Chem Med Case Essay

1341 Words Apr 18th, 2012 6 Pages
Problem Statement: Chem-Med Company is positioned strongly in its industry to achieve high growth and earn large profits in the future, but it is in need of financing. To secure this financing, Chem-Med must address concerns of potential financers and investors regarding liquidity, efficiency, cash flow, and the need for funding despite apparent growth. In addition, Chem-Med’s primary competitor, Pharmacia, is out-competing the company and stealing valuable market share and sales volume with lower prices. Analysis: To understand Chem-Med’s problems, we must first look at the company’s liquidity and efficiency through the calculation of various ratios. Common measures of liquidity, activity, and profitability for ChemMed and its competitor …show more content…
The bank has agreed to make a loan to the firm on the condition that it upholds several loan covenants, Current Ratio (> 2.25) 2.72 2.39 1.98 Debt/Assets (< 30%) 13.51% 14.03% 13.87% expressed in the table at left. The problem statistic (a current ratio of 1.98 in 2010) is highlighted. This figure is below the mandated current ratio of 2.25. Chem-Med must address this projected liquidity problem to secure the necessary financing to implement its business plan. In addition to liquidity and efficiency problems, Chem-Med must address cash flow concerns. A pro-forma cash flow statement for the years 2008-2010 follows: Chem-Med’s cash flow statement provides encouraging data for potential investors. The firm expects to have positive operating cash flows over the $ 167 next three years and therefore requires little outside financing to finance the investing outflows which will sustain the firm’s growth. Chem-Med is very $ (66) profitable Projected Net Income (2008-2010) $ 101 and is 2008 2009 2010 Total effectively converting those profits into operating cash flows. In fact, $ 1,150 $ 1,274 $ 1,943 $ 4,367 the firm’s operating cash inflows exceed the projected profits for the
Chem-Med Company Statement of Cash Flows Opening Cash Balance (1/1/08) Operating Cash Flows $ 6,050 Investing Cash Flows $ (6,205) Financing Cash Flows $ 89 Closing Cash Balance (12/31/10)

NI/S .3015 .07


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