Domain: Finance
Question:
We are looking at acquiring a company in 2025 that will support our main revenue product line at Leggett & Platt. We are also looking to divest from one of our divisions in 2025. This information is to be included in our upcoming earnings report. Consider the following assumptions:

M&A Target - 12/31/2024
*$400M revenue
*$75M net income
*$90M EBIT
*$50M current assets
*$20M current liabilities
*$70M total assets
*$30M total liabilities
*$40M total equity

Divested Division - 12/31/2024
*$75M revenue
*$10M net income
*$15M EBIT
*$7M current assets
*$10M current liabilities
*$30M total assets
*$20M total liabilities
*$10M total equity

For the following three questions, round the answer to the nearest one decimal place and express all financials in millions of dollars ($xM):

1. Provide the following ratios as of 12/31/2024: Current Ratio, Cash Ratio, Debt to Equity Ratio, and Debt to Asset Ratio. What general financial strength insights can be drawn from these ratios in terms of solvency, liquidity, and efficiency?

2. Provide the same financial ratios as above as of 12/31/2024 in the scenario that we acquire the target company and divest the division.

3. Provide pro forma 2025 revenue and net income under the following assumptions: 
5% revenue decrease in the core business from 2024
10% revenue increase in the acquired business from 2024
3% net income increase in acquired business from 2024
$100M base net income in the core business in 2025 
$60M total transaction expenses for the acquisition and divestiture
$10M one time revenue gain from divestiture

4. In 2025 pro forma, what percentage of total revenue is derived from the acquired business?

5. Compare 2024 actual revenue and net income to pro forma 2025 revenue and net income and calculate the absolute change in dollar value and percentage change between 2024 and pro forma 2025 for revenue and net income. Calculate net income margin in 2024 and pro forma 2025.

Expected points in a correct answer:
Calculates the Current Ratio as of 12/31/2024 to be 2.0.
States the takeaway that the Company is in a strong liquidity position where it can successful pay off its short term obligations.
Calculates the Cash Ratio as of 12/31/2024 to be 0.4.
States the takeaway that the Company is in a weaker liquidity position when looking at using its liquid assets to meet short term obligations.
Calculates the Debt to Equity Ratio as of 12/31/2024 to be 4.3.
States the takeaway that the Company has significantly more debt than equity and could potentially be a sign for solvency issues.
Calculates the Debt to Asset Ratio as of 12/31/2024 to be 0.8.
States the takeaway that the Company has more assets on its books than total debt and is in good financial health with relation to solvency.
Calculates pro forma current assets to be $1,733.5M.
Calculates pro forma current liabilities to be $856.4M.
Calculates pro forma total assets to be $3,701.6M.
Calculates pro forma total liabilities to be $2,981.4M.
Calculates pro forma total equity to be $720.2M.
Calculates the post-acquisition and post-divestiture Current Ratio to be 2.0.
Calculates the post-acquisition and post-divestiture Cash Ratio to be 0.4.
Calculates the post-acquisition and post-divestiture Debt to Equity Ratio to be 4.1.
Calculates the post-acquisition and post-divestiture Debt to Asset Ratio to be 0.8.
Extracts 2024 core business revenue of $4,383.6M
Calculates pro forma 2025 core business revenue to be $4,093.2M
Calculates pro forma 2025 acquired business revenue to be $440.0M
Calculates pro forma 2025 revenue to be $4,543.2M
Calculates pro forma 2025 acquired net income to be $77.3M
Calculates pro forma net income to be $117.3M
Calculates absolute dollar change of revenue between 2024 and 2025 pro forma to be $159.6M
Calculates percentage change of revenue between 2024 and pro forma 2025 to be 3.6%
Calculates absolute dollar change of net income between 2024 and 2025 pro forma to be $628.8M
Extracts 2024 net income of ($511.5M)
Calculates percentage change of net income between 2024 and pro forma 2025 to be 122.9%
Calculates 2024 net income margin to be (11.7%)
Calculates 2025 pro forma net income margin to be 2.6%
Calculates acquired business 2025 pro forma revenue to be 9.7% of total 2025 pro forma revenue