Understanding Financial Reports Essay

1401 Words Jan 2nd, 2014 6 Pages
Introduction In module 2 case study I am to do the following understanding financial reports and continue to review the financial statements of Merck and Novartis to learn additional information. The emphasis of this Case is to review the income statement, balance sheet and computation of ratios. Review the financial statements for the companies and answer the following questions for the last reporting year:
Balance Sheet
• What components of stockholders' equity does each of the companies disclose? o Merck & Company Inc
The components of the stockholders equity common stock (authorized and issued), other paid-in capital, retained earnings, accumulated other comprehensive loss, and treasury stock o Novartis International Ag
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In general, the higher the ratio is, the greater the company's liquidity (i.e., the better able to meet current obligations using liquid assets). The quick ratio is also known as acid test ratio. Both companies have a quick ratio but Novartis has a better quick ratio than Merck.
Merck & Company Inc
34,857-7,305/18,348 = 1.501
Novartis International Ag
124,216-6,744/30,946 = 3.796
◦ Inventory turnover = COGS/Inventory
The inventory turnover is a measure of the number of times inventory is sold or used in a time period such as a year.
Merck & Company Inc
Inventory not specified on the 10K
Novartis International Ag
18,756/6,744 = 2.781
• Leverage ratios: ◦ Debt-to-assets= Total debt/total assets
Debt to asset ratio is a financial ratio that indicates the percentage of a company's assets that are provided via debt. Novartis has a lower debt than Merck.
Merck & Company Inc
18,348 + 16,348 = 34,696
34,696/106,132 = .327
Novartis International Ag
5,945/124,216 = .048
◦ Debt-to-equity= total debt/total shareholders’ equity
The debt to equity ratio, usually abbreviated as D/E, is a financial ratio indicating the relative proportion of shareholders' equity and debt used to finance a company's assets. Novartis used fewer loans to finance the company’s assets than Merck.
Merck & Company Inc
34,696/536,020 = .065
Novartis International Ag
5,945/69,219 = .086

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