Case Study: Samson MedicalSupplies andDevices, Corp.
Questions:
1. Growth will be an important topic of discussion, and everyone will want to know about sales and profitability forecasts. What werethe company's rate of sales growth and the rate of net income growth in 2016? What are the rates of both sales and net income growth forecasted to be in each of the pro-forma years (2017, 2018, and 2019)?
2. Is projected net income growing faster or more slowly than projected sales? Discuss any differences. You should carefully review the 2017 income statement data to see if you want to recommend or make any adjustments.
3. a. The bankers will be interested in the current ratios. Calculate the current ratio for 2016 and compare it to Brazmed's? How does it compare to the industry average? Compute SMS and D's current ratio for 2019; is there any problem with it?
b. As part of current asset management, the average accounts receivable collection period is important. Calculate the average collection period (in days) for 2016, 2017, 2018, and 2019? Is the time frame getting longer or shorter? What are the consequences of this change in average collection periods?
4. Another ratio of interest to bankers is the debt level. Calculate the total debt-to-assets ratio for 2016, 2017, 2018, and 2019? Is any trend evident in the four-year period? DoesSMS and D in 2016 have more or less debt than the average company in the industry? What are the implications of SMS and D's debt levels?
5. How does SMS and D's return-on-equity ratio (ROE) compare to Brazmed's and the industry for 2016? Using the Du Pont method, compare the positions of SMS and D and Brazmed. Compare ROE for each company using the expanded formula (in the textbook on p. 123).
Discuss the results to highlight the sources of ROE for each company.