Merger and Acquisition

Acct 3150

Shanice Gozali

Fall 2015

Merger and Acquisition Case

1. According to the financial data and ratios, the business unit or division for sale has problem financially for the past five years (2009 to 2014). From the profitability ratios (return on assets, gross profit margin, and net profit margin), we can see that their sales and profits are not stable and they have not been using resources efficiently. Return on assets ratio shows that their profit generated from each dollar of assets has been decreasing in the past three years, from 21% in 2012 to 17% in 2014. It is not a good situation considering this is a manufacturing division and has fixed assets. In addition, the net profit margin shows that they have low percentage of profit per dollar of sales until 2014, but according to their prediction, they are able to increase it until 2018. I’m using EBITDA stand-alone when measuring net income because we want to know the income for the business unit for sale. From the solvency ratio, they have low viability, meaning they have low chance of survival in the long term. The ratio is decreasing from .48 in 2012 to .36 in mid 2014. This is a bad situation for the company because it increases their chance of default, when they are not able to pay back the liabilities and the division keeps getting worse. Cash flow ratio supports the solvency ratio. The decreasing values in current and quick ratio also add the evidence that their ability pay debt is getting lower in the past three years. Even though there is a sales growth from .3% in 2009 to 4% in 2014, the division’s asset turnover ratio has been decreasing in the past two years (2.39 to 2.24). This issue adds the possibility that it has management or production problems that prevent the division to use their assets efficiently, leads to decrease in cash inflow. The average of receivable collection increase from 50 days to 55 days, a negative sign to the company when they cannot collect their receivables...