Abbott Case Study

Topics: Financial ratios, Financial ratio, Balance sheet Pages: 24 (6369 words) Published: May 22, 2009

Company Analysis –Abbott Laboratories

Anupam Paul

ACCT 6330


Executive Summary

This paper provides overview of Abbott Laboratories, a research-based, global pharmaceutical company that discovers, develops, manufactures and markets leading prescription medicines as well as many of the world's best-known consumer healthcare products. The paper discusses the company's position in the industry, and the extent of it's global operations. It also analyzes the company's stock, with a risk and return and valuation analysis. This study begins with a review of the environment and economy in which the firm is operating and then examines its financial statements and key financial ratios. Ratios examined for the latest period and evaluated over six accounting periods and industry, sector and market trends. In 2007, Abbott reported sales and income from ongoing operations of $25.9 billion and $4.4 billion, respectively. In addition, 2007 marked the 35th straight year Abbott’s dividends have increased. Abbott’s solid and better than industry performance is backed by its strong broad based products and geographic diversity. The ratio analysis found that the Abbott has strength in utilizing it financial leverage to increase it operating profit and return on assets and equity, but it need to improve its liquidity and credit policy from suppliers. Some of the ratios show that company profitability or asset utilization has decreased at Abbott from 2004 to 2006; however, this is most likely a short-term effect of the company's strategic reorganization to target its core business sectors and of the purchases and acquisitions that have not yet had the time to show their profitability. In our opinion, it is not something to be concerned about, since the current ratio figure in 2006 is still around the value of 1, showing that the company currently has no difficulties in covering its short-term liabilities. Nevertheless, this is something that needs to be kept under observation in the subsequent period of time, so as not to become uncontrolled. The company's policies of reducing debts show that this is a priority under observation for the company's management. The paper includes formulas and chart. The closing price on December 31, 2007, for Abbott was $56.15 per share. The equity valuation based on discounted cash flow and residual operating income model found that the Abbott stock is an under valued one. This study conclude that the Abbott continues to be a strong player in the pharmaceutical field, as it has racked up good profits with strong positive operating cash flow while keeping up a dynamic product line during the study period of financial statement between 2002-2007. Although health care is an area that often does fairly well during a recession, Abbott Labs has done very well despite the cavernous depths of this economic downturn. The financial result of 2008, which disclosed the above industry Sales and income growth, confirms the finding of this study.

Table of contents

1.Company Overview
1.2 Organization
1.3 History
1.4 Controversies
1.4.1 Lawsuits
1.4.2 Consumer rights
1.4.3 Florida fraud action
1.5 Products
1.6 Pharmaceutical Industry
1.7 Economy
1.8 Competitive Landscape
2. Financial Statement Analysis
2.1 Income Statement
2.2 Balance Sheet Reporting and Analysis
2.3 Statement of Cash Flow
3. Financial Ratio Analysis
3.1 Activity Ratios
3.2 Liquidity Ratio: Short-Term Solvency
3.3 Solvency Ratios/ Leverage Ratio
3.4 Profitability Ratios: Overall Efficiency and Performance 3.5 Market Data Analysis – Valuation
4. Credit Analysis
5. Valuing Equity Securities
6. Abbott 2008 Growth and Future Growth Estimates
7. Current Stock Performance and Future Estimate
8. Latest News
9. Conclusion
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