Case

Case #3 Playing the Numbers Game

Problem Statement:

Plastichem Inc. needs to concern of potential financers and investors regarding liquidity, Net Income, and Profitability ratios in the company. Plastichem’s stock price over the first time is slowly rising, but in recently began to drop dramatically, leading to the concerns of the analyst. Also, Plastichem Inc. has the strong competitor is DCM Molding. Andrew wants find what’s problems in the Plastichem Inc.. Also, Andrew needs to see the liquidity, net income, and profitability ratios from the both companies. Then, Andrew try to fix these problems in the future.

Analysis:

For the liquidity, the higher the ratios means the better of the company’s financial condition, and more liquidity. The quick ratio is more deeply to evaluate the short-run solvency than current ratio. In general, company has higher the quick ratio; the company’s liquidity position will be better. Furthermore, company’s has higher the current ratio; that means company has more capable to pay their obligations. In the Table 1, Plastichem’s current ratio is lower than DCM. And Plastichem’s quick ratio is also lower than DCM. The results show DCM’s liquidity and capable are better than Plastichem Inc..

Table 1 |

| Plastichem Inc. | DCM |

Current Ratio | 1.30 | 1.63 |

Quick Ratio | 0.86 | 0.99 |

Cash Ratio | 0.05 | 0.01 |

Total Debt Ratio | 1.05 | 0.54 |

Plastichem Inc. is competitive with DCM in terms of Currenct Ration and Return on Equity in Table 2. For the Inventory Turnover, Plastichem Inc. is fast than DCM. However, Plastichem’s net profit margin is lower than DCM. In addition, Plastichem’s Return on Equity is not meaningful because this company’s net income is the -71.7. The DCM’s Return on Equity is 17.71%. DCM’s Return on Equity is higher than the Plastichem.

Table 2 |

| Plastichem Inc. (Values in millions) | DCM(Values in millions) |

Current Ratio | 1.30 | 1.63 |

Inventory Turnover | 8.11 | 6.40 |...