Venture Auto Parts is a chain of 40 stores offering a full line of auto parts an
ID: 2473449 • Letter: V
Question
Venture Auto Parts is a chain of 40 stores offering a full line of auto parts and supplies to consumers and independent auto repair shops. Danny's Brake and Muffler has over 90 stores in the cities serviced by Venture. Recently, Danny Morton, the founder of Danny's Brake and Muffler, was approached by Venture with an interesting offer. Venture wants to be the sole supplier of mufflers and brake parts to Danny's. In exchange. Venture will invest in technology to monitor Danny's inventory levels and make timely deliveries to all locations. Venture asserts that the deal will lead to lower part prices and greater inventory turnover for Danny's. Prior to the final phase of negotiation, Danny's chief accountant, Sarah Wilson, was assigned the task of analyzing the confidential audited financial statements of Venture. As part of her work, Sarah calculated the following ratios and obtained Venture's statement of cash flow for fiscal 2015. Based on this limited information, would you recommend that Danny pursue the deal with Venture?Explanation / Answer
Answer:
The obligation under the deal for danny would be to purchase the mufflers and brake parts only from ventures.
With the given information the point of consideration for danny's would be to know whether venture can meet the needs of parts all the time. So for this to happen the venture should have a strong financial and operating strength, so that it can be established that it has a foreseeble future.
From all the operating ratio given (Current, quick and turnover of inventory) it appers that it has a healthy opearting strength. Its financial strength is also to goods considering the debt equity ratio and times interest earned ratio.
It also has a strong opeating cashflow with intention to invest in future growth.
So with the basis of above analysis it is recommended to pursue the deal.
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