Case Study #3

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1. The liquidity of Plastichem and DCM Molding is determined through the current ratio and quick ratio. The current ratio for both companies has been falling, but DCM Molding current ratio is higher. In 2001, DCM Molding quick ratio is higher than Plastichem. This shows that DCM Molding short term liquidity situation is better. Both companies current ratio is above 1, which shows more current assets as compared to current liabilities, the ratio is falling and the liquidity is decreasing, but DCM Molding is still doing better. The leverage ratio is also known as the debt-to-equity ratio. Plastichem total debt ratio is increasing, which means in year 2001 they are using more debt than equity. This shows that their earnings are great enough to pay their debt. In year 2001, DCM Molding is using less debt than Plastichem. Plastichem financial risk is greater than DCM Molding. The activity ratios can be determined by looking at all the turnover ratios. Plastichem is doing better than DCM Molding when it comes to inventory turnover, because Plastichem can make sales with lower levels of inventory then DCM Molding. The total asset turnover for Plastichem has been getting better, even though it’s still less than DCM Molding. This shows that Plastichem uses more fixed assets for making sales than DCM Molding. This is a weakness for Plastichem, because it increases cost. The profitability ratios are determined by looking at the profit margin, ROA, and ROE. The profit margin for Plastichem has been falling. It was negative n 2001, which made the ROA and ROE negative. DCM Molding profit margins, ROA, and ROE has been constant. This shows that DCM Molding manages its operations better than Plastichem.

2. Yes, an analysis of common size statements should be included in the report because it helps compare companies of differing sizes against each other, percentage of sales, cost of goods sold, and how that value has changed over time. On the common size statement,...
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