Case Study #3 Essay

814 Words4 Pages
1. The liquidity of Plastichem and DCM Molding is determined through the current ratio and quick ratio. The current ratio for both companies has been falling, but DCM Molding current ratio is higher. In 2001, DCM Molding quick ratio is higher than Plastichem. This shows that DCM Molding short term liquidity situation is better. Both companies current ratio is above 1, which shows more current assets as compared to current liabilities, the ratio is falling and the liquidity is decreasing, but DCM Molding is still doing better. The leverage ratio is also known as the debt-to-equity ratio. Plastichem total debt ratio is increasing, which means in year 2001 they are using more debt than equity. This shows that their earnings are great…show more content…
DCM Molding costs of goods are increasing but, it is still not as high as Plastichem. But, DCM Molding is able to control its costs better than Plastichem. DCM Molding also has a higher gross margin than Plastichem. The decline in the gross margin has led to a decrease in selling expenses for Plastichem, but DCM Molding is able to spend more on selling expenses, since they have a higher gross margin. Plastichem reduced expenses led to a reduced sales growth. Plastichem interest expense is higher than DCM Molding because they have more debt. Overall, Plastichem has a lower profit margin than DCM Molding. 3. A Dupont analysis can be performed by using the ROE components, which are net profit margin, asset turnover, and equity multiplier. It can also help locate a certain part of the business that is underperforming if the ROE is unsatisfactory. There is a reduction in ROE for Plastichem, because of the reduction in net profit margin. When Plastichem incrased the use of debt, the equity multiplier got higher, but the low profit margin made sure that ROE stayed on track. DCM Molding’s ROE and the ROE components have remained constant. 4. Some of the limitations are the seasonal factors, the different accounting methods, and also the analysis is unbalance because inflation which makes it very hard to compare over time. Jay and Jack need include a statement of cash flows to help with the analysis. 5. In summary, Plastichem isn’t doing as well as DCM Molding

More about Case Study #3 Essay

Get Access