Merck Case Study

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Merck & Co.

Merck & Co., founded in 1891 as the United States subsidiary of the German company Merck, is a pharmaceutical manufacturer headquartered out of Kenilworth, NJ, with approximately 68,000 employees. As a cornerstone of the pharmaceutical industry, Team Eight chose Merck & Co. for our case study to understand the financial decisions of a successful industry giant. We will be providing an analysis of the following subjects:

•Cash flow for 2016

•Differences between cash flow and net income

•Outlook based on current financial statements

•The key risks the company faces for future success

Merck’s FY2016 income statement, statement of cash flows, and balance sheet are attached in the appendix for reference.

Merck & Co’s Cash Flow

In FY2016, the primary source of cash for Merck & Co. was from pharmaceutical sales, which amounted to $39,807 million. The company’s expenses totaled $35,148 million, taxes were $718 million, resulting in a net income of $3,941 million. The material adjustment to cash flows from operating activities were non-cash items, depreciation, and amortization of $5,441 million and intangible asset impairment charges of $3,948 million. Merck had positive cash flow from operations of $10,376 million. This indicates that Merck is doing well.

Merck’s net investment activity was ($3,210) million, primarily due to the buying and selling of securities and other investments. This is another indication that Merck is a healthy,

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