Chem-Med Case 2

Chem - Med Company Case # 02: Question # 1: Rate of Sales growth for the year 2006 is 25% where as the sales growth projected for the year 2007, 2008 and 2009 is 40%. Question # 02: Income growth in the year 2006 was 50.13%. The forecasted income growth in 2007 is 39.91%, 2008 is 20.76% and 2009 is 49.41%. The income is growing at the same rate as that of sales, in 2008 the income is growing at slower rate than sales, whereas the income in 2009 is growing at faster rate than the sales in 2009. In 2007 income statement is an extraordinary expense so this should be treated below the line and should not be deducted from the income from continuing operation. Question # 03: Year 2006 Current Ratio Chem-Med 2.90 Pharmacia Current Ratio 2.80 Industry Average 2.70 Chem-Med's current ratio is higher than that of Pharmacia in 2006. Company's current ratio is still higher than the industry average and the company's current ratio. In 2009 the company current ratio is still positive but it's lower than the 2.25 to be adequately safe. So the company's current ratio in 2009 is 1.98. Question # 04: Year 2006 2007 2008 2009 Debt 614 857 1,212 1,664 Asset 4,491 6,343 8,641 11,995 Debt to Asset Ratio Chem-Med 0.14 0.14 0.14 0.14 The debt to asset ratio is constant for the company throughout the four years. Industry average is 0.40 so the Chem-Med's company has lower debt to asset ratio form the industry. Question # 05: Year 2006 2007 2008 2009 Account Receivable 564 907 1,495 2,351 Collection period (Days) +54 +62 +73 +82 Average Collection Period 67.74 The average collection period is 67.74 days and the collection period of the company is getting longer. The company is getting lax with their clients, more clients they obtain the more time aloud. Question # 06: Year 2006 ROE 3,877 ROE of Chem-Med 29.66% ROE of Pharmacia 29.56% ROE industry Average 23.84% Du Pont Method for ROE Company Chem-Med Pharmacia Profit Margin 30%- 7% Du Pont ROE 47.79% 29.56% The ROE of the Chem-Med is higher than the Pharmacia in Du Pont method.