ANALYSIS OF ABBOTT FINANCIAL REPORTS

TRƯỜNG ĐẠI HỌC KINH TẾ - ĐẠI HỌC ĐÀ NẴNG
CHUYÊN NGÀNH QUẢN TRỊ TÀI CHÍNH – LỚP 42K16-CLC
--------------------
HỌC PHẦN: FINANCIAL MANAGEMENT

Group

ANALYSIS OF ABBOTT
FINANCIAL REPORTS

1. Đặng Thị Huyền Trang
2. Đặng Đức Thịnh
3. Ngô Thành Tâm
4. Lê Thanh Chương
5. Đỗ Thị Tường Vy

Đà Nẵng, ngày 24 tháng 04 năm 2018

MỤC LỤC
I. INTRODUCTION OF ABBOTT LABORATORIES:.........................................3
I.1. Overview:....................................................................................................3
I.2. Abbott products:.........................................................................................3
II. BALANCE SHEET...........................................................................................5
Annual Income Statement..............................................................................5
III. INCOME STATEMENT:.................................................................................7
Annual Income Statement..............................................................................7


FINANCIAL MANGEMENT

IV. FINANCIAL STATEMENTS:...........................................................................8

IV.1. Common size Balance Sheets and Indexed Balance Sheets:....................9
IV.2. Common size Income Statements and Indexed Income Statements:.......11
V. FINANCIAL RATIOS:....................................................................................12
V.1. Profitability ratios:...................................................................................12
V.2. Liquidity ratios:.......................................................................................14
V.3. Leverage ratios:.......................................................................................15
V.4. Activity ratios:..........................................................................................16
V.5. Growth ratios:..........................................................................................18
V.6. Dupont analysis:......................................................................................18
VI. CASH FLOW ANALYSIS:.............................................................................20

I. INTRODUCTION OF ABBOTT LABORATORIES:
I.1. Overview:
- Abbott is a multinational health care company with headquarters in Lake Bluff,
Illinois, United States. The company was founded by Chicago physician Wallace
Calvin Abbott in 1888.
- This company is discovering new ways to make life better for more than 125 years,
making a different in over 150 countries and have over 99.000 employess working
around the word to make a lasting impact on heath.

Page 2


FINANCIAL MANGEMENT

I.2. Abbott products:
- Since 2013, Abbott Laboratories (ABT) has generated revenues from a diversified
healthcare business spanning across geographies and following primary segments:
 Nutritional Products
 Diagnostic Products

 Established Pharmaceuticals
 Medical Devices

Page 3


FINANCIAL MANGEMENT

POPULAR PRODUCT OF ABBOTT
- Prior to the spin-off of AbbVie (ABBV), which became effective on January 1, 2013,
the company reported its operations under five segments, which included Proprietary
Pharmaceutical Products.

Page 4


FINANCIAL MANGEMENT

II. BALANCE SHEET
Annual Income Statement
Period Ending:

Trend

12/31/2017

12/31/2016

12/31/2015

12/31/2014

Cash and Cash
Equivalents

$9,407,000

$18,620,000

$5,001,000

$4,063,000

Short-Term
Investments

$203,000

$155,000

$1,124,000

$397,000

Net Receivables

$5,249,000

$3,248,000

$3,418,000

$3,586,000

Inventory

$3,601,000

$2,434,000

$2,599,000

$2,643,000

Current Assets

Other
Assets

Current

$1,687,000

$2,319,000

$2,013,000

$2,867,000

Total

Assets

Current

$20,147,000

$26,776,000

$14,155,000

$13,556,000

Long-Term
Investments

$883,000

$2,947,000

$4,041,000

$229,000

Fixed Assets

$7,783,000

$8,458,000

$5,732,000

$7,869,000

Goodwill

$24,020,000

$7,683,000

$9,638,000

$10,067,000

Intangible Assets

$21,473,000

$4,539,000

$5,562,000

$6,198,000

Other Assets

$0

$0

$0

$0

$1,944,000

$2,263,000

$2,119,000

$3,288,000

$76,250,000

$52,666,000

$41,247,000

$41,207,000

Accounts Payable

$8,198,000

$5,090,000

$5,683,000

$5,350,000

Short-Term Debt /

Current Portion of
Long-Term Debt

$714,000

$1,325,000

$3,130,000

$4,437,000

Long-Term Assets

Deferred
Charges

Asset

Total Assets
Current Liabilities

Page 5


FINANCIAL MANGEMENT

II. BALANCE SHEET
Annual Income Statement
Period Ending:

Trend

12/31/2017

12/31/2016

12/31/2015

12/31/2014

Other
Current
Liabilities

$0

$245,000

$373,000

$680,000

Total
Current
Liabilities

$8,912,000

$6,660,000

$9,186,000

$10,467,000

Long-Term Debt

$27,210,000

$20,681,000

$5,871,000

$3,393,000

Other Liabilities

$9,030,000

$4,608,000

$4,864,000

$5,708,000

Deferred Liability
Charges

$0

$0

$0

$0

Misc. Stocks

$0

$0

$0

$0

Minority Interest

$201,000

$179,000

$115,000

$113,000

Total Liabilities

$45,353,000

$32,128,000

$20,036,000

$19,681,000

Common Stocks

$23,206,000

$13,027,000

$12,734,000

$12,383,000

Capital Surplus

$0

$0

$0

$0

Retained Earnings

$23,978,000

$25,565,000

$25,757,000

$22,874,000

Treasury Stock

($10,225,000)

($10,791,000)

($10,622,000)

($8,678,000)

Other Equity

($6,062,000)

($7,263,000)

($6,658,000)

($5,053,000)

Total Equity

$30,897,000

$20,538,000

$21,211,000

$21,526,000

Total Liabilities &
Equity

$76,250,000

$52,666,000

$41,247,000

$41,207,000

Stock Holders Equity

Page 6


FINANCIAL MANGEMENT

III. INCOME STATEMENT:
Annual Income Statement
Period Ending:

Trend

12/31/2017

12/31/2016

12/31/2015

12/31/2014

Total Revenue

$27,390,000

$20,853,000

$20,405,000

$20,247,000

Cost of Revenue

$12,337,000

$9,024,000

$8,747,000

$9,218,000

Gross Profit

$15,053,00

0

$11,829,000

$11,658,000

$11,029,000

Operating Expenses
Research
Development

and

$2,235,000

$1,422,000

$1,405,000

$1,345,000

Sales,
General
Admin.

and

$9,117,000

$6,672,000

$6,785,000

$6,530,000

Non-Recurring Items

$0

$0

$0

$0

Other Operating Items

$1,975,000

$550,000

$601,000

$555,000

Operating Income

$1,726,000

$3,185,000

$2,867,000

$2,599,000

Add'l
items

income/expense

$1,409,000

($1,341,000) $479,000

$69,000

Earnings Before Interest
and Tax

$3,135,000

$1,844,000

$3,346,000

$2,668,000

Interest Expense

$904,000

$431,000

$163,000

$150,000

Page 7


FINANCIAL MANGEMENT

Period Ending:

Trend

12/31/2017

12/31/2016

12/31/2015

12/31/2014

Earnings Before Tax

$2,231,000

$1,413,000

$3,183,000

$2,518,000

Income Tax

$1,878,000

$350,000

$577,000

$797,000

Minority Interest

$0

$0

$0

$0

Equity
Earnings/Loss
Unconsolidated
Subsidiary

$0

$0

$0

$0

Net
Income-Cont.
Operations

$353,000

$1,063,000

$2,606,000

$1,721,000

Net Income

$477,000

$1,400,000

$4,423,000

$2,284,000

Net Income Applicable
to
Common
Shareholders

$477,000

$1,400,000

$4,423,000

$2,284,000

IV. FINANCIAL STATEMENTS:
- Financial statement analysis (or financial analysis) is the process of reviewing and
analyzing a company's financial statements to make better economic decisions. These
statements include the income statement, balance sheet, statement of cash flows, and a
statement of changes in equity.
- Financial statement analysis is a method or process involving specific techniques for
evaluating risks, performance, financial health, and future prospects of an
organization.
IV.1. Common size Balance Sheets and Indexed Balance Sheets:

Abbott’s common size and indexed balance sheets
Regular (millions of $)

Common-Size (%)

Page 8

Indexed (%)


FINANCIAL MANGEMENT

Assets

2014

2015

2016

2014

2015

2016

2014

2015

2016

Cash

4,063

5,001

18,620

9.85

12.12

35.35

100.0

123.1

458.2

AR

3,586

3,418

3,248

8.70

8.28

6.16

100.0

95.3

90.6

Inv

2,643

2,599

2,434

6.41

6.30

4.62

100.0

98.3

92.1

Other CA

2,867

2,013

2,319

6.95

4.88

4.40

100.0

70.2

80.8

Tot CA

13,556

14,155

26,776

32.89

34.31

50.84

100.0

104.4

197.5

Net FA

5,935

5,730

5,705

14.40

13.89

10.83

100.0

96.5

96.1

LT Inv

229

4,041

2,947

0.55

9.79

5.59

100.0

176.4

128.6

Other LT

21,487

17,321

17,238

52.14

41.99

32.73

100.0

80.6

80.2

Tot Assets

41,207

41,247

52,666

100.0

100.0

100.0

100.0

100.1

127.8

Observe:
 Considering the percentages of asset items, the percentage of total current
assets rise. In particular, the fastest decline was in cash, inventory.
 The amount of cashes tended to increase, leading to the solvency of enterprise
in the future.

 The amount of accounts receivable is still stable. The business needs to
promote capital recovery acvities , avoiding stagnant capital and inefficient use
of capital.
 Inventory fell, which proved that products and goods of the business are high
quality and able to compete in the market.

Abbott’s common size and indexed balance sheets
Regular( milions of $)
Liab +
Equity

2014

2015

2016

Common-Size( %)

2014

Page 9

2015

2016

Indexed(%)

2014

2015

2016


FINANCIAL MANGEMENT

Note pay

3,937

2,688

868

11.1

7.4

1.8

100.0

68.2

22.0

Acct pay

1,064

1,081

1,178

3.0

3.0

2.5

100.0

101.5

110.7

Accr tax

3,654

3,771

3,251

10.3

10.4

6.8

100.0

103.2

88.9

Other Accr

1,812

1,640

1,363

5.1

4.5

2.8

100.0

90.5

75.2

Tol CL

10,467

9,186

6,660

29.5

25.3

13.9

100.0

87.7

63.6

LT Debt

3,393

5,871

20,681

9.6

16.2

43.2

100.0

173.0

609.5

Equity

21,526

21,211

20,538

60.9

58.5

42.9

100.0

98.5

95.4

Tol L+E

35,386

36,268

47,879

100.0

100.0

100.0

100.0

102.5

135.3

Observe:

 In 2014 compared 2016, current liabilities dropped by 0.156%, of which
accounts payables decreased by 0.5%. Long-term debt increased by 0.336% in
which long-term liabilities increased.
 In 2016 compared to 2014, accounts payable increased. Long-term debt was up
rapidly.
 The change in the value of debt of the above company is reasonable because
the company is focused on expanding production and business so the reduction
of short-term debt has shown the balance of payment policy in Short-term and
long-term investment must be funded from long-term capital.

IV.2. Common size Income Statements and Indexed Income Statements:

Abbott’s common-size and indexed income statements
Page 10


FINANCIAL MANGEMENT

Regular (millions of $)

Common-Size (%)

Indexed (%)

2014

2015

2016

2014

2015

2016

2014

2015

2016

Net Sales

20,247

20,405

20,853

100.0

100.0

100.0

100.0

100.8

102.9

COGS

9,218

8,747

9,024

45.5

42.9

43.3

100.0

94.9

98.0

Gross Profit

11,029

11,658

11,829

54.5

57.1

56.7

100.0

105.7

107.3

Adm

6,530

6,785

6,672

32.3

33.3

31.9

100.0

104.0

102.2

EBIT

2,668

3,346

1,844

13.2

16.4

8.8

100.0

125.4

69.1

Int Exp

150

163

431

0.7

0.8

2.1

100.0

108.7

287.3

EBT

2,518

3,183

1,413

12.4

15.6

6.8

100.0

126.4

56.1

EAT

1,721

2,606

1,063

8.5

12.8

5.1

100.0

151.4

61.8

Cash Div

2,284

4,423

1,400

11.3

21.7

6.7

100.0

193.6

61.3

Observe:
 Sales increase slowly, businesses need to promote sales activities to increase
sales.
 In 2016 compared to 2014, COGS decrease; Gross Profit increase; EBIT, EBT,
EAT not the same, 2015 is always the highest.

V. FINANCIAL RATIOS:
V.1. Profitability ratios:
V.1.1. Gross profit margin:

Page 11


FINANCIAL MANGEMENT

Formula

2014

2015

2016

Abbott company

Gross profit

54,5%

57,1%

56,7%

Industry average

Net sales

28,01%

29.71%

29,57%

 Comment: This figure shows that operating bussiness's ABBOTT is quite efficient,
with a slight growth in each year. However, compared with the sector average is still
lower. This difference may be due to the management process, the costs incurred high.

V.1.2. Net profit margin:
Formula

2014

2015

2016

Abbott company

Net Profit after taxes

11,3%

21,7%

6,7%

Industry average

Net sales

13.5%

14.1%

14.9%

 Comment: Similar to the gross profit margin, the profit margin of the company is
lower than that of its peers. In the period of 2014-2015, net profit margin increased
slightly due to business performance. By 2016, however, there will be a sharp drop in
profitability, as the cost of selling is too large for profit, including: cost of adversting,
research, markets, sales promotion,...

V.1.3. Return on assets (ROA):

Abbott company

Formula

2014

2015

2016

Net Profit after taxes

5,5%

10,7%

2,7%

Page 12


FINANCIAL MANGEMENT

Industry average

Total assets

8.2%

7.4%

8.1%

 Comment: We see a slight increase in 2014 and 2015, from 5.5% to 10.7%,

indicating that ABBOTT has made quite a bit of money on less investment. Compared
to the industry average, ABBOTT has surpassed over 2% in 2015. However, as the
costs incurred in selling too high, the ROA in 2016 dropped sharply from 10.7% to
2.7%, lower than industry average.

V.1.4. Return on equity (ROE):

Abbott company

Formula

2014

2015

2016

Net Profit after taxes

10,6%

20,9%

6,8%

18.4%

17.5%

20.1%

Shareholder’s equity
Industry average

 Comment: As the above ROA figures show, the less efficient business makes
the company's ROE lower than the industry average. Through ROA, the
company has used a lot of assets to generate profit together with the net profit
margin is always lower than the industry average making ROE the same
results. By 2015, the ROE of the company will increase and higher than the
industry average as the company uses financial leverage and improve margins.

V.2. Liquidity ratios:
V.2.1. Current ratios:

Abbott company

Formula

2014

2015

2016

Current assets

1.3

1.5

4.02

Page 13


FINANCIAL MANGEMENT

Industry average

1.84

Current liabilities

1.65

1.75

 Comment: Liquidity of the company over the years is greater than 1, this
proves that the current value of the company is always greater than the value of
short-term debt. In other words, the company's current assets are sufficient to
cover short-term liabilities, which is a good indication of the company's shortterm liquidity. From 2014 to 2016, this figure will increase continuously but by
2016, it will increase nearly 3 times due to factors in short-term debtors such as
buyers paying in advance, reward fund,... have droped.
 In addition, the company's parameters are always smaller than average, but the
average industry is tending to decrease. By 2016, it is significantly lower than
ABBOTT.
V.2.2. Quick ratios:
Formula

2014

2015

2016

Abbott company

Current assets - Inventory

1.04

1.3

3.7

Industry average

Current liabilities

1.38

1.28

1.38

 Comment: This figure has increased over the years, and soared in 2016. In
those three years, the parameters are higher than 1. It shows that ABBOTT
ensures fast payment of the company. However, compared to the average of the
enemy sector is still low, in 2016 is higher than. The sector's average
parameters have increased unstably, due to various factors.

V.3. Leverage ratios:
V.3.1. Debt to total assets:

Abbott company

Formula

2014

2015

2016

Total debts

0,48

0,49

0,61

1,19

1,91

1,51

Industry average
Page 14

FINANCIAL MANGEMENT

Total assets

 Comment: With this parameter, we see average debtors offering 0.5 grants
compared to each of the capital provided by shareholders in this period.
Compared to the industry average, this figure is relatively low, so it will be
easier to raise capital from creditors in the next period.

V.3.2. Debt to equity:
Formula

2014

2015

2016

Abbott company

Total debt

0.91

0,95

1,56

Industry average

Total capitalization

0.56

0.70

0.76

 Comment: The company's 2014 and 2015 are quite high and 2016 Its two
times higher than the industry average. However, the industry average tend to
increase over this period, suggesting a shift in sources. The formation of assets
from the source of capital to the source of loans increasingly popular. This
increase in the parameters indicates the greater the financial risk of the
company and the industry.

V.3.3. Interest coverage:

Abbott company

Formula

2014

2015

2016

EBIT

3.16

5.52

4.04

14.45

11.78

9.60

Industry average
Page 15


FINANCIAL MANGEMENT

Interest charges
 Comment: This figures are too low and many times lower than industry
average. Thus, long-term debt is only a small part of the company's long-term
capital structure (the highest is 5.52 in 2015).
V.4. Activity ratios:
V.4.1. Average receivable collection period:
Formula

2014

2015

2016

Abbott company

Day in the Year

64.64

61.14

56.85

Industry average

Receivable Turnover

43

45

44

 Comment: Parameters declined year by year, but still higher than industry
average. This shows that there have been many other trends in the past three
years, leading to a decline in the parameters. The industry average is quite
stable.
V.4.2. Inventory turnover ratios:
Formula

2014

2015

2016

Abbott company

COGS

3.49

3.37

3.71

Industry average

Inventory

6.99

6.96

7.58

 Comment: The number of inventory turns of the company kept relatively
stable. In the period 2014-2015, the industry average is also stable. However,
there is a slight increase in 2016. In general, this company's parameters are
good.
V.4.3. Payable turnover:

Formula
Page 16

2014

2015

2016


FINANCIAL MANGEMENT

Abbott company

Annual credit purchases

0.6

0.57

0.36

Industry average

Accounts Payable

7.38

7.48

7.40

 Comment: These figures have been decreasing year by year, indicating that
ABBOTT's credit rating is also declining. On the other hand, comparred with
the industry average is too low. To explain this, there may be two reasons:
either the company has gradually reduced its payables, or ABBOTT's ability to
pay is lower than in previous years.
V.4.4. Total assets turnover:
Formula

2014

2015

2016

Abbott company

Net sales

0.49

0.5

0.4

Industry average

Total assets

0.61

0.53

0.55

 Comment: Compared to the industry, the company generates relatively good
revenue per co-investment. The rate of conversion of total assets to generate
revenue is slower than the industry but the trend of the company and the
industry is quite similar in this period. This indicator tends to decrease, but still
relative to the sector.

V.5. Growth ratios:
V.5.1. Price to earning ratios:

Abbott company

Formula

2014

2015

2016

Price per share

31.3

12.83

55.16

Page 17


FINANCIAL MANGEMENT

Industry average

Earnings per share (EPS)

23.84

20.31

19.29

 Comment: The company's EPS is quite strong compared to the industry
average in this period. In particular, its EPS in 2015 will fall to $ 12.83. The
following year, thanks to improved business performance, the company's EPS
increased faster than industry average in 2016 at $ 55.16.
V.6. Dupont analysis:
- DuPont analysis is a technique that cuts through the return on equity (ROE) measure
to identify what exactly is generating a company's return, i.e. whether it is high profit
margin, efficient use of assets to generate more sales and/or use of more debt in its
capital structure.
- Return on equity (ROE) measures net income earned by the company for its
shareholders. It is calculated by diving net income by average shareholders' equity. We
can play some mathematics tricks to decompose ROE to some very meaningful

components.
V.6.1. Formula
Net Income
ROE
=

Average Shareholders' Equity

- Let us multiply and divide the above equation with Sales and Average Total Assets
Net Income
ROE
=

Sales

Average Total Assets

Average Shareholders' Equity × Sales × Average Total Assets

- After little tweaking we get the following:
Net
Income
ROE =

Sales

Sales
×

Average Total Assets

Average Total Assets

×

Page 18

Average Shareholders' Equity


FINANCIAL MANGEMENT

It looks familiar, doesn't it? Net income divided by sales is the formula for net profit
margin, sales divided by average total assets is the formula for total assets turnover
ratio and average total assets divided by average shareholders' equity is the formula
for financial leverage ratio (also called equity multiplier). This means we can rewrite
the above equation as follows:
ROE = Net Profit Margin × Total Assets Turnover Ratio × Financial Leverage
Ratio
It means that a company can have a high ROE if it has high net profit margin, high
total assets turnover ratio and/or high financial leverage.
V.6.2. Analysis
- So, what do we get from all this effort? It helps us identify the sources of a
company's return. If a company has high net profit margin and high asset turnover
ratio, it is great. However, it is quite possible that a company might have a high ROE
due to very high profit margin but very average asset turnover ratio. DuPont analysis
helps investors and even the management identify where the company has performed
well and where they have room for improvement.
- A little more tweaking helps us discovers another important relationship. If we
multiply and divide the formula for ROE with only average total assets, we get:

Net Income
ROE
=

Average Total Assets

Average Total Assets × Average Shareholders' Equity

This shows that ROE = Return on Assets (ROA) × Financial Leverage Ratio
It means that a company can earn high return on equity by earning high return on its
assets and/or using more debt in its capital structure. This decomposition helps
identify whether a company's high ROE is a result of a company's more use of debt
which is riskier.
- Even further manipulation shows that
ROE = EBIT Margin × Interest Burden × Tax Burden × Asset Turnover ×
Financial Leverage
It means that a company can have high ROE if it has high operating margin, lower
interest, lower income tax, efficient use of assets (more dollars of revenue per dollar
of asset) and/or high use of debt in its capital structure.
V.6.3. Example
Abbott Laboratories:
ROA2016 = = = 2,7%
ROE2016 = = = 6,8%
Page 19


FINANCIAL MANGEMENT

ROI2016 = Net profit margin Total asset turnover = 0,067 0,4 = 0,03%
Abbott Laboratories and Astrazeneca PLC are two companies in healthcare industry.

They are the global healthcare company that conducts innovative research and
manufactures products for human health through every life stage.
In the annual forum held to appreciate the companies' performance, the figure was
told that both the companies have earned a return on equity of 6.8%.
 In 2016:
Abbott

Astrazeneca

Return on equity

6.8%

6.8%

Net profit margin

6.7%

9.6%

Total assets turnover

0.4

0.2

Financial leverage ratio

2.5

3

Although both companies have a return on equity of 6.8%, their underlying strengths
and weaknesses are quite opposite. While Astrazeneca has higher net profit margin, its
ability to use its assets to generate sales is average. However, it has made up for it by
higher use of debt in its capital structure.
The financialist suggests that board should carry out a detailed profitability and
market positioning study of Abbott Laboratories to improve its profit margin while the
management of Astrazeneca PLC is advise to improve its use of assets either by
divesting from redundant assets or making efforts to increase its sales.

VI. CASH FLOW ANALYSIS:
Cash flow is the net amount of cash and cash-equivalents being transferred into and
out of a business. At the most fundamental level, a company’s ability to create value
for shareholders is determined by its ability to generate positive cash flows, or more
specifically, maximize long-term free cash flow.
Abbott (31/12/2016)

Page 20


FINANCIAL MANGEMENT

Operating activities
 Net income
 Depreciation
 Net income Adjustments
 Accounts Receivable
 Changes in Inventories

 Other Operating Activities
 Liabilities
Net Cash Flow-Operating

$1.400.000
$1.518.000
$1.789.000
($177.000)
($98.000)
$113.000
($1.351.000)
$3.203.000

Investing Activities
 Capital Expenditures
 Investments
 Other Investing Activities
Net Cash Flows-Investing

($1.121.000)
$886.000
($13.000)
($248.000)

Financing Activities
 Sale and Purchase of Stock
 Net Borrowings
 Other Financing Activities
Net Cash Flows-Financing
Effect of Exchange Rate

($274.000)
$13.155.000
($25.000)
$11.147.000
($483.000)

Net Cash Flow

$13.619.000

 Comment:
 Cash flow from operations - Abbott's cash flow from operations generated from
corporate earnings and other activities. Mainly from net income, and net
income adjustment.
 Cash Flows from Investments - Abbott's investments include outside
investments, capital expenditures and other investment activities. But mostly
from Capital expenditures.
 Cash flow from financing activities - Cash flow from financing was adjusted by
the proceeds from the sale of shares, net loans, and other financing. Especially
from net loans, this figure is very high. Other financial flows also account for a
very high proportion.

Page 21


FINANCIAL MANGEMENT

Page 22

FINANCIAL MANGEMENT

Page 23