Chemdex.com Harvard Case Solution & Analysis

1)                  Question: Income statement, balance sheet and cash flow statement. In particular, I would like to have the cash flow statement with information in the form reported in the file attached (named “cash flow”).

ANSWER:

On the basis of Particular Assumption and Estimation of Data, Prepared Statement of Comprehensive Income (Income Statement), Statement of Financial Position (Balance Sheet) and Statement of Cash Flows. Particular estimated and assumed data are as follows

  • Taking 5 year data from 1998 to 2002
  • Revenue Quarterly Streams of 1998 a year taken as annually
  • It involved Consolidated 5 year income statement, balance sheet and cash flow, also with individual years
  • Research and Development expense as treated as Fixed Cost
  • All other expenses (Marketing, Sales, Salary and General & Administration) are treated as variable expenses
  • Income Tax Treated as the same rate as Data Given Scenario
  • In beginning four years from 1998 to 2001 take as, 100% Gearing of the company
  • In last year 2002 take as, 100% Equity Financing
  • All Figures of Equity and Debts are assumed to be balancing figures
  • Assumed that there is no Property, Plant and Equipment and No Depreciation charged

2)                  Question: Income statement, balance sheet and cash flow statement in a favorable and negative state of the world, assuming the most probable negative and positive scenario (based on the growth rate of the sales).

ANSWER:

As per Data, estimation has been incorporating the income statement on 10% “worst case” and 10% “best case” on the sales variation in the net income. The Details are given below:

  • Decrease sale by 10% for every year and given the Negative or Positive Effect on the Income statement.
  • Increase sale by 10% for every year and given the Negative or Positive Effect on the Income statement.
  • It shows on 3 level Revenue, Operating Income and Net Income.
  • If Chemdex decreases the sale, then automatic loss in 1998 will increase because of the factor of Fixed Expense and effect goes on vice versa.
  • The effect of most probable negative and the positive income statement annexed to this report

3)                  Question: Break-even analysis to identify the quantity of production to have the equality between revenues and costs.

ANSWER:

Break-even analysis to identify the quantity of production to have the equality between revenues and costs. Breakeven analysis has been conducted on the basis of cost and revenue data provided in the case and for the purpose of breakeven marketing cost, sales expenses and salary expenses have been assumed to be variable cost, meanwhile, the general and administrative expenses, research and development expense have been taken as fixed cost. The breakeven analysis reveals that by the passage of time Chmedex.com’s  performance has been continuously improved, that’s why it’s per unit contribution is improving which in turn is leading towards the lower number of units required to break even the total cost of operations. However, the break even analysis also reveals that since in early stages of the business Chemdex did not have revenues that hence it was not possible to calculate their breakeven analysis, but as the business grows and starts to generate in excess of cost incurred and leads to the establishment of the number of sales transactions required to breakeven i.e. generate contribution in excess of fixed cost. Therefore, the break even analysis shows that the required transaction volume would be 0.83 million during the year 1999, further, the break even transaction volume had declined due to the improvement in operational performance and during the year 2002 the break even transaction volume is 0.11 million.

4)                  Question: An analysis of the profitability of the firms, based on the ROI, ROE, Debt/(Debt Equity) and other two or three ratios.

ANSWER:

I have calculated the ratios on the data, assumptions and estimation. The explanations of  Each Ratio are as follows:

Return on Investment:

ROI shows that company having a good investment, but the return on investment is not much good for the company, because the company is already being going on high gearing and return is not enough to compete in the organization. The following explanation is given below

  • Return on investment are collected on the estimation basis of the data extracts
  • Return is not consistent with the relevant year income flows
  • Investments source has to be in financial secured as company position
  • The Company should go to the better and efficient financing Modes

Return on Equity

ROE was good in the last year 2002, because of the company follows on the high gearing financing and it will shift to equity in 2002. In last four years ROE is nil because of the Debt financing................

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Internet start-up company is developing an online marketplace for specialty chemicals and reagents. David Perry has been named runner-up in the first annual business plan competition HBS, and now stands seed-stage questions - how much money to raise, the fact that the estimates of how many stages, and with whom "Hide By William A. Sahlman, Michael J. Roberts, Lawrence E. Katz Source: Harvard Business School 31 pages. Publication Date: January 9, 1998. Prod. #: 898076-PDF-ENG

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