Chem Med Case 2

1. Rate of sales growth is equal to the “net sales this year” – “net sales last year” / “net sales last year”. Chem-Med’s rate of sales growth in 2007 was (3,814,000 – 3,051,000)/ 3,051,000 = 25%. In 2008 Chem-Med’s rate of sales growth was (5,340,000 - 3,814,000)/ 3,814,000 = 40%. Chem-Med’s rate of sales growth in 2009 was (7,475,000 – 5,340,000)/ 5,340,000 = 40%. Forecasted in 2010 the rate of sales growth was (10,466,000 – 7,475,000)/ 7,475,000 = 40%.

2. Net income growth is equal to the “net income this year” – “net income last year” / “net income last year”. Chem-Med’s net income growth in 2007 was (1,150,000 – 766,000)/ 766,000 = 50%, in 2008 growth was (1,609,000 – 1,150,000)/ 1,150,000 = 40%, in 2009 (1,943,000 – 1,609,000)/ 1,609,000 = 21%. And in 2010 the net income growth was ($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 exceptional gains that are not recurring. The net income for 2007 should be reduced using the after tax amount.

3.

Chem–Med’s current ratio for 2007, Chem-Med's current ratio = Current assets / Current liabilities = 1,720 / 593= 2.90.

Chem-Med’s current ratio for 2010 = 3,261/ 1,647= 1.98

Chem-Med’s current ratio was 2.9 and higher than Pharmacia’s 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. In fact, his value does not meet the ratio required to maintain the company loan agreement.

4.

Chem-Med’s total debt to assets ratio for 2007 = Total liabilities / Total assets = 614,000 – 4,491,000 = 0.14. Chem-Med’s total debt to assets ratio for 2008 = 857,000 – 6,343,000 = 0.1398

Chem-Med’s total debt to assets ratio for 2009 = 1,212,000 – 8,641,000 = 0.14. Chem-Med’s total debt to assets ratio for 2010...