American Home Products Case
Table of Contents Introduction 3 Background 3 Culture of the Business 3 Stages of Development 3 Core problem 4 analysis and options 4 Risk analysis 5
First: The Business Risk 5
Second: The Financial Risk 6
Other kinds of risk: 7 Financial Analysis 7
The WAAC 7 Ratio Analysis 11 Recommendations: 12 References: 12
In 1981, AHP had reached sales of more than $4 billion by producing 1,500 marketed brands in 4 different kind of business; prescription drugs, packaged drugs, food products, and housewares and households products. Moreover, AHP is known to be the largest and profitable business in prescription of drugs; however, the company has a sizable market share in antihypertensive, tranquilizers, and oral contraceptives. The company has almost debt- free balance sheet and growing cash reserves (40% of net worth in 1981). AHP was able to gain this huge success in these lines was by marketing expertise.
Culture of the Business
AHP’s corporate culture distinctive and this culture had several components. First, the company’s culture was known to be reticence. A second element, that the managerial philosophy of AHP was prudence and had a strict financial control. For example, all expenditures that are greater than $500 had to be personally approved by Mr. Laporte, who was the CEO of AHP, even if was authorized in the corporate budget. Another important component of AHP’s culture was conservatism and risk aversion. Finally, The Company has a long- standing policy of centralizing, where the chief executive had complete authority.
Stages of Development
AHP’s managerial philosophy was proven to be successful as it produced impressive results. AHP’s financial performance was stable with consistent growth and profitability. In the year 1981, the firm was able to increase sales, earnings, and dividends for 29 years. However, this growth has been steady