avg. Total Assets
Fashion Forward = 136,500 / (2,747,000 + 2,805,000) / 2 = 136,,776,000 = 4.92%
Dream Designs = 212,500 / (4,381,250 + 4,450,000) /2 = 212,,415,625 = 4.81%
Fashion Forward has better return on assets.
Current Ratio
The current ratio is a liquidity ratio that measures how efficiently a company repays its short-
term loans (Thakur, 2021). Current ratio is calculated as shown below.
Current Ratio = Current Assets / Current Liabilities
Fashion Forward = 1,297,,170,000 = 1.11
Dream Designs = 2,280,,625,750 = 1.40
Dream Designs is managing its short-term loans better than Fashion Forward.
Quick ratio
MBA Business Administration
University of the People
BUS 5110-Managerial Accounting
Dr. Zelealem Tadesse
October 20, 2021
Case Study:
You work in the mergers and acquisitions department of a large conglomerate who is looking to
invest in a retail business. Two companies, Fashion Forward and Dream Designs, are the final
two options being considered. You have the most recent available income statements and two
years of balance sheets for each company.
Compute the following ratios for each company:
Profit Margin Ratio
Return on Assets
Current Ratio
Quick Ratio
AR Turnover Ratio
Average Collection Period
Inventory Turnover Ratio
Average Sales Period
Debt to Equity Ratio
For this assignment:
Compute all required amounts and explain how the computations were performed. Evaluate the
results for each company and explain what each ratio means. Compare and contrast the
companies. Based on your analysis: recommend which company the organization should pursue
Thoroughly support your conclusion, including what other factors should be considered. Be
specific.
, Ration Analysis
Ratio analysis refers to the analysis of various pieces of financial information in the financial
statements of a business (Corporate Finance Institute, 2020). These analyses are critical to assess
various aspects of a business like liquidity, profitability, and solvency.
Profit Margin Ratio
The profit margin shows the profit generated for each dollar in net sales (Corporate Finance
Institute, 2020).
Profit Margin Ratio = Net Income / Total Revenue
Fashion Forward = 136,,500,000 = 5.46%
Dream Designs = 212,,400,000 = 3.94%
Fashion-forward have a greater profit margin than dream designs meaning it's more profitable.
Return on assets
Return on assets is a ratio of net income to average total assets. This ratio tells us how efficiently
the firm is employing its assets.
Return on Assets = Net Income / Avg. Total Assets
Fashion Forward = 136,500 / (2,747,000 + 2,805,000) / 2 = 136,,776,000 = 4.92%
Dream Designs = 212,500 / (4,381,250 + 4,450,000) /2 = 212,,415,625 = 4.81%
Fashion Forward has better return on assets.
Current Ratio
The current ratio is a liquidity ratio that measures how efficiently a company repays its short-
term loans (Thakur, 2021). Current ratio is calculated as shown below.
Current Ratio = Current Assets / Current Liabilities
Fashion Forward = 1,297,,170,000 = 1.11
Dream Designs = 2,280,,625,750 = 1.40
Dream Designs is managing its short-term loans better than Fashion Forward.
Quick ratio
