1. Perform a financial-ratio analysis that gives detailed attention to Riham's four questions. Conduct your investigation...

   

  

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1. Perform a financial-ratio analysis that gives detailed attention to Riham's four questions. Conduct your investigation in terms of both time (the five years given) and relative to Imhetep Pharmaceuticals Corporation. Where relevant, use a 365-day year in your computations. 2. Make recommendations to Riham with respect to any financial matters needing attention. 3. Evaluate both Riham's and Amr's beliefs about the financial position of the company. Sultan Pharmaceuticals Corporation Balance Sheets from 31/12/2017-31/12/2021 Million dollars 2017 2018 2019 2020 2021 Cash and equivalent 1,347 1,452 1,677 3,669 4,119 Accoun receivables |Inventories Other currennt assets 3,618 4,560 5,643 6,051 6,720 3,759 4,710 4,257 5,010 6,654 369 399 1,314 756 975 Total current assets 9,093 11,121 12,891 15,486 18,468 Net planet and equipment Intabgable assets 6,867 8,583 8,667 9,288 10,284 1,479 1,782 1,638 1,725 1,692 Investments in subsidiaries 135 150 123 135 120 Investments - other 1,335 1,695 2,568 2,157 1,530 Other none-current assets 54 81 123 129 144 Total assets 18,963 23,412 26,010 28,920 32,238 Current liabilities Long term debt 4,350 5,061 5,826 5,961 6,978 3,588 4,629 4,869 5,976 6,753 Other libilities 669 789 1,152 1,224 1,287 Total liabilities 8,607 10,479 11,847 13,161 15,018 Common equity 10.356 12,933 14,163 15.759 17.220 Total liabilities and equity 18,963 23,412 26,010 28,920 32,238 Beginning account receivable and inventory balance for 2017 were $3,000,000,000 and $3,300,000,000 respectively Sultan Pharmaceuticals Corporation Income statements for 2017-2021 Million dollars 2017 2018 2019 2020 2021 Sales 21,159 24,903 23,082 26,418 30,138 10,365 11,904 10,578 12,345 14,469 Cost of godds sold Gross operating income Depreciation Administrative and selling expenses 10,794 12,999 12,504 14,073 15,669 468 549 522 585 615 7,962 8,418 7,776 8,793 10,158 Research and development 894 990 1,062 1,191 1,347 Operating income 1,470 3,042 3,144 3,504 3,549 Other income 462 474 516 519 648 Earnings before interest and taxes 1,932 3,516 3,660 4,023 4,197 Interest expenses 366 420 483 558 759 Earnings before taxes 1,566 3,096 3,177 3,465 3,438 Taxes (40%) 626 1,238 1,271 1,386 1,375 Net income 940 1,858 1,906 2,079 2,063 Credit sales comprise 80% of sales. 2017 2018 2019 2020 2021 Dividends (Million đollars) 867 960 1,002 1,050 1,110 Retained earnings (Million dollars) Number of shares (Thousand) 73 898 904 1,029 953 1,034,409 1,321,875 1,354,290 1,365,750 1,423,455 EPS $0.91 $1.41 $1.41 $1.52 $1.45 Imhetep Pharmaceuticals Corporation Balance Sheets from 31/12/2017- 31/12/2021 Million dollars 2017 2018 2019 2020 2021 Cash and equivalent 1,881 2,880 4,359 5,400 3,513 Accoun receivables 2,142 2,235 2,421 2,964 3,687 Inventories 1,968 1,899 2,205 2,601 4,545 Other currennt assets 675 840 951 1,146 1,332 Total current assets 6,666 7,854 9,936 12,111 13,077 Net planet and equipment Intabgable assets 2,550 3,126 3,546 4,350 5,802 363 369 294 306 366 Investments 222 522 Total assets Current liabilities Long term debt Other libilities Total liabilities Common equity Total liabilities and equity 9,579 11,349 13,776 16,989 19,767 2,100 2,385 3,030 3,870 4,479 114 393 384 249 21 204 255 312 378 159 2,418 3,033 3,726 4,497 4,659 7,161 8,316 10,050 12,492 15,108 9,579 11,349 13,776 16,989 19,767 Beginning account receivable and inventory balance for 2017 were $2,100,000,000 and $1,800,000,000 respectively Imhetep Pharmaceuticals Corporation Income statements for 2017-2021 Million dollars 2017 2018 2019 2020 2021 Sales 11,736 13,104 15,126 18,348 21,114 Cost of godds sold 3,279 3,597 3,504 4,341 5,178 Gross operating income 8,457 9,507 11,622 14,007 15,936 Depreciation 249 240 348 396 441 Administrative and selling expenses 4,692 5,238 7.473 6.279 8,619 Research and development 642 756 858 900 1,113 Operating income 2,874 3,273 4,137 5,238 5,763 Other income 33 81 105 192 Earnings before interest and taxes 2,874 3,306 4,218 5,343 5,955 Interest expenses 30 36 45 60 99 Earnings before taxes 2,844 3,270 4,173 5,283 5,856 Taxes (40%) 1,138 1,308 1,669 2,113 2,342 Net income 1,706 1,962 2,504 3,170 3,514 Credit sales comprise 90% of sales. 2017 2018 2019 2020 2021 Dividends (Million dollars) 564 699 747 882 1,227 Retained earnings (Million dollars) 1,142 1,263 1,757 2,288 2,287 Number of shares (Thousand) 2,325,000 1,740,750 2,365,500 2,371,500 1,779,720 EPS .73 1.13 1.06 1.34 1.97 The pharmaceutical industry has flourished in the recent past. While many other industries faced financial difficulties in the 2019-2020 pandemic period, most pharmaceutical companies have never breached their footsteps. The sales volume of the majority of these companies continued to grow steadily. However, despite these overall positive results in the industry, Riham, Chairman of Sultan Pharmaceuticals Corporation, was not happy with the financial picture of Sultan Pharmaceuticals Corporation. Although Riham is relieved to see a recovery from the sales downturn her company faced in 2019, she remains extremely concerned about the profitability generated by these sales. The company has maintained a profitable position, but one of the key questions about Riham relates to the sufficiency of the profits. On several occasions, it has faced its vice president, Amr, with such concern. However, so far Riham does not consider that her questions have been satisfactorily resolved. In response to her inquiries, Amr indicated that the company's operating profits have increased by an " astonishing 141%" over the past four years. Based on this fact, Amr is convinced that the company's financial position has improved impressively. As additional supporting statements to his conviction in the overall prosperity of the company, Amr points to the fact that Sultan's production cost has consistently been less than half of the dollar sales of its products. Although Amr concluded that the company is doing well, Riham still desires more specific financial information regarding the strengths and weaknesses of Sultan Pharmaceuticals. In this regard, she obtained the financial statements of the main competitor of Sultan Pharmaceutical Industries, Imhetep Pharmaceuticals Corporation. Riham for some time let go of competitive pressure from this firm, Hence, she believes that an analysis of an in-depth comparison between the two entities would explain whether her dissatisfaction was justified or not. Although Reham did not have the opportunity to conduct a full investigation, she calculated the return on assets for Imhetep Pharmaceuticals Corporation and found it to be well above the equivalent figure for Sultan. Furthermore, she has noticed her firm's earnings per share to be less than the same computation for Imhetep Pharmaceuticals Corporation in 1976. On the other hand, she did take some comfort in discovering Sultan's return-on-common to be somewhat closer to Imhetep Pharmaceuticals Corporation than the return-on-assets. Also, Riham made a point to compute her competitor's growth in operating income during the most recent four-year period, which proved to be less than the comparable growth rate for Sultan. Since she had not performed a thorough examination, she could not definitely explain the reasons for the more narrow margin between the two firm's return on common and Sultan's larger growth rate in operating income; however, he thought it to be the result of recent investment decisions and Sultan's dividend policy. In a recent meeting with the firm's financial officer, Riham enumerated his concerns as being: 1. Is the business maintaining an adequate liquidity position? 2. Is the management of Sultan Corporation generating sufficient return on the firm's assets? 3. Does the financial mix appear to be appropriate? 4. Is a plentiful return on equity being provided to attract future common stockholders? In this particular matter, Riham is especially interested in knowing the key variables having an impact upon the return on equity. 1. Perform a financial-ratio analysis that gives detailed attention to Riham's four questions. Conduct your investigation in terms of both time (the five years given) and relative to Imhetep Pharmaceuticals Corporation. Where relevant, use a 365-day year in your computations. 2. Make recommendations to Riham with respect to any financial matters needing attention. 3. Evaluate both Riham's and Amr's beliefs about the financial position of the company. Sultan Pharmaceuticals Corporation Balance Sheets from 31/12/2017-31/12/2021 Million dollars 2017 2018 2019 2020 2021 Cash and equivalent 1,347 1,452 1,677 3,669 4,119 Accoun receivables |Inventories Other currennt assets 3,618 4,560 5,643 6,051 6,720 3,759 4,710 4,257 5,010 6,654 369 399 1,314 756 975 Total current assets 9,093 11,121 12,891 15,486 18,468 Net planet and equipment Intabgable assets 6,867 8,583 8,667 9,288 10,284 1,479 1,782 1,638 1,725 1,692 Investments in subsidiaries 135 150 123 135 120 Investments - other 1,335 1,695 2,568 2,157 1,530 Other none-current assets 54 81 123 129 144 Total assets 18,963 23,412 26,010 28,920 32,238 Current liabilities Long term debt 4,350 5,061 5,826 5,961 6,978 3,588 4,629 4,869 5,976 6,753 Other libilities 669 789 1,152 1,224 1,287 Total liabilities 8,607 10,479 11,847 13,161 15,018 Common equity 10.356 12,933 14,163 15.759 17.220 Total liabilities and equity 18,963 23,412 26,010 28,920 32,238 Beginning account receivable and inventory balance for 2017 were $3,000,000,000 and $3,300,000,000 respectively Sultan Pharmaceuticals Corporation Income statements for 2017-2021 Million dollars 2017 2018 2019 2020 2021 Sales 21,159 24,903 23,082 26,418 30,138 10,365 11,904 10,578 12,345 14,469 Cost of godds sold Gross operating income Depreciation Administrative and selling expenses 10,794 12,999 12,504 14,073 15,669 468 549 522 585 615 7,962 8,418 7,776 8,793 10,158 Research and development 894 990 1,062 1,191 1,347 Operating income 1,470 3,042 3,144 3,504 3,549 Other income 462 474 516 519 648 Earnings before interest and taxes 1,932 3,516 3,660 4,023 4,197 Interest expenses 366 420 483 558 759 Earnings before taxes 1,566 3,096 3,177 3,465 3,438 Taxes (40%) 626 1,238 1,271 1,386 1,375 Net income 940 1,858 1,906 2,079 2,063 Credit sales comprise 80% of sales. 2017 2018 2019 2020 2021 Dividends (Million đollars) 867 960 1,002 1,050 1,110 Retained earnings (Million dollars) Number of shares (Thousand) 73 898 904 1,029 953 1,034,409 1,321,875 1,354,290 1,365,750 1,423,455 EPS $0.91 $1.41 $1.41 $1.52 $1.45 Imhetep Pharmaceuticals Corporation Balance Sheets from 31/12/2017- 31/12/2021 Million dollars 2017 2018 2019 2020 2021 Cash and equivalent 1,881 2,880 4,359 5,400 3,513 Accoun receivables 2,142 2,235 2,421 2,964 3,687 Inventories 1,968 1,899 2,205 2,601 4,545 Other currennt assets 675 840 951 1,146 1,332 Total current assets 6,666 7,854 9,936 12,111 13,077 Net planet and equipment Intabgable assets 2,550 3,126 3,546 4,350 5,802 363 369 294 306 366 Investments 222 522 Total assets Current liabilities Long term debt Other libilities Total liabilities Common equity Total liabilities and equity 9,579 11,349 13,776 16,989 19,767 2,100 2,385 3,030 3,870 4,479 114 393 384 249 21 204 255 312 378 159 2,418 3,033 3,726 4,497 4,659 7,161 8,316 10,050 12,492 15,108 9,579 11,349 13,776 16,989 19,767 Beginning account receivable and inventory balance for 2017 were $2,100,000,000 and $1,800,000,000 respectively Imhetep Pharmaceuticals Corporation Income statements for 2017-2021 Million dollars 2017 2018 2019 2020 2021 Sales 11,736 13,104 15,126 18,348 21,114 Cost of godds sold 3,279 3,597 3,504 4,341 5,178 Gross operating income 8,457 9,507 11,622 14,007 15,936 Depreciation 249 240 348 396 441 Administrative and selling expenses 4,692 5,238 7.473 6.279 8,619 Research and development 642 756 858 900 1,113 Operating income 2,874 3,273 4,137 5,238 5,763 Other income 33 81 105 192 Earnings before interest and taxes 2,874 3,306 4,218 5,343 5,955 Interest expenses 30 36 45 60 99 Earnings before taxes 2,844 3,270 4,173 5,283 5,856 Taxes (40%) 1,138 1,308 1,669 2,113 2,342 Net income 1,706 1,962 2,504 3,170 3,514 Credit sales comprise 90% of sales. 2017 2018 2019 2020 2021 Dividends (Million dollars) 564 699 747 882 1,227 Retained earnings (Million dollars) 1,142 1,263 1,757 2,288 2,287 Number of shares (Thousand) 2,325,000 1,740,750 2,365,500 2,371,500 1,779,720 EPS .73 1.13 1.06 1.34 1.97 The pharmaceutical industry has flourished in the recent past. While many other industries faced financial difficulties in the 2019-2020 pandemic period, most pharmaceutical companies have never breached their footsteps. The sales volume of the majority of these companies continued to grow steadily. However, despite these overall positive results in the industry, Riham, Chairman of Sultan Pharmaceuticals Corporation, was not happy with the financial picture of Sultan Pharmaceuticals Corporation. Although Riham is relieved to see a recovery from the sales downturn her company faced in 2019, she remains extremely concerned about the profitability generated by these sales. The company has maintained a profitable position, but one of the key questions about Riham relates to the sufficiency of the profits. On several occasions, it has faced its vice president, Amr, with such concern. However, so far Riham does not consider that her questions have been satisfactorily resolved. In response to her inquiries, Amr indicated that the company's operating profits have increased by an " astonishing 141%" over the past four years. Based on this fact, Amr is convinced that the company's financial position has improved impressively. As additional supporting statements to his conviction in the overall prosperity of the company, Amr points to the fact that Sultan's production cost has consistently been less than half of the dollar sales of its products. Although Amr concluded that the company is doing well, Riham still desires more specific financial information regarding the strengths and weaknesses of Sultan Pharmaceuticals. In this regard, she obtained the financial statements of the main competitor of Sultan Pharmaceutical Industries, Imhetep Pharmaceuticals Corporation. Riham for some time let go of competitive pressure from this firm, Hence, she believes that an analysis of an in-depth comparison between the two entities would explain whether her dissatisfaction was justified or not. Although Reham did not have the opportunity to conduct a full investigation, she calculated the return on assets for Imhetep Pharmaceuticals Corporation and found it to be well above the equivalent figure for Sultan. Furthermore, she has noticed her firm's earnings per share to be less than the same computation for Imhetep Pharmaceuticals Corporation in 1976. On the other hand, she did take some comfort in discovering Sultan's return-on-common to be somewhat closer to Imhetep Pharmaceuticals Corporation than the return-on-assets. Also, Riham made a point to compute her competitor's growth in operating income during the most recent four-year period, which proved to be less than the comparable growth rate for Sultan. Since she had not performed a thorough examination, she could not definitely explain the reasons for the more narrow margin between the two firm's return on common and Sultan's larger growth rate in operating income; however, he thought it to be the result of recent investment decisions and Sultan's dividend policy. In a recent meeting with the firm's financial officer, Riham enumerated his concerns as being: 1. Is the business maintaining an adequate liquidity position? 2. Is the management of Sultan Corporation generating sufficient return on the firm's assets? 3. Does the financial mix appear to be appropriate? 4. Is a plentiful return on equity being provided to attract future common stockholders? In this particular matter, Riham is especially interested in knowing the key variables having an impact upon the return on equity.

Answer rating: 100% (QA)

1 The quick ratiosometimes called the quick assets ratio or the acidtestserves as an indicator of a companys shortterm liquidity or its ability to mee... View the full answer