Performance of Chem-Co Coatings. Table 1 presents income statement and balance sheet data for Chem-Co Coatings, a producer of fertilizers used in agriculture, that recently bought a small manufacturing firm outside the United States. During 2013 the firm instituted a national marketing campaign to inform agricultural businesses

and individual farmers of Chem-Cos new products. Chief executive officer Wynona Presley was pleased with sales in 2013, noting the 30 percent increase over 2012 sales. However, with the economic recession and decline in U.S. and foreign agriculture and commodity prices, Presley is anticipating a sharp pull-back in business

1. Using the data in Table 1, generate a cash-based income statement for Chem-Co for 2013.

2. Calculate days accounts receivable, inventory turnover, and days accounts payable for 2012 and 2013 and determine whether the use (source) of cash in working capital was a result of sales growth, credit policy, inventory policy, or trade credit policy. Did these turnover ratios improve or deteriorate? What was the resulting impact on cash flow?

3. Interpret the figures by evaluating the firms CFO and key financial ratios.

4. Identify potential problems that the firm faces

TABLE 1 Balance Sheet and Income Statement Data for Chem-Co (Millions of Dollars) Balance Sheet Assets 2012 2013 Income Statement 2014 Cash and marketable securities Accounts receivable Merchandise inventory Prepaid expenses Gross fixed assets $30 102 65 Net sales Cost of goods sold Gross margin Selling expenses Gener Depreciation $861 680 181 64 60 26 31 215 104 120 149 al and administrative expenses Less accumulated depreciation Net fixed assets Intangible assets 40 57 92 Operating profit Interest income Total assets $289 425 Interest expense 18 Liabilitles and Wet Worth $106 Profit before taxes Income taxes Net profit Notes payable-bank Current maturities of long-term debt Accounts payable Accruals Federa income tax payable Long-term mortgage Long-term debt 19 50 14 16 43 S212 15 32 344 Total liabilities Common stock 37 Retained earnings Total net wortha 81 Total liabilities and equity $289 $425 Net worth reconciliation Beginning net worth = + Net profit Dividends paid (cash) Ending net worth 10 81 Note: Inventory was $45 million in 2011 TABLE 1 Balance Sheet and Income Statement Data for Chem-Co (Millions of Dollars) Balance Sheet Assets 2012 2013 Income Statement 2014 Cash and marketable securities Accounts receivable Merchandise inventory Prepaid expenses Gross fixed assets $30 102 65 Net sales Cost of goods sold Gross margin Selling expenses Gener Depreciation $861 680 181 64 60 26 31 215 104 120 149 al and administrative expenses Less accumulated depreciation Net fixed assets Intangible assets 40 57 92 Operating profit Interest income Total assets $289 425 Interest expense 18 Liabilitles and Wet Worth $106 Profit before taxes Income taxes Net profit Notes payable-bank Current maturities of long-term debt Accounts payable Accruals Federa income tax payable Long-term mortgage Long-term debt 19 50 14 16 43 S212 15 32 344 Total liabilities Common stock 37 Retained earnings Total net wortha 81 Total liabilities and equity $289 $425 Net worth reconciliation Beginning net worth = + Net profit Dividends paid (cash) Ending net worth 10 81 Note: Inventory was $45 million in 2011