2A2Z BORGLUM CORPORATION IS CONSIDERING THE ACQUISITION OF ONE OF ITS...
45.
CSO: 2A2b
LOS: 2A2z
Borglum Corporation is considering the acquisition of one of its parts suppliers and has
been reviewing the pertinent financial statements. Specific data, shown below, has been
selected from these statements for review and comparison with industry averages.
Bond
Rockland
Western
Industry
Total sales (millions)
$4.27
$3.91
$4.86
$4.30
Net profit margin
9.55%
9.85%
10.05%
9.65%
Current ratio
1.32
2.02
1.96
1.95
Return on assets
11.0%
12.6%
11.4%
12.4%
Debt/equity ratio
62.5%
44.6%
49.6%
48.3%
Financial leverage
1.40
1.02
1.86
1.33
Borglum’s objective for this acquisition is assuring a steady source of supply from a
stable company. Based on the information above, select the strategy that would fulfill
Borglum’s objective.
a.
Borglum should not acquire any of these firms as none of them represents a good
risk.
b.
Acquire Bond as both the debt/equity ratio and degree of financial leverage
exceed the industry average.
c.
Acquire Rockland as both the debt/equity ratio and degree of financial leverage
are below the industry average.
d.
Acquire Western as the company has the highest net profit margin and degree of
financial leverage.