Course Project: Pfizer Inc.
Fall 2010, F203A: Financial Accounting for Management
1. Table of Figures
Exhibit 1 in the Appendix contains a table of figures that is comprised of data pertinent to Pfizer’s financial performance in 2007 – 2009.
2. Common Size Balance Sheet Analysis
a. Common size balance sheets for Pfizer and Novartis in 2007 – 2009 are shown in Appendix (Exhibit 2).
* Items on the balance sheet decreased slightly between 2007 and 2008, but increased by almost 50% between 2008 and 2009. This is attributable to the acquisition of Wyeth (the deal was ...view middle of the document...
3. Common Size Income Statement Analysis
a. Common size income statement for Pfizer and Novartis in 2007 – 2009 are shown in Appendix (Exhibit 3).
* Pfizer experienced an increase in gross profits over the three years in terms of the absolute amount. This increase was largely due to a boost in sales and a decrease in the cost of sales. With regard to a percentage of revenue, gross profit increased drastically between 2007 and 2008, which was caused mainly by an abrupt decrease in the cost of sales. Between 2008 and 2009, even though the revenue increased, the percentage value of gross profit slightly decreased because the cost of sales went back up.
* The company’s income statements show an increase in operating expenses from 2007 to 2008, which is mainly due to a dramatic increase in “other operating expenses”. Between 2008 and 2009, total operating expenses show a fairly stable trend. Overall, despite the increasing operating expenses, the operating income goes up due to the solid upward trend of gross profits. Also, Pfizer’s net income appears increasing even after such factors as other income/expense and tax are taken into consideration.
* Not unlike Pfizer, Novartis experienced an increase in both gross profit and operating income over the three years in question. However, in the case of Novartis, the increase in gross profit, operating income and net income was due to the robust rise in revenue. In the case of Pfizer, cost savings were the major factor that enabled the company to boost gross profit and operating income.
4. Ratio and Trend Analysis
Accounting ratios characterizing financial performance of Pfizer and Novartis in fiscal years 2007 – 2009 are shown in Appendix (Exhibit 4).
a. Current and Quick Ratio
* Pfizer’s current ratio decreased between 2007 and 2008, but stabilized in 2009 (conceivably due to the acquisition of Wyeth).
* Their quick ratio decreased between 2007 and 2008 and continued to decline toward 2009 (although at a slower pace). The quick ratio stayed above one, and thus Pfizer was able to meet their financial obligations.
* The current and quick ratios of Novartis experienced a drop in 2008 (with quick ratio going below one), but sprung back up in 2009. Overall, based on the current and quick ratios, the two companies performed similarly.
b. D/E Ratio and interest coverage ratio
* Pfizer’s debt-to-equity ratio increased slightly between 2007 and 2008, and then drastically went up in 2009. This reflects the fact that Pfizer had to assume Wyeth’s debt after the acquisition.
* The same trend is observed in the interest coverage ratio: it decreased slightly between 2007 and 2008, and then drastically went down in 2009.
* Novartis’s debt-to-equity and interest coverage ratios show a similar tendency, and in their case this may be explained either by some restructuring in the company or simply by the effects of the late-2000s...