Pharmaceuticals Case Study
The case discusses the differences of management operations in different industries. Therefore their results presented on financial statements differ in different areas. How industries use their investments, how they set the product line pricing, influences the financial statements results. Every industry has their own management philosophy and policy on which their base their business.
Exhibit 1. Balance sheet presented in percentage form and income statement for 13 companies.
Vertical analysis of the financial statements is constructed of elements that are measured as a percent of the total;
Balance sheet – elements are a percent of total assets,
Income statement- elements are a percent of total sales.
Ratio Analysis:
Liquidity ratios
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The lowest accounts payable has the industry under the number and that is software development (1.2%) and number 9 Pharmaceuticals industry (1.3%).
Current liabilities of commercial banking are 78.4%, and that would be the highest of all industries.
If we look at the receivables collection the same number of 23 has the Internet development and electric utility.
The lowest ROA have the commercial banking, electric utility and wholesale food distribution. The highest ROA has the software development.
The lowest dividend payout has the software development, internet development, and airline of 0%.
The highest dividend payout of 101.0% has the pharmaceutical. The software development has the 0% dividend payout, but they invest in research and development. The R&D for software development is 19.41%. The highest R&D has the pharmaceutical of 20, 18%, but the dividend payout is the highest also due to their different policies and relationship with creditors. Therefore, different philosophies and policies of operating the businesses lead to different numbers on financial statements. Other two percentages of R&D are 3.18% electric utility and 3.85% for auto manufacturing. The rest of the industries have no available R&D
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Then historical data may not be adjusted for inflation or deflation situations. Due to the firm diversification there are different qualitative factors in question. Such as target customers, products, suppliers network, competitive environment, then ethical/legal and regulatory policies. There is a difference between data found on financial statements from a well lead industry and poorly lead one. It all depends on the management and people running the industry. These factors cannot be figured out form any financial statement. It depends on a particular firm, or
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