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QTTC - Discussion

The document discusses Chem-Med's financial performance from 2015 to 2018. It analyzes Chem-Med's sales growth, net income growth, current ratio, debt-to-assets ratio, accounts receivable collection period, and return on equity compared to competitors and industry averages over this time period.

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Vũ Nguyễn Huỳnh
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44 views

QTTC - Discussion

The document discusses Chem-Med's financial performance from 2015 to 2018. It analyzes Chem-Med's sales growth, net income growth, current ratio, debt-to-assets ratio, accounts receivable collection period, and return on equity compared to competitors and industry averages over this time period.

Uploaded by

Vũ Nguyễn Huỳnh
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Group: 6

Member:
 Đặng Mỹ Vân
 Phan Thị Anh Ưng
 Trần Nguyễn Như Trúc
 Bành Gia Vĩ
 Nguyễn Phương Trinh
DISCUSSION
Câu 1: What was Chem-Med’s rate of sales growth in 2015? What is it forecasted to
be in 2016, 2017, and 2018?
Sales this year − Sales last year
Sale Growth = x 100%
Saleslast year
3814 −3051
For 2015: Sale Growth = 3051 x 100% = 25 %
5340− 3814
For 2016: Sale Growth = x 100% = 40 %
3814
7475− 5340
For 2017: Sale Growth =
5340
x 100% = 40 %

10466 −7475
For 2018: Sale Growth = x 100% = 40 %
7475

Câu 2: What was Chem-Med’s net income growth in 2015? What is it forecasted to
be in 2016, 2017, and 2018? Is projected net income growing faster or slower than
projected sales? After computing these values, take a hard look at the 2016 income
statement data to see if you want to make any adjustments.
Net income this year − Net income last year
Net income Growth = x 100%
Net income last year
1159 −766
For 2015: Net income Growth = 766 x 100% = 51 %
1609− 1150
For 2016: Net income Growth = x 100% = 40 %
1150
1943− 1609
For 2017: Net income Growth = x 100% = 21 %
1609
2903− 1943
For 2018: Net income Growth = x 100% = 49 %
1943

Câu 3: How does Chem-Med’s current ratio for 2015 compare to Pharmacia’s?
How does it compare to the industry average? Compute Chem-Med’s current ratio
for 2018. Is there any problem with it?
Current Assets
The formula: Current Ratio = Current Liabilities
1720
For 2015: Current Ratio of Chem-Med = 593 = 2.9
For 2015: Current Ratio of Pharmacia = 2.8
=> Current Ratio of Chem-Med for 2015 is higher than Current Ratio of Pharmacia for
2015: 0,1
Industry in 2015: Current Ratio = 2,4
Chem-Med has a higher current ratio than its peers => The management may not be using
its assets efficiently
3261
For 2018: Current Ratio of Chem-med = = 1.98
1647

Chem-Med's current ratio is lower than its peers => may indicate a higher risk of distress
or default

Câu 4: What is Chem-Med’s total debt-to-assets ratio for 2015, 2016, 2017, 2018? Is
any trend evident in the four-year period? Does Chem-Med in 2015 have more or
less debt than the average company in the industry?
Total Liabilities
Total debt −¿−assets ratio =
Total assets
614
Chem-med: 2015: Total debt −¿−assets ratio = 4491 = 0.1367
857
2016: Total debt −¿−assets ratio = 6343 = 0.1351

1212
2017: Total debt −¿−assets ratio= = 0.1402
8641
1664
2018: Total debt −¿−assets ratio = = 0.1387
11995

The debt-to-assets ratio was pretty consistent over the four-year period.
 Debt is being maintained in an effective way.
Industry: 2015: Totaldebt−¿−assetsratio = 0.52
 Chem-Med in 2015 had less debt than the industry average.

Câu 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?
Account Receivable
Account receivable collection period = x 365
Sales per day
564
2015: Account receivable collection period = × 365=54 days
3814
907
2016: Account receivable collection period= ×365=62 days
5340
1495
2017: Account receivable collection period = ×365=73 days
7475
2351
2018: Account receivable collection period = × 365=82 days
10466

Chem-Med's average accounts receivable collection period is getting longer from 54 days
(2015) to 62 days (2016) to 73 days (2017) to 82 days (2018).
Various consequences that a firm will face due to the collection period getting
longer are:

 A longer operating cycle.


 Lower liquidity.
 Requirement of more investments in working capital.
 Risk of increased bad debts.
 Risk of failing to meet short term financial obligations

Câu 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:
Step 1
1. Chem med has a higher net margin of 30.15% compared to 7% of Pharmacia.
2. Chem med also has a higher assets turnover ratio of 3.91 compared to 1.9 for
Pharmacia.
3. Chem med has a lower debt to asset ratio and thus is lower risk and since low risk
gives lower returns, it has a contribution of 1.01 as compared to 2.22 for Pharmacia.
4. Chem med has a higher ROE (119.4%) than Pharmacia (29.56%) which is also
greater than industry average of 12.29%.

Step 2
1. Chem med also has a higher assets turnover ratio of 3.91 compared to 1.9 for
Pharmacia.
2. Chem med has a lower debt to asset ratio and thus is lower risk and since low risk
gives lower returns, it has a contribution of 1.01 as compared to 2.22 for Pharmacia.
3. Chem med has a higher ROE (119.4%) than Pharmacia (29.56%) which is also
greater than industry average of 12.29%.

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