What does suggest about plush carpet mill inc profitability

Assignment Help Financial Accounting

Reference no: EM132651979

Case Setting:

It is Fall, 2006 and you are looking to invest your savings and buy shares in Plush Carpet Mill Inc. There has been some news in the media that despite making profits, Plush Carpet Mill Inc is short on cash. Before deciding on whether to invest in Plush Carpet Mill Inc, you therefore want to evaluate the financial performance of Plush Carpet Mill Inc to make sure it is a sound company.

Plush Carpet Mill Inc has provided you a copy of their year end balance sheet and income statements for 2003, 2004, 2005. Your task is to assess the financial performance of Plush Carpet Mill Inc through a historical 2003-2005 trend analysis. Remember: In doing your analysis you are essentially telling a story about Plush Carpet Mill Inc's financial performance over the last few years.

Required:

You must answer the following set of analytical questions on the several areas of financial performance and then pull all of your analysis together to give an overall evaluation of the firm. And then decide whether you would invest in Plush Carpet Mill Inc.

Question 1. Look at the profitability margin (gross profit margin and net profit margin) of Plush Carpet Mill Inc. What trends do you notice over 2003-2005, and what does this suggest about Plush Carpet Mill Inc's profitability?

Question 2. Look at the working capital, current ratio and the quick (acid-test) ratio of Plush Carpet Mill Inc. What trends do you notice over 2003-2005, and what does this suggest about Plush Carpet Mill Inc's liquidity?

Question 3. Now study the accounts receivables turnover and inventory turnover of Plush Carpet Mill Inc. What do these patterns suggest about the firm's conversion of accounts receivable and inventories to cash?

Question 4. Considering your answers to the questions above, what is your overall assessment of Plush Carpet Mill Inc. Would you invest in the company?

Reference no: EM132651979

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