Do they have the right mix of assets and are they used efficiently?

 
In recent years, the ethical drug industry has prospered. While numerous other industries faced financial difficulties from the last recession, most ethical drug companies have done well. The sales of most drug firms continued to grow steadily. However, despite such overall favorable results within the industry, Donald Bradford, president of Bradford Drug, Inc., has been anything but pleased with the financial picture of his organization. Although Bradford was relieved to see a recovery from the downturn in sales encountered by his firm a few years ago he remains very concerned about the profitability being generated from these sales.The firm has maintained a profitable status, but one of Bradford’s primary questions relates to the adequacy of profits. On several occasions he has confronted his vice president Mike Todd, with such concerns. Todd notes that the firm’s operating profits have increased a staggering 141% within the last four years. Thus, Todd is convinced that the company’s financial condition has improved in an impressive fashion. As additional supporting data for his conviction of the company’s overall prosperity, Todd cites the fact that Bradford’s cost of production has consistently been less than half of product sales.In spite of Todd’s conclusion that the firm is doing well, Bradford continues to desire more specific financial information relating to the strengths and weaknesses of Bradford Drug. In this regard, he has acquired the financial data for Bradford’s principle competitor, M. J. Ellis, Inc.  Bradford Drug has for some time felt competitive pressure from this organization. He believes that an in depth comparison of the two businesses would specifically demonstrate whether his dissatisfaction is justified. Although Bradford has not had the opportunity to do a complete investigation he as computed the return on assets for Ellis, Inc. and found it to be significantly higher than the equivalent figure for Bradford. Since he has not performed a thorough examination, he cannot explain the difference.
1.    Using the attached financial statements perform a financial ratio analysis to address Mr.     Bradford’s concerns. Conduct your investigation by analyzing both the five year trends     and a comparison with M.J. Ellis, Inc. Mr. Bradford is concerned about several areas     including:Whether the company has adequate liquidity?The profitability of the company compared to the industry.Do they have the right mix of assets and are they used efficiently?Does the company have the right amount of debt?How does Bradford’s growth in sales and earnings compare to Ellis?Is the company paying out the right amount in dividends?Are they managing the return to shareholders properly?Use ratio analysis and the DuPont identity to investigate and answer Mr. Bradford’s     questions.
2.     Identify the strengths and weaknesses of both companies. In what areas does Bradford     outperform or underperform compared to Ellis? In what areas are they the same? Explain.
3.    Make appropriate recommendations to Bradford with respect to any financial matters     needing attention.
Present the results of your analysis in a formal report that Bradford can share with his executive committee and major shareholders if needed.
Note: Some suggestions for the report:Organize your report into logical sections that make it easy to read and understand.Introduction: Begin with an introduction describing the two companies and the analysis     that you performed.Analysis Sections: Include a section for each area of analysis. Discuss the analysis you     performed and the highlights of the results. You don’t have to include everything, but     include those items that are significant and critical.Summary Section: Include a section that identifies and summarizes the highlights of the     analysis. This section is where you include the key strengths and weaknesses.Recommendations Section: If you have any specific recommendations for Mr. Bradford     include them in this section. If there are no recommendations then do not include this     section.Conclusion Section: This section is a short summary of the entire report: the analysis     performed; the strengths & weaknesses & the recommendations.Attach the appropriate financial schedules to the report as attached schedules (financial statements and the financial ratio analysis you performed). Make sure they are formatted so they are easy to read and understand.
One of the keys to successful writing in business is to write clearly, keeping the reports short and to the point. Typically a boss will want all of the important information but won’t want to read very many pages. They will want the report organized in titled sections so they can flip through and find what they want quickly. Do that as best as you can with this report.

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