# Chem Med Case

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Chem Med Case 1 Chem-Med Company 1. What was Chem-Med 's rate of sales growth in 2003? What is it forecasted to be in 2004, 2005, and 2006? Sales Growth = (Sales this year - Sales last year)/Sales last year for 2003: (\$ 3,814 - \$3,051) / \$3,051 = + 25% for 2004: (\$ 5,340 - \$3,814) / \$3,814 = + 40% for 2005: (\$ 7,475 - \$5,340) / \$5,340 = + 40% for 2006: (\$ 10,466 - \$7,475) / \$7,475 = + 40% 2. What is the company 's rate of net income growth in 2004,2005, and 2006? Is projected net income growing faster or slower than projected sales? After computing these values, take a hard look at the 2004 income statement data to see if you want to make any adjustments. Net income growth = (Net income this year - Net income last year) / Net…show more content…
The consequences of increasing credit period are more cash required to be invested in working capital and also losses due to increased bad debts. 6. How does Chem-Med 's retum -on- equity ratio (ROE) compare to Pharmacia 's and the industry for 2003? Using the Du Pont method, compare the positions of Chem-Med and Pharmacia. Compute ROE for each company using the following formula: ROE = Profit margin x Asset turnover /(l-Debt to assets) Compare the results to determine the sources of ROE for each company. Chem-Med 's return on equity ratio = Net income / Total equity for 2003 = \$1,150 / \$3,877 = 29.7% Pharmacia 's ROE in 2003 was 29.56% and the industry average was only 12.29%. From the industry average view point, Chem-med is generating much better return on its equity. Du-Pont Analysis ROE = Profit Margin times: Asset Turnover divided by: (1 - Debt to Assets) Chem-Med, 2003 .2985 .3033 * 0.85 / (1 - .137) Pharmacia .2956 .07 * 1.9 / (1 - .55) Note the drastic difference in the operation of the two companies, even though their ROEs are nearly the same. Chem-Med makes relatively few sales (low asset turnover), but makes a lot of money on each one (30%). Pharmacia is just the opposite - its profit margin is low, but it manages much higher sales in relation to assets. Also by using more debt than