Table 1 presents income statement and balance sheet data for Chem-Co Coatings, a producer of fertilizers...

  

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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-Co's 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 firm's 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 Cash and marketable securities Accounts receivable Merchandise inventory Prepaid expenses Gross fixed assets Less accumulated depreciation Net fixed assets Intangible assets Total assets Liabilities and Net Worth Notes payable-bank Current maturities of long-term debt Accounts payable Accruals Federal income tax payable Long-term mortgage Long-term debt Total liabilities Common stock Retained earnings Total net worth Total liabilities and equity "Net worth reconciliation Beginning net worth =+Net profit Dividends paid (cash) Ending net worth 81 Note: Inventory was $45 million in 2011. 77 14 10 2012 $30 102 65 8 120 40 80 4 $289 $106 9 33 2 3 16 43 $212 40 37 77 $289 2013 $6 215 104 5 149 57 92 3 $425 $223 11 50 9 4 15 32 $344 40 41 81 $425 Income Statement Net sales Cost of goods sold Gross margin Selling expenses General and administrative expenses Depreciation Operating profit Interest income Interest expense Profit before taxes Income taxes Net profit 2018 $861 680 181 64 60 26 31 6 18 19 5 14 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-Co's 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 firm's 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 Cash and marketable securities Accounts receivable Merchandise inventory Prepaid expenses Gross fixed assets Less accumulated depreciation Net fixed assets Intangible assets Total assets Liabilities and Net Worth Notes payable-bank Current maturities of long-term debt Accounts payable Accruals Federal income tax payable Long-term mortgage Long-term debt Total liabilities Common stock Retained earnings Total net worth Total liabilities and equity "Net worth reconciliation Beginning net worth =+Net profit Dividends paid (cash) Ending net worth 81 Note: Inventory was $45 million in 2011. 77 14 10 2012 $30 102 65 8 120 40 80 4 $289 $106 9 33 2 3 16 43 $212 40 37 77 $289 2013 $6 215 104 5 149 57 92 3 $425 $223 11 50 9 4 15 32 $344 40 41 81 $425 Income Statement Net sales Cost of goods sold Gross margin Selling expenses General and administrative expenses Depreciation Operating profit Interest income Interest expense Profit before taxes Income taxes Net profit 2018 $861 680 181 64 60 26 31 6 18 19 5 14

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