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(PDF) Analysis of financial statements

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Added on  2021-02-20

(PDF) Analysis of financial statements

   Added on 2021-02-20

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Case Study
(PDF) Analysis of financial statements_1
Table of ContentsINTRODUCTION...........................................................................................................................31. EVALUATION OF FINANCIAL ANALYSIS..........................................................................3Profitability ratio analysis ..........................................................................................................3Limitations of Financial ratios ...................................................................................................82. INVESTMENT APPRAISAL.....................................................................................................8Net present value (NPV):............................................................................................................9Internal rate of return (IRR):.......................................................................................................93.1 Rationale of selecting the target company..........................................................................113.2 Synergistic gains over the acquisition.................................................................................123.3 Valve and financing of the proposed deal of acquisition....................................................123.4 Potential impact on performance regarding acquisition.....................................................123.5 Acquisition risk assesses and challenges...........................................................................12CONCLUSION..............................................................................................................................13REFERENCES..............................................................................................................................14
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INTRODUCTIONA case study is evaluation of facts and figures related to a specific phenomenon, case or acompany. This assessment can be numerical or theoretical with use and application of varioustools and techniques to determine different aspects related with performance, state and positionin industry, implication of case and others. In the present report a case study is presented overAstraZeneca Plc which is British-Swedish multinational pharmaceutical and biopharmaceuticalorganization established in 1913. The organisation have gained success in past few years andacquiring business and firms from long, since 1939. The report includes evaluation of financialperformance of company through its ratio analysis and comparing it with one of its competitors.Along with this, investment appraisal techniques are also explained in detail with their criticaldiscussion. For the last section of the report the potential of a target company are presentedwhich AstraZeneca is planning to acquire.1. EVALUATION OF FINANCIAL ANALYSISProfitability ratio analysis Gross profit ratio- It refers to the ratio that reveals the profit earned by the company aftermaking adjustment regarding the cost of goods sold from the sales. It depicts the relationship inbetween the net sales and the gross profit of the organization. It helps in assessing the operationalefficiency of business (Linares-Mustaros, Coenders and Vives-Mestres, 2018). It is calculatedby dividing the gross profit with that of the Net sales. Higher the gross profit ratio, better is theperformance of the companies. Year / companiesAstraZenecaJohnson&Johnson201477.60%69.40%201581.20%69.30%201682.10%69.80%201780.80%66.80%201877.70%66.80%Interpretation- The above table reflects that the gross profit ratio of AstraZeneca ishigher than Johnson&Johnson over the last five years. This indicates that the former company isefficiency performing its operations by making optimum use of the resources. It also reflects thatafter making the cost relating to the sale of the goods, the gross profit of AstraZeneca is better3
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and showing an increasing trend which in turn shows that the company is performing with fullefficiency in comparison with its competitor.Liquidity ratio analysisCurrent ratio- It is referred as the most useful liquidity ratio that measures the ability ofan enterprise in paying off its short term liabilities. It tells about the liquidity position of thecompany and in making the analysis regarding the use of the current assets made by an entity inorder to satisfy their current debt or the payables (Chen and et.al., 2018). It is computed bydividing the short term assets with the current liabilities. Greater the current ratio, depicts a betterliquidity position od the company. An ideal quick ratio is stated as 2:1. Year / companiesAstraZenecaJohnson&Johnson20140.962.3620151.082.1720160.872.4720170.81.4120180.951.47Interpretation- From the above evaluation it has been interpreted that AstraZeneca has toadopt corrective measures for making the effective use of its current assets because the resultantcurrent ratio of this company is lower than its competitor called as Johnson&Johnson. Thecurrent ratio of Johnson&Johnson is good as it is close to the ideal ratio which means that theyare making effective use of their short term assets against meeting their current obligation. Thus,the liquidity position of AstraZeneca is poor over its rivalry. Solvency ratio analysis Debt-equity ratio- It is the type of the gearing ratio which states the leverage position ofthe company by showing the evaluation in relation to the capital that is been contributed by theinvestors or the creditors and the owners funds present within the organization. It helps inmeasuring the debt financing of an enterprise against its shareholders funds. This ratio reflectsability of the shareholders in covering their outstanding debts at the time of the businessdownturn (Barnes, 2015). This ratio is calculated by dividing the long term debts with the totalequities. Lower the ratio, better is the position of an entity in terms of their financial leverage. 4
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