5. What is Chem-Med's average accounts receivable collection period for 2015, 2016, 2017, 2018? Is the period getting longer or shorter? What are the consequences? 6. How does Chem-Med's return-on-equity ratio (ROE) compare to Pharmacia's and the industry for 2015? 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/(1-Debt to assets) = Compare the results to determine the sources of ROE for each company. CHEM-MED COMPANY Case 2 Income Statements 2013-2015 (in 000) Pro Forma Income Statements 2013 2014 2015 Net sales (all credit) $ $3,051 $3,814 2016 2017 $5,340 $7,475 $10,466 2018 777 Cost of goods sold 995 1040 1716 2.154 3.054 257 Gross profit. 320 2,056 2,774 3,624 5,321 7,412 Selling, etc, expenses. 610 705 964 1,520 2,120 2,645 Other inc (exps) 500 0 Operating profit (90) 1,351 1,810 2.604 3,201 4,767 Interest expense IT 7594 302 434 Income before tax. (101) 1,276 1,716 2,402 2,899 4,333 Income taxes (40% in 1986; 33% thereafter) Q Net income. 101 (S) 510 566 $.766 $1.150 793 957 1,430 $1.609 $1.943 5.2.903 Dividends paid. 0 0 Increase in retained eamings ($) $766 $1,150 $1,609 $1,943 $2,903 101 Average number of shares 2,326 Earnings per share. ($) 2326 2,347 5.0.33 $0.49 2,347 2347 $0.69 $0.83 5 1.24 2347 0.04 Other Inc (Exps) refers to extraordinary gains and losses. In 2016, $500,000 is expected from Pharmacia, Inc., is settlement of their suit Shares are not publicly traded Figure 2 CHEM-MED COMPANY Balance Sheets Pro Forma Halance Sheets 1 As of Dec. 31, years ended: As of Dec. 31, years ended: 2013 2014 2015 2016 2017 2018 Amets Cash and equivalents 5124 5103 $367 Accounts receivable. 100 409 Inveniones Ober current Total current assets. 151 302 25 159 Property, plant, and equipment. Les accumulated depreciation. 403 873 1,901 2,298 1 12 346 Property, plant, and equipment, net 1,320 2216 2,571 *** 785 $305 5 422 $ 10 564 907 1,495 2.351 960 1,102 1,443 798 29 42 57 11 1720 2,255 3,417 3,261 2917 4301 5.531 1923 413 3,388 5,009 522 588 8,335 Other fixed assets Total assets Case 2 200 $1.190 SAARL 36.343 215 399 58.641 $11.995 Liabilitie Accounts payable 210 $4055 551 5 771 $1,000 $1,512 Short-term debt 35 19 42 59 12 135 Total current liabilities 245 444 593 130 1,162 1,647 Long-term debt 17 19 21 27 17 Total liabilities 262 463 614 157 1,212 1,664 Equity Common stock 2,062 2062 2,062 2.062 2,062 2062 Retained earnings )-665 1815 3,424 5.366 269 Total equity 1,961 2727 3877 5,416 7,428 10.331 Total liabilities and equity. $2.22 53190 SAARL $ 6343 $8.541 $11.995 Dr. Swan had lunch with his banker just recently, and the banker mentioned several restrictive covenants that the company would have to meet if it came to Biotechnology Industry Statistics Median Company in SIC 2831 Biological Products 2013 2014 2015 Current ratio. 2.5 2.3 2,4 Quick ratio.. 1.2 1.1 13 Inventory turnover. 5.5 5.6 5.7 Total asset turnover. 1.15 1.16 1.18 Return on sales 4.00% 4.00% 5.00% Return on assets 4.60% 4.645 5.90% Return on equity. 7.64% 8.44% 12.29% Total debt to assets. 0.40 0.45 0.52 Selected Statistics Pharmacia Company 2013 2014 2015 Current ratio 2.8 2.7 2.8 Quick ratio.. 1.5 1.3 1.6 Inventory turnover.. 5.6 5.7 5.8 Total asset turnover. 1.9 2 1.9 Return on sales. 6.00% 6.50% 7.00% Return on assets 11.40% 13.00% 13.30% Return on equity. 19.04% 27.66% 29.56% Total debt to assets. 0.40 0.53 0.55 Price-earnings ration 13.7 14. 15 Average stock price. $21.78 $24.92 $31.50 *Source: Dun's Industry Ratios. The data have been adjusted for this case.