Problem $14\mathrm{.}6($LO$3)$ Analyzing Financial Ratios and Cash Flows 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 flows for fiscal $2021.$

Fiscal $2021$

Fiscal $2020$

Current ratio

$1\mathrm{.}65$

$1\mathrm{.}55$

Quick ratio

$0\mathrm{.}70$

$0\mathrm{.}90$

Inventory turnover

$4\mathrm{.}20$

$5\mathrm{.}63$

Debt to equity

$3\mathrm{.}00$

$2\mathrm{.}30$

Times interest earned

$1\mathrm{.}10$

$2\mathrm{.}42$

Venture Auto Parts

Statement of Cash Flows Year Ended December $31,2021$

Cash Provided from Operations

Net earnings

$ $9,000,000$

Reconciliation of net earnings to net cash provided by operations:

Depreciation and amortization

$900,000$

Increase in receivables

$(3,500,000)$

Increase in merchandise inventories

$(1,100,000)$

Increase in accounts payable

$700,000$

Increase in income taxes payable

$100,000$

Net cash provided by operations

$6,100,000$

Cash flows from investing activities

Purchase of Dundee Stores

$(5,000,000)$

Purchase of property

$(7,000,000)$

Net cash used in investing activities

$(12,000,000)$

Cash flows from financing activities

Proceeds from long$$term borrowings

$6,200,000$

Net cash provided by financing activities

$6,200,000$

Increase in cash and cash equivalents

$300,000$

Cash and cash equivalents at beginning of year

$250,000$

Cash and cash equivalents at end of year

$$550,000$

Required

Based on this limited information, would you recommend that Danny pursue the deal with Venture?