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Chem-Med Executive Summary

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Founded since 1997 by Dr. Nathan Swan, Chem-Med was the second largest manufacture of FDA-approved sodium hyaluronate (HA), behind Pharmacia, Inc. April 9, 2008, Dr. Swan started to worry about his company’s financial situation and he was thinking about getting more investors or going to the bank for financing. For him, “Chem-Med was growing and making money, but it never seemed to have enough cash”. For any investors who are interested in the company, it is important to analyze many vital aspects of profitability, future growth, risks, and comparison before adding Chem-Med to his portfolio. The first aspect to look at is Chem-Med’s rate of sales growth in 2007. Through analyzing Chem-Med’s income statements from 2005-2007, it is indicated …show more content…

Chem-Med’s current ratio 2.9 to 1 indicates the liquidity of the company. Comparing it to Pharmacia’s 2.8 to 1 and the industry’s 2.4 to 1 average current ratio, Chem-Med seems to have enough cash on hand for operation. However, in Chem-Med 2010 pro forma balance sheet, the current ratio is forecasted to decrease down to 1.98 to 1. This could be a serious problem if Chem-Med seek financing from the bank since one of the three covenants is that current ratio has to be maintained above 2.25 to 1. Failing to meet the bank’s covenant can result in losing the loan and more seriously, bankruptcy. That means Chem-Med need to reconsider it pro forma statements if it wants to go into financing with the bank. Another one of the three covenants is to maintain the total debt-to-assets ratio to be less than 0.3 to 1. Chem-Med’s financial statements show that its total debt-to-assets ratio are managed sustainably at 0.14 for all four years from 2007 to 2010. This ratio is much lower than the industry average total debt-to-assets ratio of 0.52 to 1. The stable 0.14 total debt-to-assets ratio definitely shows Chem-Med’s solvency

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