Chem-Med Company

CHEM-MED COMPANY
Income Statements
	20XU20XW (in thousands)	Pro Forma Income Statements
20XU	20XV	20XW	20XX	20XY	20XZ
Net sales (all credit)............................	$ 777	$3,051	$3,814	$5,340	$7,475	$10,366
Cost of goods sold..............................	257	995	1,040	1,716	2,154	2,954
Gross profit........................................	520	2,056	2,774	3,624	5,321	7,412
Selling, etc., expenses.........................	610	705	964	1,520	2,120	2,645
Other income (expenses)*...................	0	0	0	500	0	0
Operating profit...................................	(90)	1,351	1,810	2,604	3,201	4,767
Interest expense....................................	11	75	94	202	302	434
Income before tax................................	(101)	1,276	1,716	2,402	2,899	4,333
Income taxes........................................
(40% in 20XV; 33% thereafter).......	0	510	566	793	957	1,430
Net income..........................................	($ 101)	$ 766	$1,150	$1,609	$1,942	$ 2,903
Dividends paid....................................	0	0	0	0	0	0
Increase in retained earnings.............	$ (101)	$ 766	$1,150	$1,609	$1,942	$ 2,903
Average number of shares**...............	2,326	2,326	2,347	2,347	2,347	2,347
Earnings per share..............................	($0.04)	$0.33	$0.49	$0.69	$0.83	$1.24
*Other income (expenses) refers to extraordinary gains and losses. In 20XX, $500,000 is expected from Pharmacia Inc., in settlement of the lawsuit. **Shares are not publicly traded.
Table 1

CHEM-MED COMPANY
Balance Sheets (in thousands)
		Pro Forma Balance Sheets as of Dec. 31, years ended:
20XU	20XV	20XW	20XX	20XY	20XZ
Assets
Cash and equivalent.....................................	$ 124	$ 103	$ 167	$ 205	$ 422	$ 101
Accounts receivable.....................................	100	409	564	907	1,495	2,351
Inventories.......................................................	151	302	960	1,102	1,443	798
Other current..................................................	28	59	29	41	57	11
Total current assets................................	403	873	1,720	2,255	3,417	3,261
Property, plant, & equipment......................	1,901	2,298	2,917	4,301	5,531	8,923
Less: Accumulated amortization.........	81	82	346	413	522	588
Property, plant, & equipment net..............	1,820	2,216	2,571	3,888	5,009	8,335
Other capital assets......................................	0	101	200	200	215	399
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.............................................	35	39	42	59	82	135
Total current liabilities.............................	245	444	593	830	1,162	1,647
Long-term debt..............................................	17	19	21	27	50	17
Total liabilities...........................................	262	463	614	857	1,212	1,664
Equity
Common stock..............................................	2,062	2,062	2,062	2,062	2,062	2,062
Retained earnings.........................................	(101)	665	1,815	3,424	5,366	8,269
Total equity................................................	1,961	2,727	3,877	5,486	7,428	10,331
Total liabilities and equity............................	$2,223	$3,190	$4,491	$6,343	$8,640	$11,995
Table 2

	Biotechnology Industry StatisticsMedian Company in Biological Products
20XU	20XV	20XW
Current ratio..................................	2.5	2.3	2.4
Quick ratio.....................................	1.2	1.1	1.3
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%	4.64%	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
20XU	20XV	20XW
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 ratio.........................	13.7	14	15
Average share price.......................	$21.78	$24.92	$31.50
Table 3

1. What is the companys rate of net income growth in 20XX, 20XY, and 20XZ? Is projected net income growing faster or slower than projected sales? After computing these values, take a hard look at the 20XX income statement data to see if you want to make any adjustments.
2. How does ChemMeds current ratio for 20XW compare to Pharmacias? How does it compare to the industry average? Compute ChemMeds current ratio for 20XZ. Is there any problem with it?