Bradford Drug, Inc. Case

Background of the Study

In recent years, the ethical drug industry has prospered. While numerous other industries faced financial difficulties from the last recession, most ethical drug companies have done well. The sales of most drug firms continued to grow steadily. However, despite such overall favorable results within the industry, Donald Bradford, president of Bradford Drug, Inc., has been anything but pleased with the financial picture of his organization. Although Bradford was relieved to see a recovery from the downturn in sales encountered by his firm a few years ago he remains very concerned about the profitability being generated from these sales.

The firm has maintained a profitable status, but one of Bradford’s primary questions relates to the adequacy of profits. On several occasions he has confronted his vice president Mike Todd, with such concerns. Todd notes that the firm’s operating profits have increased a staggering 141% within the last four years. Thus, Todd is convinced that the company’s financial condition has improved in an impressive fashion. As additional supporting data for his conviction of the company’s overall prosperity, Todd cites the fact that Bradford’s cost of production has consistently been less than half of product sales.

In spite of Todd’s conclusion that the firm is doing well, Bradford continues to desire more specific financial information relating to the strengths and weaknesses of Bradford Drug. In this regard, he has acquired the financial data for Bradford’s principal competitor, M. J. Ellis, Inc. Bradford Drug has for some time felt competitive pressure from this organization. He believes that an in depth comparison of the two businesses would specifically demonstrate whether his dissatisfaction is justified. Although Bradford has not had the opportunity to do a complete investigation he has computed the return on assets for Ellis, Inc. and found it to be significantly higher than the equivalent figure for...