Acme Food Company: Target Companies Financial Health Analysis

This report provides a financial analysis of three coffee companies being considered for acquisition by Acme Food Company. The analysis focuses on the financial statements of the companies over the past two years. Key financial ratios, including the current ratio (liquidity), profitability ratios, and the debt-to-equity ratio (solvency), are calculated and compared across the three companies. The report identifies Krunchy Krust as the best option for purchase, based on its strong liquidity position, improved profitability, and relatively low debt levels compared to the other companies. The analysis includes a review of the income statements and relevant financial metrics, providing insights into the financial health and performance of each company, ultimately leading to a recommendation for the board of directors regarding the potential acquisition.

Running head: MAKE YOUR RECOMMENDATION
Make your recommendation
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1MAKE YOUR RECOMMENDATION
Memorandum
To: Board of directors, Acme Food Company
From: Jenny Heward, Senior Executive
Subject: Opinion for target companies financial health
I am writing this memo to express my opinion regarding the financial health of 3 companies
those are being considered for takeover. All the target companies are engaged in coffee
business and their financial statement for last 2 years have been analysed for the purpose of
choosing the best option for purchase.
Analysing the financial statement of 3 entities it can be identified that liquidity position
measured through current ratio is best for Krunchy Krust and moreover it has been improved
over the years. It is signifying that the Krunchy Krust is in best position meet its short term
liquidity with the available cash and other current assets. Moving towards the profitability
ratio it can be identified that Krinchy Krust is most efficient in converting its sales revenue
into net earnings after meeting all the operating and tax expenses. Further, its capability of
turning the revenue into earnings has been improved over the years. If the solvency position
of 3 companies are compared that is measured through debt equity ratio, it can be identified
that White Mountain is significantly dependent upon debt for its fund whereas the same for
other 2 companies through deteriorated over the years they are still not highly dependent on
outside debt for the capital. However, the debt portion for Astrobucks is lowest among all
that signifies that its solvency position best among 3 followed by Krunchy Krust.
Hence, considering the overall performances of all the companies it is suggested that
Krunchy Ksust is best option to be purchased among the three.
Hope the above findings will provide clear indication and will enable to take best possible
decision regarding purchase of any one company among the three.
Sincerely,
Jenny Heward, Senior Executive
Acme Food Company

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Bibliography
Boyas, E. and Teeter, R., 2017. Teaching Financial Ratio Analysis using XBRL.
In Developments in Business Simulation and Experiential Learning: Proceedings of the
Annual ABSEL conference (Vol. 44, No. 1).
Robinson, T.R., Henry, E., Pirie, W.L. and Broihahn, M.A., 2015. International financial
statement analysis. John Wiley & Sons.
Williams, E.E. and Dobelman, J.A., 2017. Financial statement analysis. World Scientific
Book Chapters, pp.109-169.

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Appendix