an unsolicited offer for the net assets of the Industrial Products Division. The amount of the offer (US$160 million) was well below the book value of the division's assets. The proceeds from such a divestment, however, could have a major impact on the company's financing strategy for the funding of the investment in capacity expansion. United Chemicals, the company tendering the offer, was known to seek the acquisition of both firms and divisions of firms in the troughs of their performance cycles. In 1989, however, Nova's Industrial Products Division was not alone, as all producers of industrial chemicals were contending with various degrees of success with sluggish market conditions. Nova management, thus, had to decide in late-1989 whether to divest the company's Industrial Products Division.
Scope of the Inquiry and Presentation of the Findings
Financial analyses are performed to develop the information needed by Nova management to make the decision choices related to the two issues at question. These analyses include both financial ratio analyses and a trend analysis. An assessment of industry conditions also is presented. Following the presentation of the findings of these analyses and assessments, Nova's decision choices in relation to the issues in question (a funding strategy for capacity expansion and possible divestment of the Industrial Products Division) are assessed. Recommendations to Nova management related to these decision choices are presented in the conclusion section of this study.
Financial ratio analyses were performed on the Nova Chemical Corporation for the 1987-1989 period. Ratio analyses were performed in four major areas of interest·liquidity, asset utilization, leverage, and profitability. The ratios, together with discussions of their importance, are presented separately for each of the four major areas of interest.
Liquidity was assessed within the contexts of the current ratio, th...