The Financial Detectives 2009

Company A and B are both from the health products industry but they have very different scope in terms of their customer and market base. Company A is the world’s largest prescription-pharmaceutical company and has a higher market share than Company B. Company A has higher financial values than Company B in net fixed assets, current assets, and lower financial value in intangibles. The high value of current assets for Company A means it has a good source of fund in its day-to-day operations. In addition, company A seems to have more funds available for the firm’s operations due to its high value in fixed assets. Company B high value in intangible comes from its high number of brand recognition. Looking at the market data, the beta of company B is slightly higher than company A. Company A appears to be less risky than Company B. This is to be expected because Company B is a diversified health-products company.

The liquidity ratios show that both companies A and B will not have any liquidity problem. Current ratio and quick ratio of Company A are higher than Company B. Company A holds more current asset in term of cash and short-term investments. These cash and short-term investments can be used to invest in the future. In terms of asset management, Company A has a higher inventory turnover than Company B this means that inventories are sold and replaced faster in Company A. Company A has higher inventory turnover because those institutions, particularly hospitals use health products faster. Company B having the lower value in inventory turnover means they have slower sales then Company A but I do not view this, as a bad thing because Company B is a diversified health-products company so slower sales I would believe would be expected. Debt management ratios reveal that Company B uses more debt in financing than company A. It is due to company B needs more capital for the research and development budget. From the view point of DuPont analysis, asset turnover of...