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Playing the Number Game Case

In: Business and Management

Submitted By reetik
Words 2820
Pages 12
DuPont Analysis: Playing The Numbers GamE

The summary of this case is that a newly joined CFO of a company, Plastichem Inc., was able to turn the company’s unfortunate situation around when he first arrived. Yet, five years later, Plastichem has gone through some difficult times including their stock price/ratings severely dropping with no understanding as to why. The case ends with the CFO attempting to figure out what went wrong with the numbers he was given. To determine the liquidity, we used the quick ratio, current ratio, and interest coverage ratio. From these equations, the higher the ratios meant the better of the company’s financial condition, or more liquidity. The acceptable ratios vary from different industries. In general, company’s quick ratio should be 1 or higher, and its current ratio should be above 1.5 to be considered liquid. In the comparison between two companies’ ratios, DCM Molding has shown a better financial condition on average in the past four years, and Plastichem has barely met the acceptable average or is below the average in the past four years.

Quick Ratio = (Cash and marketable securities + A/R + Other Current Asset)/ Current Liabilities | Year | | 2004 | 2003 | 2002 | 2001 | Plastichem | 0.86 | 1.141 | 1.039 | 0.826 | DCM Molding | 0.99 | 0.93 | 1.114 | 1.568 |

| Year | | 2004 | 2003 | 2002 | 2001 | Plastichem | 1.301 | 1.523 | 1.462 | 1.309 | DCM Molding | 1.632 | 1.518 | 1.826 | 2.095 |

| Year | | 2004 | 2003 | 2002 | 2001 | Plastichem | 0.763 | 1.9113 | 1.962 | 2.442 | DCM Molding | 4.667 | 1.217 | 4.217 | 8.6 |

To measure the leverage, we calculated the debt-equity ratio. Plastichem had a relatively high Debt-Equity Ratio, which indicated that Plastichem was using many debts to finance its growth. High Debt-Equity Ratio also indicated that Plastichem bore more risk because the…...

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