assignment

Problem 14.6 ( LO3 ) Analyzing Financial Ratios and Cash Flows Venture Auto Parts is a chain of 40 stores offering a full line of auto parts and supplies to consumers and independent auto repair shops. Danny’s Brake and Muffler has over 90 stores in the cities serviced by Venture. Recently, Danny Morton, the founder of Danny’s Brake and Muffler, was approached by Venture with an interesting offer. Venture wants to be the sole supplier of mufflers and brake parts to Danny’s. In exchange, Venture will invest in technology to monitor Danny’s inventory levels and make timely deliveries to all locations. Venture asserts that the deal will lead to lower part prices and greater inventory turnover for Danny’s.

Prior to the final phase of negotiation, Danny’s chief accountant, Sarah Wilson, was assigned the task of analyzing the confidential audited financial statements of Venture. As part of her work, Sarah calculated the following ratios and obtained Venture’s statement of cash flows for fiscal 2021.

	Fiscal 2021	Fiscal 2020
Current ratio	1.65	1.55
Quick ratio	0.70	0.90
Inventory turnover	4.20	5.63
Debt to equity	3.00	2.30
Times interest earned	1.10	2.42

Venture Auto Parts Statement of Cash Flows Year Ended December 31, 2021
Cash Provided from Operations
Net earnings	$ 9,000,000
Reconciliation of net earnings to net cash provided by operations:
Depreciation and amortization	900,000
Increase in receivables	(3,500,000)
Increase in merchandise inventories	(1,100,000)
Increase in accounts payable	700,000
Increase in income taxes payable	100,000
Net cash provided by operations	6,100,000
Cash flows from investing activities
Purchase of Dundee Stores	(5,000,000)
Purchase of property	(7,000,000)
Net cash used in investing activities	(12,000,000)
Cash flows from financing activities
Proceeds from long‐term borrowings	6,200,000
Net cash provided by financing activities	6,200,000
Increase in cash and cash equivalents	300,000
Cash and cash equivalents at beginning of year	250,000
Cash and cash equivalents at end of year	$   550,000

Required

Based on this limited information, would you recommend that Danny pursue the deal with Venture?

The initial response must demonstrate effective communication skills and analysis that is thoughtful and objective. You must support your responses by searching beyond the chapter (i.e., managerial accounting literature and/or any other valid external source). Include examples, as appropriate, to evidence your case point. Your response must also include proper American Psychological Association (APA) citation and referencing with working web links. Further, it must include 350 words. Refer to discussion board rubric for grading details.