Financial Analysis Report of Bristol Myers Squibb and Eli Lilly
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Added on  2023/06/11
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This report analyses the financial position of two pharmaceutical companies viz. Bristol Myers Squibb and Eli Lilly. Both the companies are listed on New York Stock Exchange. The report covers the analysis of liquidity, profitability, solvency, efficiency and return on investment of both the companies.
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Running Head: Ratio Analysis FINANCIAL ANALYSIS REPORT
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Running Head: Ratio Analysis Introduction This report analyses the financial position of two pharmaceutical companies viz. Bristol Myers Squibb and Eli Lilly. Both the companies are listed on New York Stock Exchange. The companies are globally engaged in their business of manufacturing of various kinds of pharmaceutical medications. Bristol Myers is headquartered in New York City and Eli Lilly is headquartered in Indianapolis. Ratio Analysis: Liquidity: To analyse the profitability position of both the companies, current ratio and quick ratio have been used and analysed. Current ratio: Company Name20172016 Bristol Myers Squibb1.55:11.55:1 Eli Lilly1.32:11.37:1 Quick ratio: Company Name20172016 Bristol Myers Squibb1.37:11.35:1 Eli Lilly0.91:10.98:1
Running Head: Ratio Analysis The ideal current ratio is 2:1 which means that company must at-least have current assets of twice the value of its current liabilities to maintain a satisfactory liquidity position in the market. However, both the companies in the present case have not met the ideal benchmark. Therefore, their liquidity position in year 2017 and 2016 cannot be said to be satisfactory. When company’s liquid assets are considered, the inventory and prepaid expenses are not be included in the current assets as they are not easily convertible into cash and they are not liquid in nature. However, Bristol Myers is having better liquidity position than Eli Lilly. Profitability: To analyse the profitability position of both the companies, net profit margin and return on equity ratio have been used and analysed. Net profit margin Company Name20172016 Bristol Myers Squibb4.85%22.94% Eli Lilly-0.89%12.90% Return on equity Company Name20172016 Bristol Myers Squibb7.21%29.28% Eli Lilly-1.59%19.16% It can be observed from the above ratios that Bristol Myers is facing difficulty to maintain sound profitability position in the market as its profits are majorly declining since 2016. Though the revenue of Bristol Myer has increased but yet it could not improve its profitability position because of increase in operating and other expenses and it has resulted
Running Head: Ratio Analysis significant decline in its profits. Further the net margin ratio of Eli Lilly is negative which shows that it is suffering losses due to heavy expenditures incurred by it and such cost could not be recovered from its revenues from sales of medicines. The return on equity of Eli Lilly in 2017 is reported as negative and there is a huge decline in ROE of both the companies since 2016. This shows that Eli Lilly miserably failed to generate returns from the business using the funds of its shareholders. The net loss of Eli has resulted in negative ROE and also the lower net income of Bristol in 2017 has caused a major decline in its ROE. But it can be said that Bristol has better profitability position as compared to Eli Lilly. Eli must make required efforts to convert its losses into profit and Bristol Myers must strive to enhance its profits to achieve sound profitability position in the market. Solvency: To assess the solvency position of both the companies, debt to equity ratio has been used. Debt to Equity Company Name20172016 Bristol Myers Squibb59%35% Eli Lilly86%60% Debt equity ratio of the company determines the efficiency of its capital structure (Lee, Lee, Lee, 2009).It shows the proportion of assets of the companies that are financed using the external debts. In case of Bristol Myers, the debt equity ratio has increased in 2017 which shows that the company has financed its assets using more of its debt and therefore its financial risk has increased in 2017. Also, the debt equity of Eli Lilly has increased; this indicates that the company is aggressively using its external debts to finance the business
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Running Head: Ratio Analysis assets. Both the companies are therefore said to have faced high financial risk. But it can be said that Bristol is facing less leverage than Eli Lilly. Efficiency: Receivable turnover ratio Company Name20172016 Bristol Myers Squibb5.12 Times5.78 Times Eli Lilly5.33 Times5.63 Times Asset turnover ratio Company Name20172016 Bristol Myers Squibb0.620.59 Eli Lilly0550.57 The receivable turnover of both the companies is found to be slightly declining in 2017 since 2016 and this shows that both the companies are not efficiently managing its trade receivables. It signifies that the companies are not able to convert their receivable into cash on timely basis. This affects their operating cycle (Bragg, 2012). The asset turnover ratio of Bristol Myer has improved in 2017 since 2016 and it indicates that the company is able to generate more sales by utilising its total assets. However, the declining ratio of Eli shows that it is not able to efficiently use its overall assets to generate sales for it. Efficiency of Bristol Myer can be said to be better than Eli Lilly. Return on Investment: Company Name20172016
Running Head: Ratio Analysis Bristol Myers Squibb5.28%20.91% Eli Lilly-0.68%11.95% The ROI ofBristol Myers Squibb has declined considerably which shows that the company has not earned sufficient returns from its invested capital as compared to last year. However, ROI of Eli Lilly has been reported as negative and this shows the company has incurred severe losses in 2017. Conclusion: From the above analysis it can be said that Bristol Myer is performing better than Eli Lilly in all the aspects whether it be profitability, liquidity, solvency efficiency.
Running Head: Ratio Analysis References: Bragg, S. M. (2012).Business ratios and formulas: a comprehensive guide(Vol. 577). New Jersy: John Wiley and Sons. Lee, A. C., Lee, J. C., and Lee, C. F. (2009).Financial analysis, planning and forecasting: Theory and application. Singapore: World Scientific Publishing Co Inc. MorningStar.(2018).EliLilly.Retrievedfrom:< https://financials.morningstar.com/ratios/r.html?t=LLY> Accessed on: 24.06.2018. Morning Star. (2018). Bristol-Myers Squibb Company: Key Financial Ratios. Retrieved from:<http://financials.morningstar.com/ratios/r.html?t=BMY#tab-profitability> Accessed on: 24.06.2018.