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I.1. Overview: Abbott is a multinational health care company with headquarters in Lake Bluff, Illinois, United States. The company was founded by Chicago physician Wallace Calvin Abbott in 1888. This company is discovering new ways to make life better for more than 125 years, making a different in over 150 countries and have over 99.000 employess working around the word to make a lasting impact on heath.
TRƯỜNG ĐẠI HỌC KINH TẾ - ĐẠI HỌC ĐÀ NẴNG CHUYÊN NGÀNH QUẢN TRỊ TÀI CHÍNH – LỚP 42K16-CLC HỌC PHẦN: FINANCIAL MANAGEMENT Group ANALYSIS OF ABBOTT FINANCIAL REPORTS Đặng Thị Huyền Trang Đặng Đức Thịnh Ngô Thành Tâm Lê Thanh Chương Đỗ Thị Tường Vy Đà Nẵng, ngày 24 tháng 04 năm 2018 MỤC LỤC I INTRODUCTION OF ABBOTT LABORATORIES: .3 I.1 Overview: I.2 Abbott products: .3 II BALANCE SHEET Annual Income Statement III INCOME STATEMENT: .7 Annual Income Statement FINANCIAL MANGEMENT IV FINANCIAL STATEMENTS: IV.1 Common size Balance Sheets and Indexed Balance Sheets: IV.2 Common size Income Statements and Indexed Income Statements: .11 V FINANCIAL RATIOS: 12 V.1 Profitability ratios: 12 V.2 Liquidity ratios: .14 V.3 Leverage ratios: .15 V.4 Activity ratios: 16 V.5 Growth ratios: 18 V.6 Dupont analysis: 18 VI CASH FLOW ANALYSIS: 20 I INTRODUCTION OF ABBOTT LABORATORIES: I.1 Overview: - Abbott is a multinational health care company with headquarters in Lake Bluff, Illinois, United States The company was founded by Chicago physician Wallace Calvin Abbott in 1888 - This company is discovering new ways to make life better for more than 125 years, making a different in over 150 countries and have over 99.000 employess working around the word to make a lasting impact on heath Page FINANCIAL MANGEMENT I.2 Abbott products: - Since 2013, Abbott Laboratories (ABT) has generated revenues from a diversified healthcare business spanning across geographies and following primary segments: Nutritional Products Diagnostic Products Established Pharmaceuticals Medical Devices Page FINANCIAL MANGEMENT POPULAR PRODUCT OF ABBOTT - Prior to the spin-off of AbbVie (ABBV), which became effective on January 1, 2013, the company reported its operations under five segments, which included Proprietary Pharmaceutical Products Page FINANCIAL MANGEMENT II BALANCE SHEET Annual Income Statement Period Ending: Trend 12/31/2017 12/31/2016 12/31/2015 12/31/2014 Cash and Cash Equivalents $9,407,000 $18,620,000 $5,001,000 $4,063,000 Short-Term Investments $203,000 $155,000 $1,124,000 $397,000 Net Receivables $5,249,000 $3,248,000 $3,418,000 $3,586,000 Inventory $3,601,000 $2,434,000 $2,599,000 $2,643,000 Current Assets Other Assets Current $1,687,000 $2,319,000 $2,013,000 $2,867,000 Total Assets Current $20,147,000 $26,776,000 $14,155,000 $13,556,000 Long-Term Investments $883,000 $2,947,000 $4,041,000 $229,000 Fixed Assets $7,783,000 $8,458,000 $5,732,000 $7,869,000 Goodwill $24,020,000 $7,683,000 $9,638,000 $10,067,000 Intangible Assets $21,473,000 $4,539,000 $5,562,000 $6,198,000 Other Assets $0 $0 $0 $0 $1,944,000 $2,263,000 $2,119,000 $3,288,000 $76,250,000 $52,666,000 $41,247,000 $41,207,000 Accounts Payable $8,198,000 $5,090,000 $5,683,000 $5,350,000 Short-Term Debt / Current Portion of Long-Term Debt $714,000 $1,325,000 $3,130,000 $4,437,000 Long-Term Assets Deferred Charges Asset Total Assets Current Liabilities Page FINANCIAL MANGEMENT II BALANCE SHEET Annual Income Statement Period Ending: Trend 12/31/2017 12/31/2016 12/31/2015 12/31/2014 Other Current Liabilities $0 $245,000 $373,000 $680,000 Total Current Liabilities $8,912,000 $6,660,000 $9,186,000 $10,467,000 Long-Term Debt $27,210,000 $20,681,000 $5,871,000 $3,393,000 Other Liabilities $9,030,000 $4,608,000 $4,864,000 $5,708,000 Deferred Liability Charges $0 $0 $0 $0 Misc Stocks $0 $0 $0 $0 Minority Interest $201,000 $179,000 $115,000 $113,000 Total Liabilities $45,353,000 $32,128,000 $20,036,000 $19,681,000 Common Stocks $23,206,000 $13,027,000 $12,734,000 $12,383,000 Capital Surplus $0 $0 $0 $0 Retained Earnings $23,978,000 $25,565,000 $25,757,000 $22,874,000 Treasury Stock ($10,225,000) ($10,791,000) ($10,622,000) ($8,678,000) Other Equity ($6,062,000) ($7,263,000) ($6,658,000) ($5,053,000) Total Equity $30,897,000 $20,538,000 $21,211,000 $21,526,000 Total Liabilities & Equity $76,250,000 $52,666,000 $41,247,000 $41,207,000 Stock Holders Equity Page FINANCIAL MANGEMENT III INCOME STATEMENT: Annual Income Statement Period Ending: Trend 12/31/2017 12/31/2016 12/31/2015 12/31/2014 Total Revenue $27,390,000 $20,853,000 $20,405,000 $20,247,000 Cost of Revenue $12,337,000 $9,024,000 $8,747,000 $9,218,000 Gross Profit $15,053,00 $11,829,000 $11,658,000 $11,029,000 Operating Expenses Research Development and $2,235,000 $1,422,000 $1,405,000 $1,345,000 Sales, General Admin and $9,117,000 $6,672,000 $6,785,000 $6,530,000 Non-Recurring Items $0 $0 $0 $0 Other Operating Items $1,975,000 $550,000 $601,000 $555,000 Operating Income $1,726,000 $3,185,000 $2,867,000 $2,599,000 Add'l items income/expense $1,409,000 ($1,341,000) $479,000 $69,000 Earnings Before Interest and Tax $3,135,000 $1,844,000 $3,346,000 $2,668,000 Interest Expense $904,000 $431,000 $163,000 $150,000 Page FINANCIAL MANGEMENT Period Ending: Trend 12/31/2017 12/31/2016 12/31/2015 12/31/2014 Earnings Before Tax $2,231,000 $1,413,000 $3,183,000 $2,518,000 Income Tax $1,878,000 $350,000 $577,000 $797,000 Minority Interest $0 $0 $0 $0 Equity Earnings/Loss Unconsolidated Subsidiary $0 $0 $0 $0 Net Income-Cont Operations $353,000 $1,063,000 $2,606,000 $1,721,000 Net Income $477,000 $1,400,000 $4,423,000 $2,284,000 Net Income Applicable to Common Shareholders $477,000 $1,400,000 $4,423,000 $2,284,000 IV FINANCIAL STATEMENTS: - Financial statement analysis (or financial analysis) is the process of reviewing and analyzing a company's financial statements to make better economic decisions These statements include the income statement, balance sheet, statement of cash flows, and a statement of changes in equity - Financial statement analysis is a method or process involving specific techniques for evaluating risks, performance, financial health, and future prospects of an organization IV.1 Common size Balance Sheets and Indexed Balance Sheets: Abbott’s common size and indexed balance sheets Regular (millions of $) Common-Size (%) Page Indexed (%) FINANCIAL MANGEMENT Assets 2014 2015 2016 2014 2015 2016 2014 2015 2016 Cash 4,063 5,001 18,620 9.85 12.12 35.35 100.0 123.1 458.2 AR 3,586 3,418 3,248 8.70 8.28 6.16 100.0 95.3 90.6 Inv 2,643 2,599 2,434 6.41 6.30 4.62 100.0 98.3 92.1 Other CA 2,867 2,013 2,319 6.95 4.88 4.40 100.0 70.2 80.8 Tot CA 13,556 14,155 26,776 32.89 34.31 50.84 100.0 104.4 197.5 Net FA 5,935 5,730 5,705 14.40 13.89 10.83 100.0 96.5 96.1 LT Inv 229 4,041 2,947 0.55 9.79 5.59 100.0 176.4 128.6 Other LT 21,487 17,321 17,238 52.14 41.99 32.73 100.0 80.6 80.2 Tot Assets 41,207 41,247 52,666 100.0 100.0 100.0 100.0 100.1 127.8 Observe: Considering the percentages of asset items, the percentage of total current assets rise In particular, the fastest decline was in cash, inventory The amount of cashes tended to increase, leading to the solvency of enterprise in the future The amount of accounts receivable is still stable The business needs to promote capital recovery acvities , avoiding stagnant capital and inefficient use of capital Inventory fell, which proved that products and goods of the business are high quality and able to compete in the market Abbott’s common size and indexed balance sheets Regular( milions of $) Liab + Equity 2014 2015 2016 Common-Size( %) 2014 Page 2015 2016 Indexed(%) 2014 2015 2016 FINANCIAL MANGEMENT Note pay 3,937 2,688 868 11.1 7.4 1.8 100.0 68.2 22.0 Acct pay 1,064 1,081 1,178 3.0 3.0 2.5 100.0 101.5 110.7 Accr tax 3,654 3,771 3,251 10.3 10.4 6.8 100.0 103.2 88.9 Other Accr 1,812 1,640 1,363 5.1 4.5 2.8 100.0 90.5 75.2 Tol CL 10,467 9,186 6,660 29.5 25.3 13.9 100.0 87.7 63.6 LT Debt 3,393 5,871 20,681 9.6 16.2 43.2 100.0 173.0 609.5 Equity 21,526 21,211 20,538 60.9 58.5 42.9 100.0 98.5 95.4 Tol L+E 35,386 36,268 47,879 100.0 100.0 100.0 100.0 102.5 135.3 Observe: In 2014 compared 2016, current liabilities dropped by 0.156%, of which accounts payables decreased by 0.5% Long-term debt increased by 0.336% in which long-term liabilities increased In 2016 compared to 2014, accounts payable increased Long-term debt was up rapidly The change in the value of debt of the above company is reasonable because the company is focused on expanding production and business so the reduction of short-term debt has shown the balance of payment policy in Short-term and long-term investment must be funded from long-term capital IV.2 Common size Income Statements and Indexed Income Statements: Abbott’s common-size and indexed income statements Page 10 FINANCIAL MANGEMENT Regular (millions of $) Common-Size (%) Indexed (%) 2014 2015 2016 2014 2015 2016 2014 2015 2016 Net Sales 20,247 20,405 20,853 100.0 100.0 100.0 100.0 100.8 102.9 COGS 9,218 8,747 9,024 45.5 42.9 43.3 100.0 94.9 98.0 Gross Profit 11,029 11,658 11,829 54.5 57.1 56.7 100.0 105.7 107.3 Adm 6,530 6,785 6,672 32.3 33.3 31.9 100.0 104.0 102.2 EBIT 2,668 3,346 1,844 13.2 16.4 8.8 100.0 125.4 69.1 Int Exp 150 163 431 0.7 0.8 2.1 100.0 108.7 287.3 EBT 2,518 3,183 1,413 12.4 15.6 6.8 100.0 126.4 56.1 EAT 1,721 2,606 1,063 8.5 12.8 5.1 100.0 151.4 61.8 Cash Div 2,284 4,423 1,400 11.3 21.7 6.7 100.0 193.6 61.3 Observe: Sales increase slowly, businesses need to promote sales activities to increase sales In 2016 compared to 2014, COGS decrease; Gross Profit increase; EBIT, EBT, EAT not the same, 2015 is always the highest V FINANCIAL RATIOS: V.1 Profitability ratios: V.1.1 Gross profit margin: Page 11 FINANCIAL MANGEMENT Formula 2014 2015 2016 Abbott company Gross profit 54,5% 57,1% 56,7% Industry average Net sales 28,01% 29.71% 29,57% Comment: This figure shows that operating bussiness's ABBOTT is quite efficient, with a slight growth in each year However, compared with the sector average is still lower This difference may be due to the management process, the costs incurred high V.1.2 Net profit margin: Formula 2014 2015 2016 Abbott company Net Profit after taxes 11,3% 21,7% 6,7% Industry average Net sales 13.5% 14.1% 14.9% Comment: Similar to the gross profit margin, the profit margin of the company is lower than that of its peers In the period of 2014-2015, net profit margin increased slightly due to business performance By 2016, however, there will be a sharp drop in profitability, as the cost of selling is too large for profit, including: cost of adversting, research, markets, sales promotion, V.1.3 Return on assets (ROA): Abbott company Formula 2014 2015 2016 Net Profit after taxes 5,5% 10,7% 2,7% Page 12 FINANCIAL MANGEMENT Industry average Total assets 8.2% 7.4% 8.1% Comment: We see a slight increase in 2014 and 2015, from 5.5% to 10.7%, indicating that ABBOTT has made quite a bit of money on less investment Compared to the industry average, ABBOTT has surpassed over 2% in 2015 However, as the costs incurred in selling too high, the ROA in 2016 dropped sharply from 10.7% to 2.7%, lower than industry average V.1.4 Return on equity (ROE): Abbott company Formula 2014 2015 2016 Net Profit after taxes 10,6% 20,9% 6,8% 18.4% 17.5% 20.1% Shareholder’s equity Industry average Comment: As the above ROA figures show, the less efficient business makes the company's ROE lower than the industry average Through ROA, the company has used a lot of assets to generate profit together with the net profit margin is always lower than the industry average making ROE the same results By 2015, the ROE of the company will increase and higher than the industry average as the company uses financial leverage and improve margins V.2 Liquidity ratios: V.2.1 Current ratios: Abbott company Formula 2014 2015 2016 Current assets 1.3 1.5 4.02 Page 13 FINANCIAL MANGEMENT Industry average 1.84 Current liabilities 1.65 1.75 Comment: Liquidity of the company over the years is greater than 1, this proves that the current value of the company is always greater than the value of short-term debt In other words, the company's current assets are sufficient to cover short-term liabilities, which is a good indication of the company's shortterm liquidity From 2014 to 2016, this figure will increase continuously but by 2016, it will increase nearly times due to factors in short-term debtors such as buyers paying in advance, reward fund, have droped In addition, the company's parameters are always smaller than average, but the average industry is tending to decrease By 2016, it is significantly lower than ABBOTT V.2.2 Quick ratios: Formula 2014 2015 2016 Abbott company Current assets - Inventory 1.04 1.3 3.7 Industry average Current liabilities 1.38 1.28 1.38 Comment: This figure has increased over the years, and soared in 2016 In those three years, the parameters are higher than It shows that ABBOTT ensures fast payment of the company However, compared to the average of the enemy sector is still low, in 2016 is higher than The sector's average parameters have increased unstably, due to various factors V.3 Leverage ratios: V.3.1 Debt to total assets: Abbott company Formula 2014 2015 2016 Total debts 0,48 0,49 0,61 1,19 1,91 1,51 Industry average Page 14 FINANCIAL MANGEMENT Total assets Comment: With this parameter, we see average debtors offering 0.5 grants compared to each of the capital provided by shareholders in this period Compared to the industry average, this figure is relatively low, so it will be easier to raise capital from creditors in the next period V.3.2 Debt to equity: Formula 2014 2015 2016 Abbott company Total debt 0.91 0,95 1,56 Industry average Total capitalization 0.56 0.70 0.76 Comment: The company's 2014 and 2015 are quite high and 2016 Its two times higher than the industry average However, the industry average tend to increase over this period, suggesting a shift in sources The formation of assets from the source of capital to the source of loans increasingly popular This increase in the parameters indicates the greater the financial risk of the company and the industry V.3.3 Interest coverage: Abbott company Formula 2014 2015 2016 EBIT 3.16 5.52 4.04 14.45 11.78 9.60 Industry average Page 15 FINANCIAL MANGEMENT Interest charges Comment: This figures are too low and many times lower than industry average Thus, long-term debt is only a small part of the company's long-term capital structure (the highest is 5.52 in 2015) V.4 Activity ratios: V.4.1 Average receivable collection period: Formula 2014 2015 2016 Abbott company Day in the Year 64.64 61.14 56.85 Industry average Receivable Turnover 43 45 44 Comment: Parameters declined year by year, but still higher than industry average This shows that there have been many other trends in the past three years, leading to a decline in the parameters The industry average is quite stable V.4.2 Inventory turnover ratios: Formula 2014 2015 2016 Abbott company COGS 3.49 3.37 3.71 Industry average Inventory 6.99 6.96 7.58 Comment: The number of inventory turns of the company kept relatively stable In the period 2014-2015, the industry average is also stable However, there is a slight increase in 2016 In general, this company's parameters are good V.4.3 Payable turnover: Formula Page 16 2014 2015 2016 FINANCIAL MANGEMENT Abbott company Annual credit purchases 0.6 0.57 0.36 Industry average Accounts Payable 7.38 7.48 7.40 Comment: These figures have been decreasing year by year, indicating that ABBOTT's credit rating is also declining On the other hand, comparred with the industry average is too low To explain this, there may be two reasons: either the company has gradually reduced its payables, or ABBOTT's ability to pay is lower than in previous years V.4.4 Total assets turnover: Formula 2014 2015 2016 Abbott company Net sales 0.49 0.5 0.4 Industry average Total assets 0.61 0.53 0.55 Comment: Compared to the industry, the company generates relatively good revenue per co-investment The rate of conversion of total assets to generate revenue is slower than the industry but the trend of the company and the industry is quite similar in this period This indicator tends to decrease, but still relative to the sector V.5 Growth ratios: V.5.1 Price to earning ratios: Abbott company Formula 2014 2015 2016 Price per share 31.3 12.83 55.16 Page 17 FINANCIAL MANGEMENT Industry average Earnings per share (EPS) 23.84 20.31 19.29 Comment: The company's EPS is quite strong compared to the industry average in this period In particular, its EPS in 2015 will fall to $ 12.83 The following year, thanks to improved business performance, the company's EPS increased faster than industry average in 2016 at $ 55.16 V.6 Dupont analysis: - DuPont analysis is a technique that cuts through the return on equity (ROE) measure to identify what exactly is generating a company's return, i.e whether it is high profit margin, efficient use of assets to generate more sales and/or use of more debt in its capital structure - Return on equity (ROE) measures net income earned by the company for its shareholders It is calculated by diving net income by average shareholders' equity We can play some mathematics tricks to decompose ROE to some very meaningful components V.6.1 Formula Net Income ROE = Average Shareholders' Equity - Let us multiply and divide the above equation with Sales and Average Total Assets Net Income ROE = Sales Average Total Assets Average Shareholders' Equity × Sales × Average Total Assets - After little tweaking we get the following: Net Income ROE = Sales Sales × Average Total Assets Average Total Assets × Page 18 Average Shareholders' Equity FINANCIAL MANGEMENT It looks familiar, doesn't it? Net income divided by sales is the formula for net profit margin, sales divided by average total assets is the formula for total assets turnover ratio and average total assets divided by average shareholders' equity is the formula for financial leverage ratio (also called equity multiplier) This means we can rewrite the above equation as follows: ROE = Net Profit Margin × Total Assets Turnover Ratio × Financial Leverage Ratio It means that a company can have a high ROE if it has high net profit margin, high total assets turnover ratio and/or high financial leverage V.6.2 Analysis - So, what we get from all this effort? It helps us identify the sources of a company's return If a company has high net profit margin and high asset turnover ratio, it is great However, it is quite possible that a company might have a high ROE due to very high profit margin but very average asset turnover ratio DuPont analysis helps investors and even the management identify where the company has performed well and where they have room for improvement - A little more tweaking helps us discovers another important relationship If we multiply and divide the formula for ROE with only average total assets, we get: Net Income ROE = Average Total Assets Average Total Assets × Average Shareholders' Equity This shows that ROE = Return on Assets (ROA) × Financial Leverage Ratio It means that a company can earn high return on equity by earning high return on its assets and/or using more debt in its capital structure This decomposition helps identify whether a company's high ROE is a result of a company's more use of debt which is riskier - Even further manipulation shows that ROE = EBIT Margin × Interest Burden × Tax Burden × Asset Turnover × Financial Leverage It means that a company can have high ROE if it has high operating margin, lower interest, lower income tax, efficient use of assets (more dollars of revenue per dollar of asset) and/or high use of debt in its capital structure V.6.3 Example Abbott Laboratories: ROA2016 = = = 2,7% ROE2016 = = = 6,8% Page 19 FINANCIAL MANGEMENT ROI2016 = Net profit margin Total asset turnover = 0,067 0,4 = 0,03% Abbott Laboratories and Astrazeneca PLC are two companies in healthcare industry They are the global healthcare company that conducts innovative research and manufactures products for human health through every life stage In the annual forum held to appreciate the companies' performance, the figure was told that both the companies have earned a return on equity of 6.8% In 2016: Abbott Astrazeneca Return on equity 6.8% 6.8% Net profit margin 6.7% 9.6% Total assets turnover 0.4 0.2 Financial leverage ratio 2.5 Although both companies have a return on equity of 6.8%, their underlying strengths and weaknesses are quite opposite While Astrazeneca has higher net profit margin, its ability to use its assets to generate sales is average However, it has made up for it by higher use of debt in its capital structure The financialist suggests that board should carry out a detailed profitability and market positioning study of Abbott Laboratories to improve its profit margin while the management of Astrazeneca PLC is advise to improve its use of assets either by divesting from redundant assets or making efforts to increase its sales VI CASH FLOW ANALYSIS: Cash flow is the net amount of cash and cash-equivalents being transferred into and out of a business At the most fundamental level, a company’s ability to create value for shareholders is determined by its ability to generate positive cash flows, or more specifically, maximize long-term free cash flow Abbott (31/12/2016) Page 20 FINANCIAL MANGEMENT Operating activities Net income Depreciation Net income Adjustments Accounts Receivable Changes in Inventories Other Operating Activities Liabilities Net Cash Flow-Operating $1.400.000 $1.518.000 $1.789.000 ($177.000) ($98.000) $113.000 ($1.351.000) $3.203.000 Investing Activities Capital Expenditures Investments Other Investing Activities Net Cash Flows-Investing ($1.121.000) $886.000 ($13.000) ($248.000) Financing Activities Sale and Purchase of Stock Net Borrowings Other Financing Activities Net Cash Flows-Financing Effect of Exchange Rate ($274.000) $13.155.000 ($25.000) $11.147.000 ($483.000) Net Cash Flow $13.619.000 Comment: Cash flow from operations - Abbott's cash flow from operations generated from corporate earnings and other activities Mainly from net income, and net income adjustment Cash Flows from Investments - Abbott's investments include outside investments, capital expenditures and other investment activities But mostly from Capital expenditures Cash flow from financing activities - Cash flow from financing was adjusted by the proceeds from the sale of shares, net loans, and other financing Especially from net loans, this figure is very high Other financial flows also account for a very high proportion Page 21 FINANCIAL MANGEMENT Page 22 FINANCIAL MANGEMENT Page 23 ... $1,400,000 $4,423,000 $2,284,000 IV FINANCIAL STATEMENTS: - Financial statement analysis (or financial analysis) is the process of reviewing and analyzing a company's financial statements to make better... use of assets (more dollars of revenue per dollar of asset) and/or high use of debt in its capital structure V.6.3 Example Abbott Laboratories: ROA2016 = = = 2,7% ROE2016 = = = 6,8% Page 19 FINANCIAL. .. higher use of debt in its capital structure The financialist suggests that board should carry out a detailed profitability and market positioning study of Abbott Laboratories to improve its profit