Chem-Med Pharmacia 2.9 2.8 1.08 5.8 30.15% 7.00% 13.67% 55.00% 29.66% 29.56% 0.8493 1.9
Current Ratio Inventory Turnover Net Profit Margin Debt-to-Assets Return on Equity Total Asset Turnover
Chem-Med is competitive with Pharmacia in terms of Current Ratio and Return on Equity. But Chem-Med turns over inventory much slower than Pharmacia, at 1.08 times per year versus Pharmacia’s 5.8 times. Chem-Med also utilizes assets more poorly, generating sales equal to only .8493 times total assets compared to Pharmacia’s 1.9 times.
It is interesting to note that Chem-Med has a much higher profit margin than Pharmacia while maintaining virtually the same Return on Equity. To understand this phenomenon, we must deconstruct each firm’s Return on Equity (ROE) using the DuPont Method. ROE Chem-Med Pharmacia We can see that Pharmacia makes up for its lower profit margin with a much higher total asset turnover as well as a better use of debt to achieve a return on equity similar to that of Chem-Med. While ChemMed operates with a much higher profit margin than Pharmacia, its utilization of assets and debt falls far below the standards of its competitor, causing the firm problems. Chem-Med has