This is a short case study. The subject is 'Financial Management' and the topic is 'Ratio Analysis.'
(See attached files for full problem description)
Please see the attached file.
1. What was Chem-Med's rate of sales growth in 2003? What is it forecasted to be in 2004, 2005, and 2006?
= (Sales this year - Sales last year)/Sales last year
for 2003: ($ 3,814 - $3,051) / $3,051 = + 25%
for 2004: ($ 5,340 - $3,814) / $3,814 = + 40%
for 2005: ($ 7,475 - $5,340) / $5,340 = + 40%
for 2006: ($ 10,466 - $7,475) / $7,475 = + 40%
2. What is the company's rate of net income growth in 2004,2005, and 2006? Is projected net income growing faster or slower than projected sales? After computing these values, take a hard look at the 2004 income statement data to see if you want to make any adjustments.
Net income growth
= (Net income this year - Net income last year) / Net Income last year
for 2004: ($1,609 - $1,150) / $1,150 = +40%
for 2005: ($1,943 - $1,609) / $1,609 = +21%
for 2006: ($2,903 - $1,943) / $1,943 = +49%
According to Dr. Swan's estimates net income growth will match sales growth in 2004 then slack off and rebound in 2006. However, Dr. Swan's figures are misleading: in 2004 they include $500,000 worth of extraordinary income expected to be received from the settlement of the suit with Pharmacia. This amount should be excluded from the calculations because (1) receiving the amount is by no means certain, and (2) it is a one-time event which has nothing to do with the operations of ...
The solution has the ratio analysis calculations of the Chem-med company case