Essays on Financial Analysts Case Study

Download full paperFile format: .doc, available for editing

Requirement 1Consolidated financial statements of a company are important documents that aid in the analysis of performance of a company (Donald, et al. , 2009). For the purposes of evaluation of financial statement, the analysis has been broken down into four major sections: activity, liquidity, solvency, and profitability. Takeda CompanyRatioCategoryKey RatioComputationYear 1999ActivityFixed Asset Turnover ratioNet Sales/Fixed Assets376.69%Total Asset Turnover ratioNet Sales/Total Assets63.65%LiquidityCurrent RatioCurrent Assets/Current Liabilities3.2610:1Quick RatioQuick Assets/Current Liabilities2.8762:1SolvencyDebt-to-asset ratioTotal Liabilities/Total Assets0.2937:1Debt-to-equity RatioTotal debt/Total equity0.4296:1ProfitabilityReturn on Equity (ROE)Net Income/Total Equity10.11%Net Profit MarginNet Income/Net Sales10.86%Requirement 2Takeda and Pfizer Company Ratio Comparison (Year 1999)RatioCategoryKey RatioComputationTakeda CompanyPfizer CompanyActivityFixed Asset Turnover ratioTotal Asset Turnover ratioNet Sales/Fixed AssetsNet Sales/Total Assets376.69%63.65%150.62%68.69%LiquidityCurrent RatioQuick RatioCurrent Assets/Current LiabilitiesQuick Assets/Current Liabilities3.2610:12.8762:11.2184:11.0383:1SolvencyDebt-to-asset ratioDebt-to-equity RatioTotal Liabilities/Total AssetsTotal debt/Total equity0.2937:10.4296:10.5680:11.3151:1ProfitabilityReturn on Equity (ROE)Net Income/Total Equity10.11%35.77%Net Profit MarginNet Income/Net Sales10.86%22.49%ActivityThe level of activity for Takeda and Pfizer Company show some disparities when different ratios are considered.

When we measure efficiency using fixed asset turnover ratio, Takeda company is the most efficient with 376.69%. However, using total asset turnover ratio shows that Pfizer Company is the most efficient in utilizing the total assets with 68.69%. A company is provided with assets for which it is required to use in order to generate revenue for the company.

Efficiency/activity ratios are used to show whether the company has utilised its assets efficiently (Weygandt, et al. , 2010). If the capacity to produce goods and services is not maximized, then it is argued that the assets of the company are not used efficiently. Barney (1991) observes that it is not rational to buy so many assets when they are only used in the production of very few goods and services. The total asset turnover for Pfizer Company is 68.69%.

This is a clear indication that there is maximum utilization of total asset in the production of revenue for the company. However, a high fixed asset turnover ratio like 376.69% for Takeda Company may not be a good signal since it points that the company has employed very few fixed assets in the production of revenue. The fixed asset turnover ratio is very high in both companies because non-current assets constitute a very low proportion of the total assets. LiquidityThe liquidity position of the two companies is good.

However, the liquidity level of Takeda Company is higher than the liquidity level of Pfizer Company. This is as per current ratio and the quick ratio. Both the current ratio and quick ratio of Takeda Company are higher than the current ratio and quick ratio of Pfizer Company. Horngren and Harrison (2009) notes that a company does not operate in isolation. It has to operate interdependently with other players in the economy. These relationships bring about transactions which result to financial obligations. Liquidity deals with issues related to financial obligations in the short term.

Liquidity ratios determine whether the company is well placed to honour its financial obligations in the short term when creditors demand for repayment. The key ratios under this category are the current ratio and the quick ratio. Current ratio shows whether the company is able to cover its short term obligations using the current assets. This ratio is 3.2610:1 and 1.2184:1 for Takeda Company and Pfizer Company respectively. This means that the current assets of Takeda Company will cover 3.2610 times the current liabilities of the company.

On the other hand the current assets of Pfizer Company will cover 1.2184 times the current liabilities of the company. The quick ratio indicates the rate at which the company will pay its short term debts using the very liquid assets of the company. Since Takeda Company has the largest ratio it can be argued that it is the most liquid company of the two.

Download full paperFile format: .doc, available for editing
Contact Us