Sub- Financial Strategies Creation Analyse Case Immulogic

Sub- Financial strategies creation Analyse case ImmuLogic pharmaceutical corporation - a consultant .Write report/analysis & 3 pages calculation

ImmuLogic Pharmaceutical Corporation

ImmuLogic Pharmaceutical Corporation is a relatively novel firm, with only four years of experience within the market. The organization nevertheless possesses increased potential and has decided in favor of going public in an effort to generate an expected $80 million in capital. Still, in a context in which the firm does not yet have a commercially viable product -- and this would take an additional four years -- a question is being posed relative to the future sustainability of the initial public offering. In other words, the company's executives now wonder whether or not they should proceed with the IPO, or whether they should withdraw it.

The offering of such an answer is an intricate endeavor, and it would be based on a multitude of aspects. At the initial level however, the analysis would rely on objective quantitative features, which are conducted through numerical data and which lead to relevant and unbiased conclusions (Balnaves and Caputi, 2001). Namely, at this stage, several financial computations would be completed in order to assess the financial strength of the ImmuLogic Pharmaceutical Corporation. In order to complete these computations, the data used would be collected from the financial statements of the firm.

a) Quick ratio

Quick ratio = ( Current assets -- Inventories ) / Current liabilities

Note: Since the ImmuLogic Pharmaceutical Corporation does not have a commercially viable product, its inventories are assumed at zero.

Quick ratio = Current assets / Current liabilities

Quick ratio in 1989 = 20,466 / 877 = 23.34

Quick ratio in 1990 = 15,142 / 890 = 17.01

The quick ratio portrays the company's short-term liquidity, better yet said, its ability to pay its short-term obligations with its most liquid assets (Investopedia, 2012). The computation of two ratios reveals that the company has decreased its ability to pay its short-term debts in 1990 relative to the previous years.

b) Current ratio

Current ratio = Current assets / Current liabilities

Note: Since the ImmuLogic Pharmaceutical Corporation does not possess inventories, its current ratio will equal its quick ratio, as follows:

Current ratio = Current assets / Current liabilities

Current ratio in 1989 = 20,466 / 877 = 23.34

Current ratio in 1990 = 15,142 / 890 = 17.01

The current ratio, also known as the liquidity ratio, is an indicator of the company's ability to pay its short-term obligations (Investopedia, 2012). As the computations have revealed, the pharmaceutical company has encountered a decrease in its ability to honor its short-term obligations in 1990 relative to the previous year.

c) Asset turnover

Asset turnover = Revenues / Total assets

Asset turnover in 1989 = - 3,145 / 24,128 = - 0.13

Asset turnover in 1990 = - 6,043 / 18,604 = - 0.32

From this ratio, it becomes obvious that the company's financial results have suffered significant contractions in 1990 relative to 1989. The organization registered a massive decrease in assets, but also a doubling of its financial results, to further deepen the net losses. These financial results are explained by the fact that the company is still researching and investing in the product, having yet to capitalize on its investments. Still, at this rate, the financial sustainability of the organization is questionable.

At the specific level of the asset turnover ratio, this is indicative of the company's ability to use its assets to generate sales, and subsequently, profits (Asset Turnover, 2011). At the level of the ImmuLogic Pharmaceuticals Corporation, this ability has decreased significantly from 1989 to 1990, the company revealing a severely decreased ability to use its assets to create positive financial results.

d) Return on assets

The return on asset ratio is traditionally computed by dividing the net income by the total assets. In the specific case of the ImmuLogic Pharmaceutical Corporation, the return on assets equals the asset turnover, since the company does not register any sales revenues, only its net incomes, which are negative as a result of continued investments. In this setting then,

Return on assets in 1989 = - 3,145 / 24,128 = - 0.13

Return on assets in 1990 = - 6,043 / 18,604 = - 0.32

The return on asset traditionally assesses the profitability of a firm relative to its assets (Investopedia, 2012). In the case of the ImmuLogic Pharmaceutical Corporation, the organizational ability to generate profits is decreased and this is the result of the absence of a product to retail and generate sales.

Since the ImmuLogic Pharmaceutical Corporation does not already have equity, the computation of various ratios is restricted. For instance, it is impossible to compute the debt to equity ratio or the earnings per share ratio. In such a context then, the majority of the ratios computed are useful to assessing the quality and strength of the managerial act at the firm, rather than its market profitability. Furthermore, since the ratios are computed for two consecutive years -- 1989 and 1990 -- they help to paint the picture of the company's evolution from one year to the next.

In a general perception, the financial position and strength of the ImmuLogic Pharmaceutical Corporation in 1990 has decreased relative to 1989. The organizational assets have decreased and the final results have weakened. As the asset turnover and the return on asset ratios have indicated -- as depicted in the organizational financial statements -- the financial results of ImmuLogic are weak and have significantly decreased in 1990 relative to the previous year.

This situation is due to the fact that the company's end results are negative, revealing only the investments made in the creation of the products, but the inability to complete and retail the product so as to create tangible benefits. Furthermore, in a context in which the firm estimates an additional four years to complete a commercially feasible, its position would be placed in further jeopardy. To better understand this, assume the following:

The organizational assets have decreased from 1989 to 1990 from $24,128,000 to $18,604, revealing a 22.89 per cent decrease

The organizational net results have decreased from -- $3,145,000 in 1989 to -- $6,043,000 in 1990, revealing a total annual decrease of 92.14 per cent

The company would maintain the same decrease rates in its assets and financial results for the next four years, as follows:

Assets in 1991 = 18,604,000 x 0.77 = 143,250,080

Assets in 1992 = 143,250,080 x 0.77 = 110,302,561

Assets in 1993 = 110,302,561 x 0.77 = 84,932,972

Assets in 1994 = 84,932,972 x 0.77 = 65,398,388

Net results in 1991 = - 6,043,000 x 1.92 = - 11,602,560

Net results in 1992 = - 11,602,560 x 1.92 = - 22,276,915

Net results in 1993 = - 22,276,915 x 1.92 = - 42,771,677

Net results in 1994 = - 42,771,677 x 1.92 = - 82,121,620

It is as such observed that, following the same pace of decision making and evolution of the financial highlights is not a sustainable course of action for the company. Before coming to actually create the final product, the ImmuLogic Pharmaceutical Corporation would register exponential losses and would lose more than half of its assets as well. In such a context then, it becomes obvious that it is necessary for the firm to carry on with its IPO and collect the estimated $80 million in capitals. Such a decision would lead to numerous advantages, including the following: