Case 2: Chem Med Company

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 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-Med’s current ratio was a higher 2.90 compared to 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. 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/ ($...