Case 2: Chem Med Company

1)
2010
Sales Growth = ($3, 814000 3,051000)/ 3, 05100 = 25%
2011
($5,340,000 - 3,814,000)/ 3,814,000 = 40%
2012
($7,475,000 5,340,000)/ 5,340,000 = 40%
2013
($10,466,000 7,475,000)/ 7,475,000 = 40%
2)
2007
Net income growth = (Net income this year - Net income last year) / Net Income last year
= ($1,150,000 766,000)/ 766,000 = 50%
2008
($1,609,000 1,150,000)/ 1,150,000 = 40%
2009
($1,943,000 1,609,000)/ 1,609,000 = 21%
2010
($2,903,000 1,943,000)/ 1,943,000 = 49%
The projected net income is growing slower than projected sales in 2009. In 2007, 2008, and
2010 the projected net income is growing faster than projected sales. An adjustment should be

made since the income in 2007 was higher due to extraordinary gains that is non-recurring. The
net income for 2007 should be reduced using the after tax amount.
3.
2007
Chem-Med's current ratio = Current assets / Current liabilities = $1,720 / $ 593= 2.90
2010
$3,261/ $ 1,647= 1.98
Chem-Meds current ratio was a higher 2.90 compared to Pharmacias current ratio of 2.8. The
industry average was 2.4. The 2007 current ratio for Chem-Med was higher compared to the 1.98
value in 2010. This value does not meet the ratio required to maintain for the loan agreement.
4.
2007
Chem-Med's total debt to assets ratio = Total liabilities / Total assets
=$ 614,000 4,491,000 = 0.14
2008
$857,000 6,343,000 = 0.1398
2009
$1,212,000 8,641,000 = 0.14
2010
$1,664,000 11,995,000 = 0.139
The trend evident during the four-year period is that the ratio almost remained the same year
after year implying that the debt is being maintained efficiently. Chem Med has a lower amount

of debt than the average company in the industry.

5.
2007
Chem-Med's Average accounts receivable collection period = Accounts receivable/Sales per day
= $ 564 / ($ 3,814/365) = 54 days
2008
$ 907/ ($ 5,340/365) = 62 days
2009
$ 1,495/ ($...

Case 2: Chem Med Company

1)

2007
Sales Growth = ($3, 814000 3,051000)/ 3, 05100 = 25%
2008
($5,340,000 - 3,814,000)/ 3,814,000 = 40%
2009
($7,475,000 5,340,000)/ 5,340,000 = 40%
2010
($10,466,000 7,475,000)/ 7,475,000 = 40%

2)

2007
Net income growth = (Net income this year - Net income last year) / Net Income last
year
= ($1,150,000 766,000)/ 766,000 = 50%
2008
($1,609,000 1,150,000)/ 1,150,000 = 40%
2009
($1,943,000 1,609,000)/ 1,609,000 = 21%
2010
($2,903,000 1,943,000)/ 1,943,000 = 49%

The projected net income is growing slower than projected sales in 2009. In 2007,
2008, and
2010 the projected net income is growing faster than projected sales. An
adjustment should be
made since the income in 2007 was higher due to extraordinary gains that is nonrecurring. The
net income for 2007 should be reduced using the after tax amount.

3.
2007
Chem-Med's current ratio = Current assets / Current liabilities = $1,720 / $ 593=
2.90
2010
$3,261/ $ 1,647= 1.98
Chem-Meds current ratio was a higher 2.90 compared to Pharmacias current ratio
of 2.8. The
industry average was 2.4. The 2007 current ratio for Chem-Med was higher
compared to the 1.98

value in 2010. This value does not meet the ratio required to maintain for the loan
agreement.

4.
2007
Chem-Med's total debt to assets ratio = Total liabilities / Total assets
=$ 614,000 4,491,000 = 0.14
2008
$857,000 6,343,000 = 0.1398
2009
$1,212,000 8,641,000 = 0.14
2010
$1,664,000 11,995,000 = 0.139

The trend evident during the four-year period is that the ratio almost remained the
same year
after year implying that the debt is being maintained efficiently. Chem Med has a
lower amount
of debt than the average company in the industry.

5.
2007
Chem-Med's Average accounts receivable collection period = Accounts
receivable/Sales per day
= $ 564 / ($ 3,814/365) = 54 days
2008
$ 907/ ($ 5,340/365) = 62 days
2009

$ 1,495/ ($ 7,475/365) = 73 days

2010
$ 2,351/ ($ 10,466/365) = 82 days
The collection period has been getting longer, which would require more
investments to be made towards working capital.

6.

2007 Chem-Med's return on equity ratio = Net income / Total equity

= $1,150 / $3,877 = 29.7%
Du-Pont Analysis
ROE = Profit margin * Asset turnover/ (1- Debt to assets) = 0.30 * 0.85/ 1- 0.14 =
29.65%

In 2007 the industry average was 12.29% and Pharmacia is 29.56%. Clearly, ChemMed is
generating a higher return on equity with 29.7%.