Question

12.19 (LO 3) Excel Analyzing ratios (CMA adapted) Baldwin Industries, a manufacturer of construction equipment, is considering the purchase of KayNet Cables, one of its suppliers. Baldwin's board of directors has given preliminary approval for the purchase, and several discussions have taken place between the management of the two companies. In preparation for the discussions, KayNet provided its financial data for the past three years and its financial forecasts for the next three years. Baldwin's controller. Nora Jaynes, has analyzed KayNet's data and prepared the following ratio analysis, which compares KayNet's performance with the industry averages. 2020 2019 2018 Industry Average Return on assets 13.03% 13.02% 12.98% 12.96% Average days to sell 51.16 47.29 42.15 44.63 days inventory days days days Times interest earned ratio 3.87 3.46 3.28 3-56 Price/earnings ratio 10.96 11.23 11.39 11.54 Debt-to-equity ratio 49.66 46.32 48.24 57.14 Accounts receivable 6.98 7.23 7.83 turnover Current ratio 2.05 2.35 2.10 2.30 Gross margin 30.11 30.18 29.67 29.85 Required a. Assess KayNet's liquidity, citing strengths or problems. b. Assess KayNet's profitability, citing strengths or problems. c. Assess KayNet's leverage, citing strengths or problems. d. Assess KayNet's market position, citing strengths or problems. e. Based on your assessment, do you recommend that Baldwin go forward with its acquisition of KayNet? Why or why not? 7.78

Answer 1

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Answer: Requirement @ : Assess thay net's liquidity, citing strengths cool problems. Lay net's hajuidity position is not favourable when compared to the industry average. The 2020 wrrent Yar is lower than the industry average Accounts receivable turnover is slowing a deckning trend and is lower than average Days to sell inventory are are showing showing an an increasing increasing & trend and are greater than the industry average. Reagoirement Assess Kaynet's profitability, citing Kayner's average. The are increasing profitability redom an and are is Slightly better than assets and gross margin a little better than the strengths cor) problem the indostry of caynet- arexage. Requirement : Assess Kaynet's reverage, citing strengths con problems. Kayset's debt debt to to ear earrity ratio is lower than the industry average indicating that the Company is not as leverage a the average Company in the industry. Times - Interest - eamed is improving and as of 2020 is better than the industry average Reagoirement & marnet position, citing strengths Assess Kaynet's (ory problems : with the plevatio average, the market position decreasing is not and below the industry particularly strong.

Reajuirement @ : that Baldwin go why (or) why not? Based forward on your assessment do you recommend with its acquisition of Kaynet? on Based out weigh the that can be Strategies. the ratios, negatives handled with the positives seems to slightly Liquidity is a problem, but perhaps new a different management