CHEM$-$MED COMPANY

Income Statements

$20132015($in $000$s$)$ Pro Forma Income Statements

$201320142015201620172018$

Net sales $($all credit$)$ $ $777$ $$3,051$ $$3,814$ $$5,340$ $$7,475$ $$10,466$

Cost of goods sold $2579951,0401,7162,1543,054$

Gross profit $5202,0562,7743,6245,3217,412$

Selling, etc., expenses $6107059641,5202,1202,645$

Other inc $($exps$)*00050000$

Operating profit $(90)1,3511,8102,6043,2014,767$

Interest expense $117594202302434$

Income before tax $(101)1,2761,7162,4022,8994,333$

$$Income taxes $(40\%$ in $1986$; $33\%$ thereafter$)05105667939571,430$

Net income $($$ $101)$ $ $766$ $$1,150$ $$1,609$ $$1,943$ $ $2,903$

Dividends paid $000000$

Increase in retained earnings $($$$101)$ $ $766$ $$1,150$ $$1,609$ $$1,943$ $ $2,903$

Average number of shares$**2,3262,3262,3472,3472,3472,347$

Earnings per share $($$$0\mathrm{.}04)$ $$0\mathrm{.}33$ $$0\mathrm{.}49$ $$0\mathrm{.}69$ $$0\mathrm{.}83$ $ $1\mathrm{.}24$

$*$ Other Inc $($Exps$)$ refers to extraordinary gains and losses. In $2016,$ $$500,000$ is expected from Pharmacia, Inc., in settlement of their suit.

$**$ Shares are not publicly traded.CHEM$-$MED COMPANY

Balance Sheets

Pro Forma Balance Sheets

As of Dec. $31,$ years ended: As of Dec. $31,$ years ended:

$2013$

$20142015201620172018$

Assets:

Cash and equivalents $$124$ $$103$ $$167$ $ $205$ $ $422$ $ $101$

Accounts receivable $1004095649071,4952,351$

Inventories $1513029601,1021,443798$

Other current $285929415711$

$$Total current assets $4038731,7202,2553,4173,261$

Property, plant, and equipment $1,9012,2982,9174,3015,5318,923$

$$Less: accumulated depreciation $8182346413522588$

$$Property$,$ plant, and equipment, net $1,8202,2162,5713,8885,0098,335$

Other fixed assets $0101200200215399$

Total assets $$2,223$ $$3,190$ $$4,491$ $$6,343$ $$8,641$ $$11,995$

Liabilities:

Accounts payable $210$ $$405$ $ $551$ $ $771$ $$1,080$ $ $1,512$

Short$-$term debt $3539425982135$

$$Total current liabilities $2454445938301,1621,647$

Long$-$term debt $171921275017$

$$Total liabilities $2624636148571,2121,664$

Equity:

Common stock $2,0622,0622,0622,0622,0622,062$

Retained earnings $(101)6651,8153,4245,3668,269$

$$Total equity $1,9612,7273,8775,4867,42810,331$

Total liabilities and equity $$2,223$ $$3,190$ $$4,491$ $ $6,343$ $$8,641$ $$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 the bank for financing. Dr$.$ Swan pulled a sheet of paper from his desk drawer and glanced at it$.$ There were three covenants listed:

$$ The current ratio must be maintained above $2\mathrm{.}25$ to $1.$

$$ The debt$-$to$-$assets ratio must be less than $\mathrm{.}3$ to $1.$

$$ Dividends cannot be paid unless earnings are positive.

Dr$.$ Swan didn$$t think he would have any trouble with those, but he wasn$$t sure. Then he suddenly remembered he was supposed to meet a representative from one of the local supermarket chains $($who supplied Chem$-$Med with rooster combs$)$ in five minutes. He hurriedly put his papers away and wished he had more time toBiotechnology Industry Statistics

Median Company in SIC $2831$

Biological Products$*$

$201320142015$

Current ratio $2\mathrm{.}52\mathrm{.}32\mathrm{.}4$

Quick ratio $1\mathrm{.}21\mathrm{.}11\mathrm{.}3$

Inventory turnover $5\mathrm{.}55\mathrm{.}65\mathrm{.}7$

Total asset turnover $1\mathrm{.}151\mathrm{.}161\mathrm{.}18$

Return on sales $4\mathrm{.}00\%4\mathrm{.}00\%5\mathrm{.}00\%$

Return on assets $4\mathrm{.}60\%4\mathrm{.}64$$