ABC Company is thinking about purchasing XYZ Corporation to merge into operations. The following Balance Sheet of XYZ Corporation is the only information you have available as a strategist for your analysis.
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XYZ Corporation |
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Balance Sheet |
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December 31, 2020 |
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ASSETS |
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Cash |
$50,000 |
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Accounts Receivable |
80,000 |
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Inventory |
20,000 |
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Total Current Assets |
150,000 |
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Property, Plant and Equipment (net) |
200,000 |
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Long Term Investments |
50,000 |
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Goodwill |
100,000 |
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Total Assets |
$500,000 |
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LIABILITIES/STOCKHOLDERS’ EQUITY |
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Accounts Payable |
$130,000 |
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Accrued Expenses |
120,000 |
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Total Current Liabilities |
250,000 |
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Long-Term debt |
150,000 |
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Stockholders’ Equity |
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Common Stock |
10,000 |
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Paid-In Capital |
40,000 |
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Retained Earnings |
50,000 |
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Total Liabilities/Stockholders’ Equity |
$500,000 |
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Required
You will need to first compute a Debt/Assets ratio BEFORE any adjustments AND explain what it means. Then, based solely on the above provided balance sheet numbers and class recorded presentation, what adjustment(s) or write off(s), if any, would you make in valuing XYZ Corporation? If no adjustments need to be made then be sure to clearly state that no adjustment(s) is/are necessary. Also, IF you made any adjustments then you will need to compute another adjusted Debt/Assets ratio. Finally, your Debt/Assets ratio(s) must include a brief discussion and conclusion of any insights you have. [NOTE – Please be sure to clearly show ALL your work.]
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