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FIN 460: INVESTMENT MANAGEMENT
PROJECT ON: ECONOMIC, INDUSTRY, FIRM, AND PRICE ANALYSIS.
Submitted To
Mr. Abdullah Al Aabed
Lecturer, School of Business
Submitted By
NAFIZ AL RAZI (0820046) MIZANUR RAHMAN (0820092)
ABU NASER CHOWDHURY (0710234) MOSTAFA REDWANUL AREFIN (0730192)
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TABLE OF CONTENT
Name Page No.
A. Introduction .... 02B. Methodology...02C. Economic Analysis ..03D. Industry Analysis .... 05
E. Company Analysis:Chapter 01 (Johnson & Johnson)..................................... 07
Chapter 02 (Pfizer)...14
Chapter 03 (Novartis)..20
Chapter 04 (GlaxoSmithKline)....27
F. Recommendation / Conclusion...... 33G. References:
Chapter 01.34
Chapter 02.34
Chapter 03.34
Chapter 04.34
H. APPENDIX:....35
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Introduction
The most important job for a security analyst is to find whether or not it will be wise to invest on
the security of selected industry, how are the stocks performing in this industry and which
companies stock would have the best future possibility to have highest return with the risk
associated with. The major objective of the term paper of FIN 460 is we have been asked to form
a group of 4 people and select an industry to start the job of a security analyst. We have decided
to do our analysis on Pharmaceutical Industry and for stock analysis we have chosen the New
York Stock Exchange. The following report will be covered the U.S. economy analysis, the
Pharmaceutical Industry analysis, four different companies of the same industrys stock analysis
and the recommendation on investment. The reason behind choosing this industry and the stock
market is because of the size of the industry and the availability of information. Beside thisindustry has a lifecycle which will never face decline stage. The demand for the products of this
industry will always keep rising as this is a basic need for human beings which promises more
secured investment. US profit growth was maintained even whilst other top industries saw little
or no growth.Despite this, the pharmaceutical industry is the most profitable of all businesses in
the U.S. In the annual Fortune 500 survey, the pharmaceutical industry topped the list of the
most profitable industries, with a return of 17% on revenue. The leading companies in this
industry in comparison with profit are Pfizer, Novartis, Merck & Co., Bayer, GlaxoSmithKline,
Johnson and Johnson etc. Pharmaceutical companies commonly spend a large amount on
advertising, marketing and lobbying. In the US, drug companies spend $19 billion a year on
promotions. Advertising is common in healthcare journals as well as through more mainstream
media routes. In some countries, notably the US, they are allowed to advertise directly to the
general public. These opportunities will never let the sale of these industries go down.
Methodology
To understand the purpose of the report first we need to form a systematic method of the whole
analysis. The approach will moved on with five stages. They are following:
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1. Pharmaceutical Industry analysis: This part will be covered the analysis ofworldwide Pharmaceutical business, Industry life cycle, economic structure of the
market, the competitive strategies and government regulations on the business.
2. U.S. Economy analysis: To know how the stock will perform a better understandingwill be the economy of which the stocks are based on. In this analysis, we will collect
data to show how the U.S. economy is performing in terms of GDP growth, Inflation
rate, and stock prices of U.S. 500 common stocks and will conclude with the U.S.
position of the business cycle.
3. Stock analysis: Four firms in Pharmaceutical Industry have been chosen to analyze thestock performances. These firms are GlaxoSmithKline, Johnson & Johnson, Novartis
and Pfizer. Each stock analysis will cover the stock price trends of previous two years,
income statement and balance sheet analysis, P/E ratio, dividend growth rates, future
plans and prospects of the firm and a recommendation part on the performance of the
firm in future. The price analysis of the stock will be also included in this section to
suggest weather the stock price is undervalued or overvalued with the help of technical
analysis.
4. Recommendation: Based on the complete analysis, it will be suggested whether toinvest or not in the Pharmaceutical Industry and if to invest, which stocks will provide
higher returns.
The analysis will be done within these four steps and afterward we will complete the report with
a conclusion paragraph.
ECONOMIC ANALYSIS
Money Supply
The U.S. money supply comprises currencydollar bills and coins issued by the Federal
Reserve System and the U.S. Treasuryand various kinds of deposits held by the public at
commercial banks and other depository institutions such as thrifts and credit unions. The money
supply is important because money is used in virtually all economic transactions; it has a
powerful effect on economic activity. An increase in the supply of money works both through
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lowering interest rates, which spurs investments, and through putting more money in the hands
of consumers, making them feel wealthier, and thus stimulating spending. Business firms
respond to increased sales by ordering more raw materials and increasing production. The spread
of business activity increases the demand for labor and raises the demand for capital goods. In a
buoyant economy, stock market prices rise and firms issue equity and debt. If the money supply
continues to expand, prices begin to rise, especially if output growth reaches capacity limits. As
the public begins to expect inflation, lenders insist on higher interest rates to offset an expected
decline in purchasing power over the life of their loans.
Gross Domestic Product (GDP)
GDP at purchaser's prices is the sum of gross value added by all resident producers in the
economy plus any product taxes and minus any subsidies not included in the value of the
products. It is calculated without making deductions for depreciation of fabricated assets or for
depletion and degradation of natural resources.
Economic growth driven by consumer confidence means the economy is getting on strong
footing. Now, more than ever, businesses need to understand consumer spending trends, and
understand how the recession has changed shopping habits.
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INDUSTRY ANALYSIS
Pharmaceutical Industry:
The pharmaceutical industry develops, produces, and markets drugs licensed for use
as medications. Pharmaceutical companies are allowed to deal in generic or brand medications
and medical devices. They are subject to a variety of laws and regulations regarding
the patenting, testing and ensuring safety and efficacy and marketing of drugs. In the United
States, new pharmaceutical products must be approved by the Food and Drug
Administration (FDA) as being both safe and effective. There are 46 listed pharmaceutical
companies in NYSE EURONEXT.
In this pharmaceutical industry, there are five forces for industry analysis.
Barrier to entry: High (Pharmaceuticals). Cost of R&D and patent limitations. Industry Competition: High, Advantages gained by the first mover advantage (patents). Supplier: Supplier power is low.
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Figure: Porters Five Forces Model for Industry Analysis
Buyer: Buyer power is low. Substitute: Low (with patents), medium (after patent expiry).
Figure: Recent Stock Price Performance of Health Care Sector.
In general, the main competitors for the pharmaceutical industry are Pfizer, GlaxoSmithKline,
Merck, Bristol-Myers Squibb, Abbott Laboratories, and Johnson & Johnson. However, with the
recent spur in mergers and acquisition (M&A) activities in various industries, the pharmaceutical
industry had a significant merger between two France competitors Sanofi-Synthelabo and
Aventis creating Sanofi-Aventis, one of the top three pharmaceutical companies with Pfizer
and GlaxoSmithKline.
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Chapter 1Companys Name: JOHNSON & JOHNSON
BY: MR. NAFIZ AL RAZI
ID: 0820046
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Companys Name:JOHNSON & JOHNSON (J&J).
Back Ground:Johnson & Johnson has been a part of people's lives for 125 years and a valuable
part of their investments for more than 65 years. Founded in 1886, they listed shares on the New
York Stock Exchange for public investors in 1944. The Company and its subsidiaries are
engaged in the research and development, manufacture and sale of a range of products in the
health care field. It has more than 250 operating companies conducting business worldwide. The
Company's operating companies are organized into three business segments: Consumer,
Pharmaceutical and Medical Devices and Diagnostics.
Company Profile: Johnson & Johnson is a holding company. During their history, they have
built the most comprehensive base of health care businesses in the world, generating
approximately 70 percent of their revenues from No. 1 or No. 2 global leadership positions in
their respective markets. Their consistent performance has enabled them to deliver an
exceptional track record of growth that few, if any, companies can claim: 27 consecutive years of
adjusted earnings increases; and 49 consecutive years of dividend increases. Over the last 10
years, Johnson & Johnson stock generated a 4.0 percent total return for investors compared to a
1.4 percent total return for the S&P 500. Their net income in 2010 was $13,334,000,000.
Stock Exchange Membership: NYSE.
No. of Outstanding Shares: 2,735,213,719.
Name of the CEO: William C Weldon.
Top Competitors: Abbott Laboratories, Novartis AG, and Covidien plc.
Recent Market Position:
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Analysis of Financial Statements:
INCOME STATEMENT
BALANCE SHEET STATEMENT
Item Description The Company
Sales to customers Aggregate revenue recognized during the period. J&Js sale to customer
declined from 2009 to
2010.
Operating
earnings
The net result for the period of deducting operating
expenses from operating revenue.
J&Js operating earnings
declined from increased
from 2009 to 2010.
Earnings before
provision for taxes
on income
Sum of operating profit and non-operating income before
income from equity method investments, income taxes,
extraordinary items, cumulative effects of changesaccounting principles, and non-controlling interest.
J&Js earnings before
provision for taxes on
income increased from2009 to 2010.
Net Earnings The portion of profit or loss for the period, net of income
taxes, which is attributable to the close relative.
J&Js earnings before
provision for taxes on
income increased from
2009 to 2010.
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Item Description The Company
Total Assets Sum of the carrying amounts as of the balance sheet date of all
assets that are recognized. Assets are probable future economic
benefits obtained or controlled by an entity as a result of past
transactions or events.
Johnson & Johnson's
total assets increased
from 2009 to 2010.
Total Liabilities Sum of the carrying amounts as of the balance sheet date of all
liabilities that are recognized. Liabilities are probable future
sacrifices of economic benefits arising from present obligations
of an entity to transfer assets or provide services to other entities
in the future.
Johnson & Johnson's
total liabilities
increased from 2009 to
2010.
Shareholders
Equity
Total of all Stockholders' Equity items, net of receivables from
officers, directors owners, and affiliates of the entity which are
attributable to the parent. The amount of the economic entity's
stockholders' equity attributable to the parent excludes the
amount of stockholders' equity which is allocable to that
ownership interest in subsidiary equity which is not attributable
to the close relative.
Johnson & Johnson's
shareholders equity
increased from 2009 to
2010.
FINANCIAL STRENGTH RATIO
Item Description The Company
Current ratio A liquidity ratio calculated as current assets divided by current
liabilities.
Johnson & Johnson's
current ratio improved
from 2009 to 2010.
Quick ratio A liquidity ratio calculated as (cash plus short-term marketable
investments plus receivables) divided by current liabilities.
Johnson & Johnson's
quick ratio improved
from 2009 to 2010.
Cash ratio A liquidity ratio calculated as (cash plus short-term marketable
investments) divided by current liabilities.
Johnson & Johnson's
cash ratio improved
from 2009 to 2010.
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MANAGEMENT EFFECTIVENESS RATIO
Item Description The Company
Gross profit
margin
Gross profit margin indicates the percentage of revenue
available to cover operating and other expenditures.
Johnson & Johnson's gross
profit margin deteriorated
from 2009 to 2010.
Operating
profit margin
A profitability ratio calculated as operating income divided
by revenue.
Johnson & Johnson's
operating profit margin
improved from 2009 to 2010.
Net profit
margin
An indicator of profitability, calculated as net income
divided by revenue.
Johnson & Johnson's net profit
margin improved from 2009 to
2010.
ROE A profitability ratio calculated as net income divided by
shareholders' equity.
Johnson & Johnson's ROE
deteriorated from 2009 to
2010.
ROA A profitability ratio calculated as net income divided by
total assets.
Johnson & Johnson's ROA
slightly improved from 2009
to 2010.
Price Analysis:
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Item Description The Company
P/E ratio The P/E ratio tells analyst how much an investor in common
stock pays per dollar of current earnings.
Johnson & Johnson's
P/E ratio slightly
declined from 2009
to 2010.P/OP ratio Because P/E ratio is calculated using net income, the ratio can
be sensitive to nonrecurring earnings and capital structure,
analysts can use price to operating profit.
Johnson & Johnson's
P/OP ratio slightly
declined from 2009
to 2010.
P/S ratio A rationale for the P/S ratio is that sales, as the top line in an
income statement, are generally less subject to distortion or
manipulation than other fundamentals such as EPS or book
value. Sales are also more stable than earnings and never
negative.
Johnson & Johnson's
P/S ratio slightly
declined from 2009
to 2010.
P/BV ratio The P/BV ratio is interpreted as an indicator of market judgment
about the relationship between a company's required rate of
return and its actual rate of return.
Johnson & Johnson's
P/BV ratio declined
from 2009 to 2010.
Johnson & Johnson (JNJ - Analyst Report) posted first-quarter 2011 earnings of $1.35 per share
and 4.7% above the year-ago earnings of $1.29. Johnson & Johnsons revenues for the reported
quarter increased 3.5% year-over-year to $16.2 billion. Revenues exceeded (beat) the Zacks
Consensus Estimate of $15.8 billion. Including one-time items, the company reported earnings of
$1.25, 22.8% below the year-ago earnings of $1.62.
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Future outlook and recommendations:
I currently have a neutral recommendation on Johnson & Johnson. This is supported by the
Zacks #3 Rank (short-term Hold rating). Even though Johnson & Johnson has been facing
challenges in the form of OTC product recalls, pricing austerity in the EU and genericcompetition, I believe that the companys diversified business model, lack of cyclicality and
strong financial position will help it in tough situations.
Other catalysts could be regulatory approval for a couple of important pipeline candidates.
Johnson & Johnson is currently seeking FDA approval for abiraterone acetate plus prednisone
for the treatment of metastatic, advanced prostate cancer in patients who have received prior
chemotherapy containing a taxane.
So, I can easily recommend buying the stocks of Johnson & Johnson for short-term.
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Chapter 2
Companys Name: PFIZER INC.
BY: ABU NASER CHOWDHURY
ID: 0710234
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Pfizer Inc. (PFE)
Company profile:
Pfizer Incorporated is a global pharmaceutical company, ranking number one in sales in the
world. The company is based in New York City. Pfizer's shares were made a component of the
Dow Jones Industrial Average on April 8, 2004. Within recent years, Pfizer has faced some
major happening for which their stock price has been moved downward and also some positive
news to put an upward pressure on the stock value. Pfizer pleaded guilty in 2009 to the largest
health care fraud in U.S. history and received the largest criminal penalty ever levied for illegal
marketing of four of its drugs. Called a repeat offender, this was Pfizer's fourth such settlement
with the U.S. Department of Justice in the previous ten years. On January 26, 2009, Pfizer agreed
to buy pharmaceutical giantWyethfor US$68 billion, a deal financed with cash, shares and
loans. The deal was completed on October 15, 2009.
Pfizer exists in a monopolistically competitive situation. They are involved in many markets
because of their great variety of products, and the majority of those markets are monopolistically
competitive. This means that there is a market where many firms produce similar goods, but
each maintains some independent control of its own price. Although Pfizer faces a
monopolistically competitive environment, they still hold a great deal of market power. Market
power refers to the ability to alter the market price of a product.
Recent relative information is following:
Company nature biopharmaceutical company
Popular products Lipitor, Lyrica, Viagra, Advil etc.
Index Membership:Dow Jones Composite
NYSE.
Number of shares of common stock outstanding 7,995,220,402
Market position on sale First
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Income statement, balance sheet and cash flow analysis:
Though their Total revenue shows a higher return but the net income faced a small decline but
still this net income is the highest in the industry.
Analysis of two years income statement of Pfizer inc. is given bellow:
Description Dec 31, 2010
(Thousands)
Dec 31, 2009
(Thousands)
Total Revenue 67,809,000 50,009,000
Operating Income or Loss 9,422,000 10,827,000
Net Income Applicable To Common Shares 8,257,000 8,635,000
Following are the two comparisons between important total figures of the two years balance
sheet. Here, a notable change is in the total asset section. The amount of total asset has been
decreased significantly from 2009 to 2010. Also they have successfully reduced the total
liabilities of the firm.
Description Dec 31, 2010
(Thousands)
Dec 31, 2009
(Thousands)
Total current asset 60,468,000 61,670,000
Total Assets 195,014,000 212,949,000
Total Current Liabilities 28,609,000 37,225,000
Total Liabilities 107,201,000 122,935,000
Total shareholder equity 87,813,000 90,014,000
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These are the significant particles in cash flow of last two years. It is notable that financial
activities faced major decline in cash flow from last year to this year.
Description Dec 31, 2010
(Thousands)
Dec 31, 2009
(Thousands)
Total cash flow from operating activities 11,454,000 16,587,000
Total Cash Flows From Investing Activities (492,000) (31,272,000)
Total Cash Flows From Financing Activities (11,174,000) 14,481,000
Ratio analysis:
Current ratio: A liquidity ratio calculated as current assets divided by current liabilities. Pfizer
Inc.'s current ratio improved from 2008 to 2009 and from 2009 to 2010.
Description 2010 2009 2008 2007 2006
Current ratio 2.11 1.66 1.59 2.15 2.20
Quick ratio: A liquidity ratio calculated as (cash plus short-term marketable investments plus
receivables) divided by current liabilities. Pfizer Inc.'s quick ratio deteriorated from 2008 to 2009
but then improved from 2009 to 2010 exceeding 2008 level.
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Description 2010 2009 2008 2007 2006
Quick ratio 1.51 1.12 1.24 1.65 1.76
Cash Ratio: A liquidity ratio calculated as (cash plus short-term marketable investments) divided
by current liabilities. Pfizer Inc.'s cash ratio deteriorated from 2008 to 2009 but then improved
from 2009 to 2010 exceeding 2008 level.
Description 2010 2009 2008 2007 2006
Cash ratio 0.98 0.70 0.88 1.17 1.30
ROE: A profitability ratio calculated as net income divided by shareholders' equity. Pfizer Inc.'s
ROE deteriorated from 2008 to 2009 and from 2009 to 2010.
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Description 2010 2009 2008 2007 2006
Return on equity 9.40 9.59 14.08 12.53 27.10
Stock price analysis:
Following chart shows last two years stock price analysis with regards to their trading volume.
Notable change happened after May 2010, stock price have fallen significantly and the possible
reason were the Fraud Issue happened on the year 2009. After that the stock price keeps moving
upward with minor fluctuations.
Recommendation:
From aforementioned analysis we can say that, though the stock have suffered minor fluctuation
these days but by judging the Industry life and opportunities of the firm it can be conclude that
the stocks of Pfizer are still undervalued. At this point, any rational investor should take the
position on to hold or to buy the stocks. NASDAQ has recently recommended the stock is in a
position of strong buy. The market expectation on the price is also to rise.
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Chapter 3
Companys Name: NOVARTIS AG.
BY: MIZANUR RAHMAN
ID: 0820092
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Company Name: NOVARTIS AG.
Back Ground: Novartis AG (Novartis), incorporated on February 29, 1996, provides healthcare
solutions. Throughout the years, Novartis and its predecessor companies have discovered and
developed many innovative products for patients and consumers worldwide. The Companys
portfolio includes medicines, preventive vaccines and diagnostic tools, generic pharmaceuticals
and consumer health products. The Company operates in four divisions: pharmaceuticals,
vaccines and diagnostics, sandoz, and consumer health. On August 25, 2010, Novartis completed
the acquisition of a further 52% interest in Alcon, Inc. (Alcon). On June 1, 2010, the Company
completed the acquisition of Oriel Therapeutics Inc. On February 3, 2010, the Company
completed the acquisition of Corthera Inc. On April 8, 2011, the Company completed the merger
of Alcon, Inc.
Industry: Health Care
Jurisdiction of incorporation: Switzerland
Number of shares of common stock outstanding: 2,289,445,178
Recent Market Price:
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1. Analysis of Financial Statement:
NOVARTIS Financial Overview
Income StatementNovartis
Dec 312009
Dec 312010 Change (2009 - 2010)
Revenues 45103 51,561 6,453
Gross Profit 32924 37,073 4,149
Operating Income 9982 11,526 1,544Income beforetaxes 9922 11,702 1780
ITEM DESCRIPTION THE
COMPANY
Revenues Aggregate revenue recognized during the period
(derived from goods sold, services rendered,
insurance premiums, or other activities that constitute
an entity's earning process). For financial services
companies, also includes investment and interest
income, and sales and trading gains.
Novartis AG's
revenues
increased from
2009 to 2010.
Operating
income
The net result for the period of deducting operating
expenses from operating revenues.
Novartis AG's
operating income
increased from
2009 to 2010.
Net income The consolidated profit or loss for the period, net of
income taxes, including the portion attributable to the
noncontrolling interest.
Novartis AG's net
income increased
from 2009 to
2010.
Balance Sheet,
Novartis
Dec 31
2009
Dec 31
2010 Change (2009 - 2010)
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ITEM DESCRIPTION THE COMPANY
Total Assets Sum of the carrying amounts as of the balance sheet
date of all assets that are recognized. Assets are
probable future economic benefits obtained or
controlled by an entity as a result of past transactions
or events.
Novartis AG's total
assets increased
from 2009 to 2010.
Shareholders
equity
Total of Stockholders' Equity (deficit) items, net of
receivables from officers, directors owners, and
affiliates of the entity including portions attributable
to both the parent and noncontrolling interests
(previously referred to as minority interest), if any.
The entity including portions attributable to the
parent and noncontrolling interests is sometimes
referred to as the economic entity.
Novartis AG's total
equity increased
from 2009 to 2010.
Total liabilities Sum of the carrying amounts as of the balance sheet
date of all liabilities that are recognized. Liabilities
are probable future sacrifices of economic benefits
arising from present obligations of an entity to
transfer assets or provide services to other entities in
the future.
Novartis AG's total
liabilities increased
from 2009 to 2010.
KEY RATIOS
Novartis AG, liquidity Analysis
Dec 31 2009 Dec 31 2010
Current
ratio 1.73 1.08
Quick
ratio 1.4 0.80
Cash ratio 0.89 0.33
Shareholders Equity 57,462 69,769 12,307
Total Liabilities 38,043 53,549 15,503
Total Assets 95,505 1,23,318 27,813
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RATIOS DESCRIPTION THE COMPANY
Current ratio A liquidity ratio calculated as current assets divided
by current liabilities.
Novartis AG's current
ratio deteriorated
significantly from 2009
to 2010.
Quick ratio A liquidity ratio calculated as (cash plus short-term
marketable investments plus receivables) divided by
current liabilities.
Novartis AG's quick
ratio deteriorated
significantly from 2009
to 2010.
Cash ratio A liquidity ratio calculated as (cash plus short-term
marketable investments) divided by current
liabilities.
Novartis AG's cash
ratio deteriorated
significantly from 2009
to 2010.
KEY RATIOS
Novartis AG, Profitability Analysis
Dec 31 2009 Dec 31 2010
Return on Sales (%)
Gross profit margin 73.00 71.9
Operating profit
margin 22.13 22.35
Net profit margin 18.62 18.99
Return on Investment
Return on equity (ROE) 14.64 15.5
Return on assets (ROA) 8.8 7.94
ITEMS DESCRIPTION THE COMPANY
Gross profit margin Gross profit margin indicates the
percentage of revenue available to cover
operating and other expenditures.
Novartis AG's gross profit
margin deteriorated from 2009
to 2010.
Operating profit
margin
A profitability ratio calculated as
operating income divided by revenue.
Novartis AG's operating profit
margin improved from 2009 to
2010.
Net profit margin An indicator of profitability, calculated as
net income divided by revenue.
Novartis AG's net profit margin
improved from 2009 to 2010.
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ROE A profitability ratio calculated as net
income divided by shareholders' equity.
Novartis AG's ROE improved
from 2009 to 2010 not.
ROA A profitability ratio calculated as net
income divided by total assets.
Novartis AG's ROA
deteriorated from 2009 to 2010.
2. Analysis of Price:Price Analysis
Novartis AG, Valuation Ratios
Dec 31 2009 Dec 31 2010
Price to earnings (P/E) 14.72 13.16
Price to operating profit (P/OP) 11.18 12.39
Price to sales (P/S) 2.74 2.75
Price to book value (P/BV) 2.15 2.05
RATIOS DESCRIPTION THE COMPANY
P/E ratio The P/E ratio tells analyst how much an
investor in common stock pays per
dollar of current earnings.
Novartis AG's P/E ratio slightly
declined from 2009 to 2010.
P/OP ratio Because P/E ratio is calculated using net
income, the ratio can be sensitive to
nonrecurring earnings and capital
structure, analysts can may use price to
operating profit.
Novartis AG's P/OP ratio slightly
declined from 2009 to 2010.
P/BV ratio The P/BV ratio is interpreted as an
indicator of market judgment about the
relationship between a company's
required rate of return and its actual rateof return.
Novartis AG's P/BV ratio slightly
declined from 2009 to 2010.
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Last 1 Year Price Chart of Novartis:
3. Future Outlook and Recommendation:Currently, I have a Neutral recommendation on Novartis. The company carries a Hold rating in
the short run. Though pleased with Novartis wide range of products and its efforts to diversify
further, as is evident by the acquisition of eye-care company Alcon, I prefer to remain on the
sidelines due to the imminent patent cliff faced by the company.
I expect relaxing to be an important compound for Novartis going forward. Regulatory filings
are planned for 2013 and the U.S. FDA's fast-track designation has already been granted. More
importantly, this acquisition will also boost Novartis's biotech capabilities. It is also become an
important revenue earner for Novartis in the future. This latest indication recommendation for
Diovan can be seen as a last-ditch attempt to maximize revenues from the drug ahead of itspatent expiry.
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Chapter 4
Companys Name: GlaxoSmithKline (GSK)
BY: MOSTAFA REDWANUL AREFIN
ID: 0730192
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COMPANY ANALYSIS
Companys Name: GlaxoSmithKline
GSK is a global organization with offices in over 100 countries and major research centers in the
UK, USA, Belgium and China. GlaxoSmithKline plc (GSK) is global healthcare group, which is
engaged in the creation and discovery, development, manufacture and marketing of
pharmaceutical products, including vaccines, over-the-counter (OTC) medicines and health-
related consumer products. GSK shares are listed on the London and New York Stock
Exchanges and their corporate head office is in Brent ford, UK. It was listed in NYSE in 17 Jan
1944.
No. of Shares Outstanding: 2,598,132,010
Top Competitors: Novartis Ag (NVS), Pfizer Inc. (PFE), Sanofi-Aventis (SNY).
It can be said that GSK should try improving their quarterly revenue growth, which is not
satisfactory even compared with the industry. They are maintaining a satisfactory P/E ratio and
they should try to improve on their EPS. Overall, condition in compare with the competitor and
industry can be concluded as satisfactory.
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Income Statement, Balance Sheet and Cash Flow Analysis
INCOME STATEMENTDescription Dec 31, 2010
(Millions)Dec 31, 2009(Millions)
Total Revenue 43, 700 45,866
Operating Income 5,823 13,622
Net Income Applicable To Common Shares 2,515 8,943
Their Total revenue decreases slightly compared to the previous year, but there is a significant
reduction in their operating income in comparison with 2009.
BALANCE SHEETDescription Dec 31, 2010
(Millions)
Dec 31, 2009
(Millions)
Total current asset 28,373
Total Assets 69,216
Total Current Liabilities 19,569
Total Liabilities 53,059
Total shareholder equity 16,157
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CASH FLOWDescription Dec 31, 2010
(Millions)
Dec 31, 2009
(Millions)
Total cash flow from operating activities 9,461 11,589
Total Cash Flows From Investing Activities -3,068 -6,661
Total Cash Flows From Financing Activities -7,382 -3,224
These are the important data to analyze the cash flow of GSK for the years 2010 and 2009; here
we can see a significant decrease in the overall cash flow. Cash flow from operations might
decrease due to investment in some other areas. In the investment section we see a decrease in
the amount which means the investment has been reduced and finally by looking at the financial
activities it can be said the company has taken more money from its investors in 2010.
Current Ratio: GlaxoSmithKline PLC's current ratio deteriorated from 2009 to 2010.
Quick Ratio: GlaxoSmithKline PLC's quick ratio deteriorated from 2009 to 2010.
Cash Ratio: GlaxoSmithKline PLC's cash ratio deteriorated from 2009 to 2010.
PROFITABILITY Dec 31, 2010 Dec 31, 2009
Profit Margin 6.59%
Operating Margin 32.04%
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Management Effectiveness Dec 31, 2010 Dec 31, 2009
Return on Asset (ROA) 12.7%
Return on Equity (ROE) 19.16%
Stock Price Analysis
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From all the above chart and tables, it can be concluded that the price of the stock might go up in
the future, as measure of relative price change and consistency is very high. From the 52 week
high and low it is seen the price is very close to its highest range, also the previous day's closing
price for GSK was close to its 50-day moving average. The analysts are suggesting a hold or
buy, therefore investors should hold on their shares.
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Recommendation / Conclusion
The pharmaceutical industry has been remaining the most profitable of all businesses in the U.S
for years. The stock price of any good firm has hardly seen downturn. It is believed that the
industry is still in its growth stage because with the increasing number of population, the demand
of the pharmaceutical product will keep increasing. The U.S economy is also recovering after a
long recession started with the 2008 housing market crash. There GDP is growing gradually and
government money supply shows that they are trying to stimulate the economy. Economic
condition and industry analysis showing this is the best time to invest if anyone looking into
investment in pharmaceutical industry. Among the stock have been analyzed, though Johnson &
Johnson has been facing challenges in the form of OTC product recalls, pricing austerity in the
EU and generic competition, it is believed that the companys diversified business model, lack ofcyclicality and strong financial position will help it in tough situations. This is the reason for
which this stock has been recommended to buy for short-term. Stocks of Pfizer inc. has always
been a subject of controversy. For their previous legal settlements with the U.S government,
many times their stock price has been suffered seriously. But after the last acquisition wyeth the
stock price is rising. Beside they keep on providing high dividend to the investors. So the best
recommendation for this stock is rite now to buy or to hold for long time dividend earning. After
the recent acquisition of eye-care company Alcon, stock price are just rising and they have good
prospect for future. It is recommended highly to buy for short term. The stock of
GlaxoSmithKline has always been a subject of price consistency. The volatility of price change
is very low. This stock would be the best for to hold on or to buy for long time. Based on this
information, one can design the portfolio in the best way possible to maximize the profit and
minimize the risk.
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REFERENCES OF CHAPTER - 01
http://www.nyse.com/ http://www.stock-analysis-on.net/ http://www.nyse.com/about/listed/lc_all_industry_5.html?ListedComp=All&supersector=19&se
ctor=122&subsector=1120128534179&start=41&startlist=1&item=3&next=clicked&firsttime=do
ne&default=2
http://www.sbtdc.org/pdf/industry_analysis.pdf
REFERENCES OF CHAPTER - 02
http://www.nyse.com/
REFERENCES OF CHAPTER - 03
http://www.nyse.com/ http://www.nyse.com/about/listed/nvs.html http://in.reuters.com/finance/stocks/companyProfile?symbol=NVS.N http://www.stock-analysis-on.net/NYSE/Company/Novartis-AG http://www.novartis.com/about-novartis/company-history/index.shtml
REFERENCES OF CHAPTER - 04
http://www.nyse.com/ http://investing.businessweek.com/businessweek/research/stocks/financials/financials.asp
?ticker=GSK:US&dataset=balanceSheet&period=A¤cy=native
http://www.tradingeconomics.com/united-states/inflation-cpi http://www.stock-analysis-on.net/NYSE/Company/GlaxoSmithKline-PLC
http://www.nyse.com/http://www.nyse.com/http://www.stock-analysis-on.net/http://www.stock-analysis-on.net/http://www.nyse.com/about/listed/lc_all_industry_5.html?ListedComp=All&supersector=19§or=122&subsector=1120128534179&start=41&startlist=1&item=3&next=clicked&firsttime=done&default=2http://www.nyse.com/about/listed/lc_all_industry_5.html?ListedComp=All&supersector=19§or=122&subsector=1120128534179&start=41&startlist=1&item=3&next=clicked&firsttime=done&default=2http://www.nyse.com/about/listed/lc_all_industry_5.html?ListedComp=All&supersector=19§or=122&subsector=1120128534179&start=41&startlist=1&item=3&next=clicked&firsttime=done&default=2http://www.nyse.com/about/listed/lc_all_industry_5.html?ListedComp=All&supersector=19§or=122&subsector=1120128534179&start=41&startlist=1&item=3&next=clicked&firsttime=done&default=2http://www.sbtdc.org/pdf/industry_analysis.pdfhttp://www.sbtdc.org/pdf/industry_analysis.pdfhttp://www.nyse.com/http://www.nyse.com/http://www.nyse.com/http://www.nyse.com/http://in.reuters.com/finance/stocks/companyProfile?symbol=NVS.Nhttp://in.reuters.com/finance/stocks/companyProfile?symbol=NVS.Nhttp://www.stock-analysis-on.net/NYSE/Company/Novartis-AGhttp://www.stock-analysis-on.net/NYSE/Company/Novartis-AGhttp://www.nyse.com/http://www.nyse.com/http://investing.businessweek.com/businessweek/research/stocks/financials/financials.asp?ticker=GSK:US&dataset=balanceSheet&period=A¤cy=nativehttp://investing.businessweek.com/businessweek/research/stocks/financials/financials.asp?ticker=GSK:US&dataset=balanceSheet&period=A¤cy=nativehttp://investing.businessweek.com/businessweek/research/stocks/financials/financials.asp?ticker=GSK:US&dataset=balanceSheet&period=A¤cy=nativehttp://www.tradingeconomics.com/united-states/inflation-cpihttp://www.tradingeconomics.com/united-states/inflation-cpihttp://www.stock-analysis-on.net/NYSE/Company/GlaxoSmithKline-PLChttp://www.stock-analysis-on.net/NYSE/Company/GlaxoSmithKline-PLChttp://www.stock-analysis-on.net/NYSE/Company/GlaxoSmithKline-PLChttp://www.tradingeconomics.com/united-states/inflation-cpihttp://investing.businessweek.com/businessweek/research/stocks/financials/financials.asp?ticker=GSK:US&dataset=balanceSheet&period=A¤cy=nativehttp://investing.businessweek.com/businessweek/research/stocks/financials/financials.asp?ticker=GSK:US&dataset=balanceSheet&period=A¤cy=nativehttp://www.nyse.com/http://www.stock-analysis-on.net/NYSE/Company/Novartis-AGhttp://in.reuters.com/finance/stocks/companyProfile?symbol=NVS.Nhttp://www.nyse.com/http://www.nyse.com/http://www.sbtdc.org/pdf/industry_analysis.pdfhttp://www.nyse.com/about/listed/lc_all_industry_5.html?ListedComp=All&supersector=19§or=122&subsector=1120128534179&start=41&startlist=1&item=3&next=clicked&firsttime=done&default=2http://www.nyse.com/about/listed/lc_all_industry_5.html?ListedComp=All&supersector=19§or=122&subsector=1120128534179&start=41&startlist=1&item=3&next=clicked&firsttime=done&default=2http://www.nyse.com/about/listed/lc_all_industry_5.html?ListedComp=All&supersector=19§or=122&subsector=1120128534179&start=41&startlist=1&item=3&next=clicked&firsttime=done&default=2http://www.stock-analysis-on.net/http://www.nyse.com/8/6/2019 FIN 460 Final Project
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APPENDIX
1. Porters Five Forces Model for Industry Analysis. (Pg- 04)2. Recent Stock Price Performance of Health Care Sector. (Pg- 05)3. Recent Market Position of JNJ. (Pg- 07)4. Share Price Performance of JNJ on 3 Years. (Pg- 13)5. Common Stock of Pfizer. (Pg- 22)6. Last Year Price Chart of Novartis. (Pg- 26)7. Stock Price Analysis of GlaxoSmithKline. (Pg- 31)