Your Future and Plush Carpet Mills Case Setting: It is Spring 2013 and you are looking

ACCOUNTING 202 evening editionModule 6 Case StudyYour Future and Plush Carpet MillsCase Setting: It is Spring 2013 and you are looking for fulltime employment. Plush Carpet Mill, Inc. (PCM) hasoffered you a position as manager of its San Antonio, Texasproduction facility. Before accepting the job, however, youwant to evaluate PCM’s financial performance to makesure it is a sound company.PCM has provided you a copy of its year-end 2010, 2011 and 2012 balance sheets and incomestatements, and you have obtained the most recent industry data from the internet. Your task now is toassess the financial condition of PCM through both:a 2010-12 trend (Comparison over time) analysis anda peer group (Comparison to industry) analysis using 2012 data for PCM and the data for thecarpet mill industry. Remember: In doing your analysis you are essentially telling a story aboutPCM’s financial performance over the last few years and relative to other similar-sized firms inthe industry.The relevant source data has been assembled in a Microsoft Excel template but will require yourrefinement. The Statement of Cash Flows and available industry benchmark data are included in thetemplate.Required:In Thursday May 30 Class we will complete the construction of the excel spreadsheet by:1) Use cell-referenced equations to construct common-size balance sheets and income statements foreach of the three years and,2) Produce financial ratios for each of the three years3) You must assign qualitative assessments of Good, OK/Good, OK, OK/Poor, or Poor to the trends ineach of the firm’s financial ratios as well as to the degree to which the firm’s financial ratios compare toavailable industry ratios.4) In addition to the Excel requirements outlined above, you must answer the following set of analyticalquestions on the several areas of financial performance— liquidity, asset management, financing ofassets, profitability, and cash flow—and then pull all of your analysis together to give an overallevaluation of the firm. This assignment will serve as the Chapter 12 End of Chapter Test and the In TheNews writing assignment for Module 6. It will be due in Angel by 9:45 pm Tuesday June 4.1ACCOUNTING 202 evening editionModule 6 Case StudyIn answering these questions, do not forget to look at the firm’s common-size balance sheet and incomestatement items, including trends over 2010 – 12 and the relationship of 2012 common-size ratios toindustry data. Oftentimes, you will see patterns in the common-size ratios that reinforce and furtherexplain patterns in the financial ratios, and vice versa. Be sure your response includes what thatparticular ratio means and the impact it has on the overall financial health of PCM.By 9:45 pm June 4th you will upload to an Angel Dropbox your word processed responses as anattachment to the analysis questions that follow. This will serve as the Chapter 12 End of Chapter Testand the In The News writing assignment for Module 6. Class will not be held June 4.LIQUIDITY1. Look at the current ratio and the quick (acid-test) ratio of PCM. What trends do you notice over 2010 12, and what does this suggest about PCM’s liquidity? How does PCM’s liquidity in 2012 compare withthe industry average?2. Now study the accounts receivables turnover, average collection period, inventory turnover, andaverage days of inventory for PCM. What do these patterns suggest about the firm’s conversion ofaccounts receivable and inventories to cash?3. Considering your answers to the two questions above, what is your overall assessment of PCM’sliquidity position? What two major factors account for your assessment?4. What is your assessment of the manner in which PCM is managing its assets? Pay attention to bothtrends and industry averages.SOLVENCY (Financing of Assets)5. What is your assessment of the manner in which PCM is financing its assets? Pay attention to bothtrends and industry averages. What is the relationship between the debt to equity ratio and timesinterest earned as these relate to PCM? And is there any other possible explanation (outside of the firm’sfinancial statements) for the observed trend in times interest earned?PROFITABILITY6. What can you say about PCM’s gross profit ratio and net profit ratio? Explain any patterns observed.7. How are PCM’s net profit ratio, and asset turnover ratio affecting the firm’s pre-tax return on assets(ROA) and return on equity (ROE)? What is your overall assessment of the firm’s profitability, including itsearnings per share (EPS)?CASH FLOW8. Referring to PCM’s statement of cash flow for 2011 and 2012, assess PCM’s cash flow situation notingboth inflows and outflows?2ACCOUNTING 202 evening editionModule 6 Case StudyOVERALL EVALUATION9. Based on your answers to the questions above, what is your overall evaluation of PCM’s financialcondition? (Pull all your analysis together in answering this question.)10. What is the market’s assessment of PCM’s financial condition? Explain. Does the market’sassessment confirm or refute your analysis?11. Based on your evaluation of PCM and the market’s assessment of the firm, would you acceptemployment with the company? Explain.By 9:45 pm June 4th you will upload to an Angel Dropbox your word processed responses as anattachment to the analysis questions that follow. You should limit your response to one well-constructedparagraph (another if absolutely necessary). This will serve as the Chapter 12 End of Chapter Test andthe In The News writing assignment for Module 6. Class will not be held June 4.Sample Format For SubmissionFIRST LINE BEGIN AT TOP MARGINYour NameACCT& 202DateSKIP ONE LINEPlush Carpet Mills Case StudySKIP ONE LINERequirement 1. Look at the current ratio and the quick (acid-test) ratio of PCM. What trends do you notice over 2010 – 12,and what does this suggest about PCM’s liquidity? How does PCM’s liquidity in 2012 compare with the industry average?SKIP ONE LINEIndent and begin your response. Double space text and indent each paragraph as you go.3