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Financial Analysis

FINANCIAL

ANALYSIS

FINANCIAL STRUCTURERATIOSThese are calculated to analyze the firms performance. These are of following types:

PROFITABILITY

RATIOS

Gross profit margin Operating profit margin Net profit margin Earnings per share Return on equity Return on investment Return on assets

LIQUIDITY/CREDITORS Current ratio Quick(Acid-test) ratio

RATIOS

ACTIVITY

RATIOS

Inventory turnover Average collection period Average payment period Total asset turnover 1 | Page

Financial Analysis

DEBT

RATIOS

Debt to asset ratio Times interest earned ratio Debt to equity ratio

TIME

SERIES ANALYSIS

It evaluates performance over time. It is the comparison of past and current performance using the ratios. It enables analysts to assess the firms progress.

CROSS

SECTIONAL ANALYSIS

It is the comparison of different firms financial ratios at the same point in time, in the same industry.

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Financial Analysis

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Financial Analysis

INTRODUCTIONAbbott Laboratories is a highly diversified global health care company devoted to the discovery, development, manufacture and marketing of pharmaceutical, nutritional and medical products, including devices and diagnostics. The company is principally engaged in the manufacturing, import and marketing of research-based pharmaceutical, nutritional, diagnostic, hospital and consumer products and in providing toll manufacturing services. With over 70,000 employees worldwide and a global presence in more than 130 countries, Abbott is committed to improving peoples lives by providing cost-effective health care products and services that consistently meet the needs of its customers. Abbott Pakistan is part of the global healthcare corporation of Abbott Laboratories, Chicago, USA. Abbott started operations in Pakistan as a marketing affiliate in 1948; the company has steadily expanded to comprise a work force of over 1500 employees. Its shares are now quoted at all exchanges of Pakistan. It has the honor of being the first pharmaceutical company in Pakistan to achieve Class-A certification by a world renowned organization, Messers Oliver Wight. The company has also pioneered the concept of disease specific nutrition in Pakistan through introduction of specific products. Abbott Pakistan has leadership in the field of pain management, anesthesia, medical nutrition, anti-infective and diagnostics. Their wide-range of products is managed and marketed through four marketing arms. The diagnostic division 4 | Page

Abbot Pakistan

A Promise for Life

Financial Analysis operates from its office located at Korangi, Karachi. With the leading products in several key segments of the diagnostic market, sales and support staff are available in all major cities of the country. Pakistan has a very vibrant and forward-looking pharma industry. At the time of independence in 1947, there was hardly any pharma industry in the country. Today Pakistan has about 370 pharmaceutical manufacturing units including those operated by 30 multinationals present in the country. The local companies can be classified into three categories:

Manufacturing Units Importers that import drugs in finished form Franchisors The prevailing market size of the industry is worth Rs 80. 11 billion, of this total the market share of local pharma companies is 59%. The Pakistan Pharmaceutical Industry meets around 70% of country s demand of Finished Medicine. The domestic pharma market, in term of share market is almost evenly divided between the nationals and the multinationals. Pakistan is a developing pharmaceutical market, with a large population and economic progress evident. Private spending accounts for 65% of total healthcare expenditure sourced through out-of pocket payments, international aid and religious or charitable institutions.Public spending on the other hand accounts only 1% of total GDP. Pakistan pharma industry is relatively young in the international markets. Pakistan pharma industry boasts of 5 | Page

Financial Analysis quality producers and many units are approved by regulatory authorities all over the world. Like domestic market the sales in international market have gone almost double during last five years. Pharma industry is focusing to an export vision of USD 500 million by 2013. In the meantime, exports are also likely to be boosted by new regional and global opportunities. Abbott Pakistan has a market share of 5. 2% of Pakistan pharmaceutical market (2009). Abbott has been doing better than the average pharmaceutical company over the 8 years under observation.

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Financial Analysis

FINANCIAL

STRUCTURE

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Financial Analysis

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Financial Analysis

FINANCIAL OVERVIEW

OF

ABBOT

Net sales increased by 30.4% from Rs. 8.43 billion in FY09 to Rs. 11.0 billion in FY10, mainly attributable to increased sales volume and limited price adjustments. Thus Abbot Laboratories crossed its Rs. 10 billion sales benchmark, highlighting the excellent performance of the company. Abbott Pakistan achieved a market share of 6.1% in the pharmaceutical and nutrition market. In 2009 market share was 5.8%. Cost of goods sold increased by 19.24% compared to FY09 on account of inflationary pressures, increased energy tariffs, and increase in the cost of imported pharmaceutical constituents due to depreciation of rupee in FY10. As a result, gross profit posted a growth of 49.74% from Rs. 2.46 billion in FY09 to Rs. 3.69 billion in FY10. Selling, distribution and administrative expenses increased significantly in the restrictive economic environment, leading to increase in operating profit. Coupled with a 23.12% decrease in other income and a 37% increase in other charges, this led to an overall 98% increase in EBIT in FY10. Finance cost increased by 39.80% due to increase in bank charges on short-term financing needs. Taxation increased by 65.77% over FY09-10. This led to increase in profit after taxation from Rs. 609 million in FY09 to Rs. 1177 million in FY10. This strong performance was reflected in the EPS, which increased by 93% from Rs. 6.22 per share in FY09 to Rs. 12.02 per share in FY10.

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Financial Analysis

RatiosProfitability Ratios 2010 2009

Gross profit margin Operating profit margin Net profit margin Earnings per share Return on equity Return on investment Return on assets

33% 16.5% 10% 12.02 31.67% 20.33%

27% 10.2% 7% 6.22 19.87% 12.28%

Reasons for increase/decrease Gross profit margin Gross profit margin has increased from 27% to 33% giving proof of the well managed cost of goods sold at Abbott Laboratories, despite the negative economic outlook of the pharmaceutical sector. The sales of the pharmaceutical 10 | P a g e

Financial Analysis products increased by 4%, while the sale of nutritional and other segments increased by 22%. The sales overall increased by 28% with major contribution coming from local sales. Recent floods in the country are likely to lead to an increase in demand for pharmaceutical products due to the spread of diseases and lack of hygiene in the region. Operating profit margin Operating profit margin has increased from 10.2% to 16.5% due to increase in operating profit in 2010 as compare to 2009. Net profit margin It also showed an increasing trend from 7% to 10% due to increase in net profit after tax. Although finance cost and taxation has increased but still net profit increased because of efficient performance of the company and increase in sales. Earnings per share The earnings per share increased from Rs. 6.22 per share in FY09 to Rs. 12.02 per share in FY10, a strong growth of 93% resulting from the improved profitability position of the company. Return on equityROE trend show that it increased 31.67% from 19.87% due to 93% increase in net profit after tax. It may be attributed by a devaluation of the rupee. The increase in equity was driven by 31.20% increase in revenue reserves.

Return on investment It cannot be calculated because company doesnt have long term debts. Return on assets 11 | P a g e

Financial Analysis Return on assets increased from 12.28% in FY09 to 20.33% in FY10 due to the increase in net profits. The increase in assets was driven by increase in stock in trade, short and long-term advances, deposits and prepayments. Liquidity Ratios 2010 2009

Current ratio Quick ratio

2.19:1 1.01:1

2.02:1 0.94:1

Reasons for increase/decrease Current ratio The liquidity position of the company improved over FY09-10 since the current ratio increased from 2.03 in FY09 to 2.19 in FY10 due to 16.63% increase in current assets compared to a 9.72% increase in current liabilities over FY09-10. The increase in current assets was mainly due to 23.56% increase in stock in trade, 217.05% increase in loans and advances and 48.03% increase in deposits and prepayments, whereas the current liabilities increased solely due to increase in trade payables.

Quick(Acid-test) ratio The quick ratio increased by a smaller amount from 0.94 in FY09 to 1.01 in FY10. This shows that the major proportion of increase in current assets, which contributed to the improvement in liquidity position, was the stock in trade of the company. Since, stock in trade is not considered an easily liquidated asset; hence the liquidity position of Abbott 12 | P a g e

Financial Analysis Laboratories remained almost stable over FY09-10. However, the current and quick ratios are both above the 1.00 benchmark, indicating the well managed liquidity position of the company.

Activity Ratios

2010

2009