Financial Analysis of Pfizer and Bristol Myers Squibb

FINANCIAL ANALYSIS
Company’s Background
For the purpose of financial analysis the two companies that have been selected are Pfizer
Inc. (PFE.N) and Bristol Myers Squibb Co. (BMY.N). Both the companies are listed on the
New York stock exchange and are operating within the pharmaceutical industry. Pfizer was
incorporated in 1942. It is engaged in the business of development and manufacturing of
various health products. Pfizer has around 13 brands and operates through its two major
segments: Pfizer Innovative Health (IH) and Pfizer Essential Health (EH). Bristol Myers
Squibb was incorporated in 1933. The product range of the company includes chemically
synthesized drugs, small molecules and products manufactured from biological biologics
processes (Reuters, 2018 a).
The results of the major financial ratios in relation to both the companies are as follows:
PFE.N BMY.N Industry
P/E (TTM) 26.26 23.62 31.23
Beta 0.99 1.19 0.92
Total Debt to Equity (aka D/E)
(MRQ)
74.88 55.9 12.74
Interest Coverage ratios (TTM) 8.93 - 35.11
Price-Earnings Ratio:
The price earnings ratio is a prominent valuation ratio that depicts the relationship of stock
price of the company with its earnings per share. It is calculated by dividing market price per
share with the earnings per share (Tracy, 2012). It tells about the price that the potential buyer

in the market is willing to pay on the basis of the current earnings on such shares (My
Accounting Course, 2018). This ratio is used by the investors to determine the fair market
value of the shares of the company on the basis of future predictions of earnings per share. In
the present case, the price earnings ratio of Pfizer is 26.26 times and this shows that investors
of Pfizer’s are willing to pay $ 26.26 for each dollar of earnings. Bristol Myers on the other
hand, has a price earnings ratio of 23.62 which implies that investors of Bristol Myers will be
ready pay $23.62 for each dollar of earnings (Reuters, 2018 a). Thus, it can be said that the
potential investors have higher growth expectations form Pfizer and therefore it has brighter
future prospects than Bristol. The average industry ratio in this regards is 31.23 times and this
shows that the investors are ready to pay $ 31.23 on an average for every dollar of earnings
(Reuters, 2018 a). As the PE ratios of both the companies are lower than the average industry
ratio it is clear that the investors of the both the companies have lower expectations from the
future of the companies.
PFE.N BMY.N Industry
0
5
10
15
20
25
30
35
P/E (TTM)
P/E (TTM)
Beta:
A company’s beta is the measure of a systematic risk. It is the measurement of volatility of
the returns as compared to the whole market (Corporate Finance Institute, 2017). The

company with higher beta has a higher risk and since it has the capacity to bear higher risk it
also has the potential to generate higher returns for its investors. A beta has a significant
impact on the share value of the company. Though, beta is calculated on the basis of the past
returns but it is important to realise that past returns are not necessary to estimate the future
returns potential of the company. Given that the beta for the stock market is 1 it has been
identified that the average industry beta of pharmaceutical industry is 0.92 (Reuters, 2018, b).
This shows that for each one 1% movement (increase or decrease) in the rate of return
provided in the market, the investors of the companies operating in that industry will also
expect 0.92% movement (increase or decrease) in the return. The lower beta than 1 shows
that average companies are less risky than the entire stock market due to its variability. The
beta of Pfizer is 0.99% and this implies that the investors will expect an increase (or
decrease) of .99% in the returns with the change in the market return of 1% either on the
upward side or downward side. When compared to the industry average the stock of the
company is more risky than the average companies in the same industry but still it is less
risky than the stock market (Reuters, 2018, a). The beta of Bristol Myers is highest among the
three units under consideration. The beta of 1.19% shows that with each 1% increase (or
decrease) in stock market return, the potential investors will expect an increase (or decrease)
of 1.19% in the company’s return. This shows that Bristol riskier than Pfizer and also it is
more risky than the average companies of the same industry. The variability of returns of
Bristol is higher than both its core competitor Pfizer and the other companies in this industry.