Case 2 Chem Med Company

Case 2 Chem-Med Company 1. Net Sales Growth (all credit)=[(Current Year Net Sales-Last Year Net Sales)/Last Year Net Sales]X100 a. Sales Growth 2007=[(3814-3051)/3051]X100= 25% b. Using the same formula for the remaining years and the data in figure 1 of the pro forma section: 2008=40% c. 2009=40% d. 2010=40% 2. Net Income Growth=[(Current Year Net Income-Last Year Net Income)/Last Year Net Income]X100 e. Net income Growth 2007=[(1150-766)/766]X100=50% f. Using the same formula for the remaining years and the data in figure 1 of the pro forma section: 2008=40% g. 2009=21% h. 2010=49% i. For 2007 and 2010, the net income growth is faster. 2008 is the same. 2009 is slower. As an entrepreneurial business person, I don’t like to use future earnings in my calculation. It makes sense for big business and corporation for shareholders. Dr. Swan is expecting the$500,000 from Pharmacia. To make his books more simple and accurate, he should not reflect that in his income statements and his pro forma projections. 3. Using the current ratio formula #9 on page 62 of the text: 2007 Current Ratio=Current Assets/Current Liabilites i. Chem Med’s Current Ration=1720/593=2.9 j. Pharmacia is given as 2.8 k. Industry average given as 2.4 l. Chem Med’s predicted 2010 Current Ration=1.98 m. The problem overlooked: Dr. Swan’s banker required a current ratio of 2.25/1 to be MAINTAINED. 4. Using the debt to total assets ratio on pg 63 of the text (Total liabilities is the same as total debts in Figure 2): 2007 Debt to total assets ratio=Total Debt/Total Assets n. 2007 Debt to total assets ratio=614/4491=.14 o. Using same formula 2008 Debt to total assets ratio=.14 p. 2009 Debt to total assets ratio =.14 q. 2010 Debt to total assets ratio =.14 r. Depending on how many decimal places you want to go out, but for all intents and purposes, their

References: Block, S., Hirt, A., Danielsen, B. (2011).  Foundations of Financial Management.  McGraw-Hill Irwin, New York NY.