Financial Analysis of Philip Morris International: 2014-2016

This report provides a financial analysis of Philip Morris International (PMI) from 2014 to 2016, examining its balance sheet and income statement. The analysis includes key financial metrics such as total current assets, total current liabilities, current ratio, total assets, total liabilities, revenue, gross profit, operating income, and net income. The report highlights trends in PMI's financial performance, including declining net income and gross profits, while also discussing the company's strategic shift towards alternative products and its investments in research and development. The report evaluates PMI's financial position and profitability, providing insights into its ability to sustain in the competitive market. The report also includes an overview of the company's efforts to address the health concerns associated with traditional cigarettes and its commitment to innovation in the tobacco industry.

U2 - DISCUSSION
QUESTION

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
Critically evaluating strategy and future................................................................................3
CONCLUSION................................................................................................................................3
REFERENCES................................................................................................................................4

INTRODUCTION
In order to sustain in the competitive environment, it is essential and important for
organisations to have robust financial positions. Philip Morris International is a multinational
corporation founded in America which specialises in manufacturing cigarette and tobacco
(Crosbie, Sosa and Glantz, 2017). The balance of assets versus liabilities on a company’s balance
sheet is considered by stakeholders when analysing a company. In this context, the report will
help in comprehending the financial statements and income statement of Philip Morris
International from year 2014-2016.
MAIN BODY
To survive in competitive positions and enhance the productivity and profitability of
companies, it is important for them to maintain effective and efficient financial position. Philip
Morris International is an American multinational corporation which was founded in 1900, has
specialisation in manufacturing cigarettes and tobacco.
Stakeholders before investing in any company first analyse the total balance of assets and
liabilities of the company (Kim, et.al., 2016). The more the value of net assets as compared to net
liability means that the company has more possibilities and opportunities to sustain in the market
environment. if company does not able to balance its assets in liabilities and it may have to face
Whilst in short term circumstances, it may not give rise to major issues for an organisation, but it
is normally considered to be an alarming sign that the corporation can no longer be able to cover
its obligations and will potentially bankrupt and be forced into liquidation or possibly snapped up
at a bargain price by another company (Wang, 2014). In this context, the balance sheet and
income statement of Philip Morris International for period of 2014 to 2016 is described below in
the table.
Table 1: Balance Sheet Position of Philip Morris International (Source: Philip Morris
International Inc. Annual Report, 2017)
Philip Morris
International
2014 In Us$ Million 2015 In Us$ Million 2016 In Us$ Million
Total Current Assets 15484 15804 17608
Total Current
Liabilities
15112 15386 16467
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Current Ratio 1.02 1.03 1.07
Total Assets 35187 35956 36851
Total Liabilities 47816 47200 49539
Total Liabilities And
Stakeholders Equity
35187 35956 36851
From the above table, it can be understood explicitly that in three years, the organisation’s total
current assets is more than the total current liabilities. The steady rise in current ratio signifies
that the Philip Morris International is able to transform its products into cash. It means that an
organisation in both short and long terms would be able to enhance its productivity and
profitability (Louis, Lys and Sun, 2014). Albeit the total long-term liability is more than the total
assets which can be the alarming sign for the organisation. In the below table, the company's
income position such as its operating income, net income and gross profit is mentioned which
will aid in acquiring knowledge about the company's past performance.
Table 2: Income statement of Philip Morris International (Source: Philip Morris International
Inc. Annual Report, 2017)
Philip Morris
International
2014 In Us$ Million 2015 In Us$ Million 2016 In Us$ Million
Revenue 29767 26794 26685
Gross Profit 19331 17429 17294
Total Operating
Expenses
7094 6738 6479
Operating Income 12237 10691 10815
Net Income 7493 6873 6967
Important
Profitability Ratios
2014 2015 2016
Gross Margin 64.9% 65% 64.8%
Net Margin 27.33% 25.06% 26.04%
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Operating Margin 41.11% 39.90% 40.53%
From the above table, it can be understood that the net income and gross profits of organisations
depicts declining trends. The operating income of the company declined by falls by 12 per cent
in 2016 as compared to 2014. It implied that an organisation is not able to earn sufficient profits
and revenue.
Critically evaluating strategy and future
The management is currently focusing on innovating alternative product for cigarettes as
they identified that it is harmful for the health of individuals. In their recent marketing campaign,
they proposed that the company will not sell cigarettes in United Kingdom. Company is
committed in raising awareness among their customers for no smoking or to quit smoking (Philip
Morris International Inc. Annual Report, 2017). For identifying new alternative and safe
product, the management of Philip Morris have invested 2.5 billion pounds on Research and
Development. Management focusing on developing e-cigareetes which are considered to be safe.
It will help in enhancing the declining profits and revenues and company will be able to sustain
in competitive market.
CONCLUSION
From the above report, it can be understood that Philip Morris International has been
facing steady losses due to reducing the quantity for manufacturing cigarettes. The revenue of an
organisation is also decreasing steadily. This report provided information about company's
current balance sheet and income statement position in most succinct and explicit manner.
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REFERENCES
Books and Journals
Crosbie, E., Sosa, P. and Glantz, S.A., 2017. Defending strong tobacco packaging and labelling
regulations in Uruguay: transnational tobacco control network versus Philip Morris
International. Tobacco control, pp.tobaccocontrol-2017.
Kim, J.B., et.al., 2016. Financial statement comparability and expected crash risk. Journal of
Accounting and Economics, 61(2-3), pp.294-312.
Louis, H., Lys, T.Z. and Sun, A.X., 2014. Conservatism, analyst ability, and forecast error:
evidence on financial statement users' ability to account for conservatism.
Wang, C., 2014. Accounting standards harmonization and financial statement comparability:
Evidence from transnational information transfer. Journal of Accounting Research, 52(4),
pp.955-992.
Online
Philip Morris International Inc. Annual Report, 2017 [Online]. Available
through:<http://phx.corporate-ir.net/External.File?
item=UGFyZW50SUQ9NjkwOTgzfENoaWxkSUQ9NDAwNjU5fFR5cGU9MQ==&t=1>
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