Merck

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Merck Co., Inc.

• Financial Analysis Report
• by
• Jonathan Caplin
• Choi Jeoung Hee
• Zairina Junid

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Company Introduction
Merck Co., Inc. is a leading research-driven
pharmaceutical products and services company.
 Merck discovers, develops, manufactures and
markets a broad range of innovative products to
improve human and animal health, directly and
through joint ventures.

• Propecia treats male pattern baldness
• Zocor treats high cholesterol
• Crixivan used for treatment of HIV
• Proscar treats prostrate growth
• Maxalt treats migraine headaches
• Singulair treats asthma

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Financial Introduction

• Income Statements
• Balance Sheets
• Cash Flow and Ratio Comparisons

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Income Statements
Sales Gross Margin Expenses Net Income
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Income Statement Trend Analysis
Fiscal year ended 1998 1999 2000 2001
Net Sales 100 121.62 150.06 177.39
Less Cost of Goods Sold 100 100.00 161.17 208.08
Gross margin 100 117.01 138.13 144.45
Less Operating expenses 100 155.22 189.15 192.60
Income from operations 100 95.42 109.30 117.23
Other revenues expenses 100 -458.05 -492.85 -441.95
Income before tax 100 105.98 120.79 127.90
Income Tax expense 100 94.60 104.07 108.18
Income before Nonrecurring items 100 112.24 129.98 138.75
Net income (loss) 100 112.24 129.98 138.75
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Income Statement Trend Analysis - Net Sales
In millions
1998 1999 2000 2001
Net Sales 26898.20 32714.00 40363.20 47715.70
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Common Size Income Statement
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Income Statement Trend Analysis - Gross Profit
In millions
1998 1999 2000 2001
Gross Profit 12972.80 15179.80 17919.70 18739.20
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Income Statement Common Size Analysis
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Income Statement Trend Analysis - Operating
Expenses
In millions
1998 1999 2000 2001
Operating Expenses 4684.50 7271.20 8860.50 9022.50
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Income Statement Common Size Analysis
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Income Statement Trend Analysis - Income from
Operations
In millions
1998 1999 2000 2001
Income from operations 8288.30 7908.60 9059.20 9716.20
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Income Statement Common Size Analysis
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Income Statement Trend Analysis - Net Income
In millions
1998 1999 2000 2001
Net Income (loss) 5248.20 5890.50 6821.70 7281.80
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Income Statement Common Size Analysis
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Profitability Ratios

• Return on Sales
• Return on Assets
• Return on Stockholders Equity

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Ratio Analysis

• Rate of Return on Net Sales Measures the
  proportion of each sales dollar in profits

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Ratio Analysis

• Return on Assets measures how effectively assets
  are used to generate income for shareholders

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Ratio Analysis

• Return on Equity measures how effectively
  amounts invested by shareholders are used to
  generate income

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Balance Sheets

• Trend Common Size Analysis
• Total assets
• Total Liabilities
• Contributed Capital
• Retained Earnings

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Balance Sheets
Year ended 1998 1999 2000 2001
Current asset 10,228.50 11,259.20 13,597.90 12,961.60
PPE, net 7,843.80 9,676.70 11,482.10 13,103.40
Other assets 13,781.10 14,699.00 15,074.90 17,941.70
Total assets 31,853.40 35,634.90 40,154.90 44,006.70
Current liabilities 6,068.80 8,758.80 9,954.10 11,544.20
Long term liabilities 12,982.80 13,634.50 15,368.40 16,412.40
Contributed capital 5,644.20 5,950.20 6,295.50 6,937.00
Retained earnings 20,186.70 23,447.90 27,363.90 31,489.60
Treasury stock and other SE -13,029.10 -16,156.50 -18,827.00 -22,376.50
Total liabilities Stockholders equity 31,853.40 35,634.90 40,154.90 44,006.70
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Trend of Total Assets

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Trend of Total Liabilities
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Trend of Contributed Capital
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Trend in Retained Earnings
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Common of Total Liabilities
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Common Contributed Capital
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Common Retained Earnings
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Summary
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Current Ratio
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Acid-Test Ratio
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Debt Ratio
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Statement of Cash Flows

• Total Operating Activities
• Investing Activities
• Financing Activities

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Statement of Cash Flows

• Net cash inflows from operating activities ( in
  millions)

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Statement of Cash Flows

• Net cash outflows from investing activities ( in
  millions)

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Statement of Cash Flows

• Net cash outflows from financing activities ( in
  millions)

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Quality of Earnings
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Statement of Cash Flows

• Net change in cash and cash equivalents ( in
  millions)

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Ratio Analysis

• Current Ratio A measure of short-term liquidity.

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Ratio Analysis

• Debt Ratio Measures the proportion of assets
  financed by debt

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Ratio Analysis

• Rate of Return on Net Sales Measures the
  proportion of each sales dollar in profits

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Ratio Analysis
How is this possible that Merck lags behind the
industry average for rate of return on net sales
yet still has positive cash inflows
from operating activities?????
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Ratio Analysis

• Inventory Turnover Ratio Measures how quickly
  inventory is sold

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Ratio Analysis

• Dividend Yield Market value returned to the
  shareholder

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Ratio Analysis

• Days sales in receivables Measures how quickly
  accounts receivable are collected short term
  liquidity.

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Ratio Analysis

• Price/Earnings Ratio An indicator of the market
  price per share of stock

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Ratio Analysis
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Ratio Analysis
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In Summary

• Recommendation to buy this
• stock
• Companys trend on profitability
• performing well
• Companys trend on solvency
• significant expansion
• Companys trend on cash flows
• favorable trend
• Companys trend on ratio analysis
• - huge turnover ratio

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Merck and Co.
Thank you for coming!