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About Abbott Serving Global Health Care Needs Investor Relations Abbott Laboratories (ABT) is a broad-based health care company that discovers, develops, manufactures and mar care – from prevention and diagnosis to treatment and cure. Abbott's principal businesses are global pharmaceut diagnostics and cardiovascular devices. Headquartered in north suburban Chicago, Abbott serves customers in mo nearly 90,000 at more than 100 manufacturing, distribution, research and development, and other locations arou The principal market for Abbott’s common shares is the New York Stock Exchange. Shares are also listed on the Ch and electronic exchanges. Outside the United States, Abbott’s shares are listed on the London Stock Exchange and Fast Facts Chairman and CEO: Miles D. White Corporate Headquarters: North suburban Chicago, Illinois, USA Stock Exchange Listing: New York [ABT: NYSE] Number of Employees: Nearly 90,000 worldwide 2010 Revenue: $35.2 billion 2010 R&D Investment: $3.7 billion Facilities: More than 100 worldwide Pharmaceutical Abbott Park and North Chicago, Illinois, USA Research Centers: Worcester, Massachusetts, USA Ludwigshafen, Germany Countries Where More than 130 Products are Sold: Primary Businesses Medical Products – Key lines of business include vascular, laboratory and molecular diagnostics, vision care and d Nutritional Products – Abbott offers a variety of nutrition products for infants, children, active adults and patients w Pharmaceuticals – Key therapeutic areas include immunology, cardiology and infectious diseases manufactures and markets products and services that span the continuum of Stock are global pharmaceuticals, nutritional and medical products, including Quote erves customers in more than 130 countries, with an employee base of d other locations around the world. re also listed on the Chicago Stock Exchange and traded on various regional on Stock Exchange and the Swiss Stock Exchange. stics, vision care and diabetes e adults and patients with special dietary needs Annual Reports 2010 Annual Reports 2010 Annual Report - Interactive 2010 Annual Report 2011 Proxy Statement 2011 Fact Book 2009 Annual Reports 2009 Annual Report - Interactive 2009 Annual Report 2010 Proxy Statement 2010 Fact Book 2008 Annual Reports 2008 Annual Report - Interactive 2008 Annual Report 2009 Proxy Statement 2009 Fact Book FINANCIAL STATEMENTS 2010 2009 2008 Short term solvency ratios Current Ratio 1.29 1.79 1.47 Quick Ratio 1.11 1.54 1.23 Cash Ratio 0.33 0.76 0.44 Net Working Capital to Current Liabilities 0.29 0.79 0.47 Asset Utilization or Turnover ratios Average Collection Period 73.54 76.55 66.64 Inventory Turnover Ratios 11.03 9.42 10.64 Receivable Turnover 4.90 4.70 5.40 Fixed Asset Turnover 4.41 4.04 4.09 Total Asset Turnover 0.59 0.59 0.70 Financial Leverage ratios Total Debt Ratio (TD/TA) 0.62 0.56 0.59 Debt/Equity 1.65 1.29 1.40 Equity Ratio (TE/TA) 0.38 0.44 0.42 Long-term Debt Ratio (LTD/TA) 0.21 0.21 0.21 Times Interest Earned Ratio (EBIT/TI) 11.3 14.8 12.1 Profitability ratios Gross Profit Margin 0.58 0.57 0.57 Net Profit Margin 0.13 0.19 0.17 ROA (NI/TA) 0.08 0.11 0.12 ROE (NI/TE) 0.21 0.25 0.27 Market value ratios Price/Earnings Ratio 12.6 14.7 17.1 Page 7 Ratio Analysis of Abbott Laboratories Prepared by: Dimple Gosai Commentary Abbott Laboratories Ratio Comparison Solvency BMY Cross - Time - Laboratories is financially healthy overall and w company is less liquid and perhaps has much of is perhaps not reflective of the industry and can Ratios Formula 2008 2009 2010 Average Sectional Series Solvency Efficiency Quick (acid test) Current Assets - Inventory/Current Liabilities 1.23 1.54 1.11 1.90 Bad Variable On average, Abbot Laboratories has sho consequently underperformed the indus Current Ratio Current Assets/Current Liabilities 1.47 1.79 1.29 2.12 Bad Variable profitability. However, Abbott Laborato Cash Ratio Cash/Current Liabilities 0.44 0.76 0.33 1.74 Bad Variable Net Working Capital to CL NWC/Current Liabilities 0.47 0.79 0.29 1.12 Bad OK Efficiency Financial Leverage Average Collection Period Accounts Recievable/(Sales / 360) 66.64 76.55 73.54 66.30 Bad Variable The financial leverage ratios are an indica firm is financially sound, its debt financing Inventory Turnover Total Revenues/Inventory 10.64 9.42 11.03 13.18 Bad Variable Advanced Medical Optics during 2010; as ratio is strong in relation to the industry, s Receivable Turnover Total Revenues/Accounts Receivable 5.40 4.70 4.90 5.47 Bad Variable Fixed Asset Turnover Total Revenues/Fixed Assets 4.09 4.04 4.41 3.73 Good Variable Total Asset Turnover Total Revenues/Total Assets 0.70 0.59 0.59 0.61 Bad Variable Financial Leverage Ratios Total Debt Ratio Total Debt/Total Assets 0.59 0.56 0.62 0.54 Bad OK Debt-Equity Ratio Total Debt/Total Equity 1.40 1.29 1.65 1.16 Bad OK Equity Ratio Total Equity/Total Assets 0.42 0.44 0.38 0.47 Good Variable Long-term Debt Ratio (LTD/TA) Long-term Debt Ratio (LTD/TA) 0.21 0.21 0.21 0.20 Bad Variable Times Interest Earned EBIT/Total Interest Payments 12.08 14.84 11.33 22.35 Bad Variable Profitability Gross Profit Margin (GPM) Gross Profits/Net Operating Income 0.57 0.57 0.58 0.72 Bad Variable Net Profit Margin (NPM) Net Profits/Net Operating Income 0.17 0.19 0.13 0.22 Bad Variable Return on Total Assets (ROA) Net Income/Total Assets 0.12 0.11 0.08 0.21 Bad Variable Return on Equity (ROE) Net Income/Total Equity 0.27 0.25 0.21 0.45 Bad Variable Earnings Per Share (EPS) Net Profit/Number of Shares Outstanding $17.10 $14.70 $12.63 VALUE LINE STUDENT NAME: ABT SYMBOL: COMPANY: Abbot Laboratories 0.60 BETA: DATE: 4/23/2011 $51.80PRICE: Abbott Laboratories Commentary YEAR 2005 2006 2007 2008 2009 2010 SALES PER SHARE $14.51 $14.62 $16.72 $19.40 $19.82 $22.70 Sales show continuous growth, a favorable sign for investors as business activity increases in relation to share price. CASH FLOW PER SHARE $3.42 $3.51 $4.05 $4.32 $5.09 $5.90 Measurement of the overall strength of the company. Since EPS is a more easily manipulated measure, many analysts assign greater importance to a company’s cash flow per share. EARNINGS PER SHARE $2.50 $2.52 $2.84 $3.03 $3.72 $4.17 EPS shows an increasing trend, and serves as a measure of Abbott's profitability. DIVIDENDS PER SHARE $1.10 $1.18 $1.30 $1.44 $1.60 $1.76 Dividends have continued to increase over the 5 year period, and isa sign that Abbotts management believes that the growth can be sustained. CAP'L SPENDING/SHARE $0.78 $0.87 $1.07 $0.85 $0.70 $0.65 This represents the outlays for plant and equipment for the year expressed on a per-share basis. Abbotts capital spending per share has been semi-stable, supporting sales growth. BOOK VALUE PER SHARE $9.37 $9.14 $11.47 $11.48 $17.73 $14.45 Other than 2010, the companys shows a desirable trend. If Abbott Laboratories were to decide to dissolve, the book value per share indicates the dollar value remaining for common shareholders after all assets are liquidated and all debtors are paid. OUTSTANDING SHARES 1539.2 1537.2 1549.9 1522.4 1551.9 1548.0 Outstanding shares are the shares in the company held by investors, including resticted shares held by insiders, and the public. An increasing trend can dilute earning investors expect on a per share basis and is therefore not necessarily favorable. AVG ANN'L P/E RATIO 18.1 17.9 19.2 18.3 13 12.2 A measure of a company's current share price compared to its per-share earnings. Usually a higher P/E ratio suggests that investors expect higher earnings growth in the future. It also shows how much an investor is willing to pay per dollar of earnings.Abbotts P/E ratios dipped significantly duing 2009 and 2010. AVERAGE P/E RATIO 16.5 AVG ANN'L DIV'D YIELD 2.40% 2.62% 2.40% 2.60% 3.30% 3.50% Abbott has increased the amount it pays out in dividends each year relative to its share price, over the 5yr period. SALES ($MILL) $22,338 $22,476 $25,914 $29,528 $30,765 $35,167 Abbott's Sales figures reflect constant positive growth. OPERATING MARGIN 27.6% 28.2% 26.2% 25.5% 28.8% 29.0% Operating margin measures the company's overall operating efficiency. It is explained by the residual revenue after variable costs. The increasing margin reflects the firms ability to pay it's fixed costs. DEPRECIATION ($MILL) $1,358.9 $1,559 $1,855 $1,839 $2,089 $2,624 This is simply the expense recorded to allocate cost of a tangible asset over its useful life. It increases free cash flow, while decreasing reported earnings. There is slow increasing trend on one hand is positive as Abbott accumulates assets and gains are normally tax deductable. The negative aspect is that its decreasing impact on reported earnings increasesfrom year to year. NET PROFIT ($MILL) $3,908.50 $3,841.80 $4,429.30 $4,734.20 $5,805.20 $6,500.00 Profits for Abbott Laboratories after income tax obligations reflects an upward trend over the 5 year period. INCOME TAX RATE (%) 24.3% 23.5% 19.3% 19.2% 17.0% 17.0% The rate at which earnings are taxed have decreased every year in favor of net income. NET PROFIT MARGIN (%) 17.5% 17.1% 17.1% 16.0% 18.9% 18.5% Measures how much of every dollar of sales a company retains as earnings. A higher profit margin typically indicates a profitable company that has more control over its costs compared to its competitors. Abbott has shwn considerable improvements during 2009 and 2010 WORKING CAP'L ($MILL) $3,971 -$669 $4,939 $5,451 $10,264 $5,500 A measure of both the company's efficiency and its short term financial health. A positive working capital indicates that the company is capable of paying off it's short term liabilities. Abbott's current assets exceed current liabilities and with increasing liquidity is able to meet its short term obligations. LONG-TERM DEBT(MILL) $4,572 $7,010 $9,488 $8,713 $11,266 $12,524 The gradual increase in long term debt is financing the firms expansionary efforts in alignment with the firms growth objectives. SHAREHOLDER EQUITY ($MILL) $14,415 $14,054 $17,779 $17,480 $22,388 $24,800 Shareholder's equity accounts for the majority of Abbotts financing. ROE 27% 27% 25% 27% 26% 26% The profit the corporation generated with moneys shareholders originally invested stayed relatively constant over the 5yr period. AVERAGE ROE 26% DIVIDEND PAYOUT RATIO 43% 46% 44% 46% 42% 41% Abbott Laboratories is a mature company and it's earnings are able to support their dividend payments. CALCULATIONS: PRICE PER SHARE $45.25 $44.75 $48.38 $51.97 $39.39 $45.38 The increasing numbers provide an optimistic assumption of future growth in the company. Currently the Pps stands at $51.80 OWNERS CASH FLOW ($MILL) (NI + DEP - CAP'L EXP) $4,066.82 $4,063.24 $4,625.81 $5,278.96 $6,808.17 $8,118.20 The owner’s cash flow value is simply net income plus depreciation and less capital expenditures. This value represents the net cash flow to the shareholders once capital expenditures are subtracted. ANNUAL CF GROWTH RATE -0.09% 13.85% 14.12% 28.97% 19.24% The growth rate in cash flows has shown an increasing trend with the exception of 2010. 5 YEAR AVG CF GROWTH 11.8% The average is not particularly high, but is expected to increase with with th Cash Flow growth rate ANNUAL SALES GROWTH 0.63% 15.31% 13.97% 4.14% 14.24% Although sales in $'s are increasing, the rate of growth appears to be volatile. 2010's increase was significant. 5 YR AVG SALES GROWTH 9.7% Although sales are climbing, the growth rate is slowing, which is apparent in 9.7% average over the 5 years. VALUE ADDED $ (0.22) $ 1.40 $ 0.87 $ (3.10) $ 9.36 This value represents the average increase in share price for each $1 retained by the firm, which showed significant improvement in 2010. AVG. VALUE ADDED $1.66 This value represents the average increase in share price for each $1 retained by the firm over the five-year time period. OWNER'S CF PER SHARE $2.64 $ 2.64 $ 2.98 $ 3.47 $ 4.39 $ 5.24 The average growth of the owner’s cash flow is used to forecast future cash flows to determine the firm’s expected intrinsic value. Page 9 FORECAST-PESS Abbott Laboratories INTRINSIC VALUATION MODEL Commentary TWO-STAGE EARNINGS GROWTH PROJECTIONS 1 2 3 4 5 6 7 8 9 10 PRIOR YEAR CASHFLOW (MILLIONS) 8,118 8,669 9,256 9,884 10,554 11,269 12,034 12,849 13,721 14,651 The 5-year average cash flow growth rate is used to project the annual cash flow values over the next 10 years that will ultimately be 10-YEAR GROWTH RATE AS DECIMAL (.00) 6.78% 6.78% 6.78% 6.78% 6.78% 6.78% 6.78% 6.78% 6.78% 6.78% discounted and used in the determination of the company’s intrinsic value. Abbott Laboratories has a five-year average growth rate of CASH FLOW 8,669 9,256 9,884 10,554 11,269 12,034 12,849 13,721 14,651 15,644 DISCOUNT RATE AS DECIMAL (.00) 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 6.78%. This value is then used as the 10-year growth rate for cash flows that are used in determining the intrinsic value under a “most DISCOUNT FACTOR (MULTIPLY) 0.8695652 0.756144 0.6575162 0.57175 0.49718 0.43233 0.37594 0.326902 0.2842624 0.247185 likely”, “pessimistic” and “optimistic” scenario as demonstrated in the following sheets. The total intrinsic value is composed of two sums. DISCOUNTED VALUE PER ANNUM $7,538 $6,999 $6,499 $6,034 $5,603 $5,202 $4,831 $4,485 $4,165 $3,867 The first calculation for intrinsic value is the discounted ten-year cash flows summed and discounted at the investor specified discount rate. SUM OF PRESENT VALUE OF CASHFLOWS $ 55,223 In this case, 15% reflects the minimum acceptable rate of return. The second component of intrinsic value is the residual value of cash flows beyond ten years with an assumed growth rate of 4% per year. This residual is also discounted at 15%. The most likely scenario is based on a RESIDUAL VALUE growth rate in owner’s cash flow of the calculated actual growth of 6.78%. The pessimistic and optimistic scenarios represent a plus and 10 CASHFLOW IN YEAR 10 $ 15,644 minus five percent either added to or subtracted from the 6.78% average. GROWTH RATE AS DECIMAL (.00) (g) 0.04 8 CASHFLOW IN YEAR 11 $ 16,270 Under this pessimistic scenario the total intrinsic value of the firm is divided by the number of shares outstanding resulting in an intrinsic CAPITALIZATION RATE (k - g) 0.11 value per share of $59.29. Compared to the market price this stock is selling at a discount. With a current market price of $51.80, it is clear 6 VALUE AT THE END OF YEAR 10 $ 147,907 DISCOUNT FACTOR YEAR 10 0.2471847 that Abbott is selling at a bargain price. 4 ANNUAL SALES The statistics are summarized in , the intrinsic/price per share ratio. This ratio expresses the intrinsic value received for each dollar invested. GROWTH 2 PRESENT VALUE OF RESIDUAL $ 36,560 VALUE ADDED As can be seen Abbott yields a ratio of 1.14, which states that for every dollar invested, the intrinsic value is an incredible $1.14! However, in MARKET VALUE (MILLIONS) $ 91,783 0 order to maintain a buffer and offer the best value, a 1.5 threshold is in place, thus signaling 'a do not buy' on this share. NUMBER OF SHARES(MILLIONS) 1548 1 2 3 4 5 6 INTRINSIC VALUE PER SHARE $59.29 -2 INTRINSIC/MARKET 1.14 INPUT DISCOUNT AND GROWTH RATES -4 FIRST 10 YEAR GROWTH RATE: 6. 78% 2ND PERIOD GROWTH RATE: 0. 04 DISCOUNT RATE: 0. 15 OWNERS CASH FLOW (IN MILLIONS) 8118. 2 Page 10 Abbott Laboratories INTRINSIC VALUATION MODEL TWO-STAGE EARNINGS GROWTH PROJECTI 1 2 PRIOR YEAR CASHFLOW (MILLIONS) 8,118 9,075 10-YEAR GROWTH RATE AS DECIMAL (.00) 11.78% 11.78% CASH FLOW 9,075 10,143 DISCOUNT RATE AS DECIMAL (.00) 0.15 0.15 DISCOUNT FACTOR (MULTIPLY) 0.869565217 0.75614367 DISCOUNTED VALUE PER ANNUM $7,891 $7,670 SUM OF PRESENT VALUE OF CASHFLOWS $ 69,673 RESIDUAL VALUE 10 CASHFLOW IN YEAR 10 $ 24,722 GROWTH RATE AS DECIMAL (.00) (g) 0.04 8 CASHFLOW IN YEAR 11 $ 25,711 CAPITALIZATION RATE (k - g) 0.11 VALUE AT THE END OF YEAR 10 $ 233,739 6 DISCOUNT FACTOR YEAR 10 0.247184706 4 PRESENT VALUE OF RESIDUAL $ 57,777 2 MARKET VALUE (MILLIONS) $ 127,449 NUMBER OF SHARES(MILLIONS) 1548.0 INTRINSIC VALUE PER SHARE $ 82.33 0 INTRINSIC/MARKET 1.59 1 INPUT DISCOUNT AND GROWTH RATES -2 FIRST 10 YEAR GROWTH RATE: 11.78% 2ND PERIOD GROWTH RATE: 0.04 -4 DISCOUNT RATE: 0.15 OWNERS CASH FLOW (IN MILLIONS) 8118.2 Laboratories SIC VALUATION MODEL NINGS GROWTH PROJECTIONS - 3 4 5 6 7 8 9 10 10,143 11,338 12,674 14,167 15,836 17,701 19,786 22,117 11.78% 11.78% 11.78% 11.78% 11.78% 11.78% 11.78% 11.78% 11,338 12,674 14,167 15,836 17,701 19,786 22,117 24,722 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.6575162 0.5717532 0.4971767 0.43233 0.37594 0.3269 0.28426 0.24718 $7,455 $7,246 $7,043 $6,846 $6,655 $6,468 $6,287 $6,111 ANNUAL SALES GROWTH VALUE ADDED OWNER'S CF PER SHARE 1 2 3 4 5 6 Commentary Under the most likely scenario the intrinsic value per share is $82.33. Compared to the market price of $52.80 this stock is selling at a discount, signaling a good buy for investors. We can say with confidence that it is probable for owner's cash flows to grow by 11.7% over a 10yr period. In addition, after studying the thoery of economic cycles, it is expected that the economy improve within the next 2 years, as a by product income should increase. With greater spending or savings potential from consumers, and a larger capital base for Abbott the company will continue to expand its operations and productline internationally. The statistics are summarized in , the intrinsic/price per share ratio. This ratio expresses the intrinsic value received for each dollar invested. As can be seen Abbott yields a ratio of 1.59, which states that for every dollar invested, the intrinsic value is an incredible $1.59! However, in order to maintain a buffer and offer the best value, a 1.5 threshold is in place, thus, under.this senario investors should purchase ABT! Abbott Laboratories INTRINSIC VALUATION MODEL TWO-STAGE EARNINGS GROWTH PROJECTIONS 1 2 3 PRIOR YEAR CASHFLOW (MILLIONS) 8,118 9,480 11,071 10-YEAR GROWTH RATE AS DECIMAL (.00) 16.78% 16.78% 16.78% CASH FLOW 9,480 11,071 12,929 DISCOUNT RATE AS DECIMAL (.00) 0.15 0.15 0.15 DISCOUNT FACTOR (MULTIPLY) 0.869565217 0.75614 0.65752 DISCOUNTED VALUE PER ANNUM 10 $8,244 $8,371 $8,501 SUM OF PRESENT VALUE OF CASHFLOWS $ 88,423 8 RESIDUAL VALUE 6 CASHFLOW IN YEAR 10 $ 38,294 GROWTH RATE AS DECIMAL (.00) (g) 0.04 4 CASHFLOW IN YEAR 11 $ 39,826 CAPITALIZATION RATE (k - g) 0.11 VALUE AT THE END OF YEAR 10 $ 2 362,056 DISCOUNT FACTOR YEAR 10 0.247184706 0 1 2 3 4 PRESENT VALUE OF RESIDUAL $ -2 89,495 MARKET VALUE (MILLIONS) $ 177,918 NUMBER OF SHARES(MILLIONS) 1548.0 -4 INTRINSIC VALUE PER SHARE $ 114.93 INTRINSIC/MARKET 2.22 INPUT DISCOUNT AND GROWTH RATES FIRST 10 YEAR GROWTH RATE: 16.78% 2ND PERIOD GROWTH RATE: 0.04 DISCOUNT RATE: 0.15 OWNERS CASH FLOW (IN MILLIONS) 8118.2 ratories UATION MODEL GROWTH PROJECTIONS 4 5 6 7 8 9 10 12,929 15,098 17,632 20,590 24,045 28,080 32,792 16.78% 16.78% 16.78% 16.78% 16.78% 16.78% 16.78% 15,098 17,632 20,590 24,045 28,080 32,792 38,294 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.57175 0.49718 0.43233 0.37594 0.3269 0.28426 0.24718 $8,633 $8,766 $8,902 $9,040 $9,179 $9,322 $9,466 ANNUAL SALES GROWTH VALUE ADDED OWNER'S CF PER SHARE 5 6 Commentary The optimistic approach recommends an immediate buy! The intrinsic value per share is $114.93. Compared to the market price of $52.80 this stock is selling at a vast discount. While I prefer to take a conservative approach, there is a probability that optimistic cash flow growth rate reach 16.78% over a 10yr period. Should Abbott continue to acquire major drug manufacturers as per 2009, and 2010, they would certainly magnify revenues and build strong relations with their clients, suppliers, and investors. Furthermore, we expect Abbott's performance to peak in the booming economic period that may be nearing. Large investments in Research and Development are expected to result in new and improved products giving the firm a competitive advantage and exposing it to new and broader markets . The statistics are summarized in the intrinsic/price per share ratio. This ratio expresses the intrinsic value received for each dollar invested. As can be seen Abbott yields a ratio of 2.22, which states that for every dollar invested, the intrinsic value is an incredible $2.22! DuPont Analysis 2008 Sales $29,527,552 Cost of NET INCOME Goods Sold ABT $12,612,022 $4,880,719.00 Net Profit Operating Margin Income Expenses SALES 16.53% Statement $11,221,691.00 $29,527,552.00 BMY ABT Other 28.13% Return on Income/Expense Total Assets $308,950.00 (ROA) Taxes 11.51% $1,122,070.00 SALES ABT BMY $29,527,552.00 T.A. Turnover 17.00% ABT Current 0.70 Return on Assets TOTAL ASSETS BMY Equity (ROE) $17,042,559.00 $42,419,204.00 0.60 27.86% Net Fixed BMY Assets 24.31% Balance $25,376,645.00 Sheet Current TOTAL Liabilities LIABILITIES $11,591,908.00 $24,900,513.00 ABT Long Term TOTAL LIABILITIES ABT Debt STOCKHOLDERS +EQUITY Financial $13,308,605.00 EQUITY $42,419,204.00 Leverage $17,518,691.00 BMY Multiplier (FLM) $44,183.00 2.42 BMY ABT 1.43 STOCKHOLDERS EQUITY $17,518,691.00 BMY $30,888.00 DuPont Analysis 2009 Sales $30,764,707 Cost of NET INCOME Goods Sold ABT $13,209,329 $5,745,838.00 Net Profit Operating Margin Income Expenses SALES 18.68% Statement $11,319,637.00 $30,764,707.00 BMY ABT Other 64.02% Return on Income/Expense Total Assets $958,033.00 (ROA) Taxes 10.96% -$1,447,936.00 SALES ABT BMY $30,764,707.00 T.A. Turnover 26.78% ABT Current 0.59 Return on Assets TOTAL ASSETS BMY Equity (ROE) $23,313,891.00 $52,416,623.00 0.61 25.09% Net Fixed BMY Assets 36.96% Balance $29,102,732.00 Sheet Current TOTAL Liabilities LIABILITIES $13,049,489.00 $29,517,894.00 ABT Long Term TOTAL LIABILITIES ABT Debt STOCKHOLDERS +EQUITY Financial $16,468,405.00 EQUITY $52,416,623.00 Leverage $22,898,729.00 BMY Multiplier (FLM) $44,966.00 2.29 BMY ABT 1.38 STOCKHOLDERS EQUITY $22,898,729.00 BMY $32,523.00 DuPont 2010 DuPont Analysis 2010 Sales $35,166,721 Cost of NET INCOME Goods Sold ABT $14,665,192 $4,626,172.00 Net Profit Operating Margin Income Expenses SALES 13.15% Statement $14,413,948 $35,166,721.00 BMY ABT Other 24.04% Return on Income/Expense Total Assets -$374,747 (ROA) Taxes 7.78% -$1,086,662 SALES ABT BMY $35,166,721.00 T.A. Turnover 10.56% ABT Current 0.59 Return on Assets TOTAL ASSETS BMY Equity (ROE) $22,317,529 $59,462,266.00 0.43 20.58% Net Fixed BMY Assets 14.47% Balance $37,144,737 Sheet Current TOTAL Liabilities LIABILITIES $17,262,434 $36,985,802.00 ABT Long Term TOTAL LIABILITIES ABT Debt STOCKHOLDERS +EQUITY Financial $19,723,368 EQUITY $59,462,266.00 Leverage $22,476,464.00 BMY Multiplier (FLM) $44,349.00 2.65 BMY ABT 1.37 STOCKHOLDERS EQUITY $22,476,464.00 BMY $32,282.00 Page 20 Ticker Symbol: Abbot Laboratories GRAHAM ANALYSIS Variables Values Current Price $51.80 AAA Yield 4.50% Average P/E over last 3 Years 14.50 Average P/E over last 8 Years 16.45 Net Current Assets Per Share -647.22 Total Debt Per Share $23,892.64 Group A Values Points #1 Earnings / Price 7.2% 0.5 #2 Price / Earnings 13.9 0 #3 Price / Book 3.14 0 #4 Dividends / Price 3.1% 1 #5 Price / Net Current Assets Per Share -$0.08 0 Group B Values Points #6 Current Ratio 1.29 0 #7 Total Debt / Equity 1.65 0 #8 Total Debt / Net Current Assets -36.92 0 #9 Growth For Last 10 Years 8.00% 0 Growth For Last 5 Years 6.20% $ 1,318 #10 Number of Earnings Declines 0 1 Results TOTAL Group A 1.5 Group B 1.0 Does Company pass the Graham Model? No ABT Commentary Under the Graham analysis, Abbott Laboratories recieves 1.5 points under group A. The requirements can be considered too stringent for the modern world. Graham's requirements for a 'winning company' in group A are outdated and should not be used to determine the worthiness of the investment. Under Group B Abbott earns a lousy 1 point as a result of it financial position. According to Graham, the company needs to achieve >=3.5 points in order to qualify for further analysis. Thus, the Graham model strongly suggests investors not to purse this investment. BUFFETT A The Buffet Model EPS 5-Year ACGR FROM VALUE LINE (CALCULATE) Average ROE (8-Year) Initial Rate of Return @ Current Price Value Relative to Gov't Bonds PROJECTED ACRR AS EQUITY BOND Average Dividend Payout Ratio Average % of Earnings Retained Average ROE on Retained Earnings(10-Years) Future Book Value in 10 Years Projected EPS in 10 Years Average P/E Ratio Projected Share Price in 10 Years ACRR @ Current Price PROJECTED ACRR USING AVERAGE EPS Last Year EPS Projected EPS in 10 Years Projected Share Price in 10 Years ACRR @ Current Price TERMS: ACGR = Average Compounded Growth Rate in EPS from Value Line ACRR = Average Compounded Rate of Return Page 24 BUFFETT Abbott Laboratories Date: Yield on T-Bonds 10.77% Share Price 27.04% Shares Outstanding Book Value Per Share 8.05% This value is equal to EPS divided by share price $104.25 This is most recent EPS divided by the yield on U.S. Trea Therefore, $4.17/.04 = $104.25 TED ACRR AS EQUITY BOND 41.0% From Value Line page, last Dividend Payout % 59.0% This is 1 minus the average dividend payout ratio in the c 15.95% This value is Average ROE times 59% $63.49 This value is $14.45 times 1.1 raised to the 10th power $17.17 This value is future book value times 10% 16.45 This is the average from VALUE LINE, CELL B16 $282.41 This is the projected EPS times the average P/E ratio 18.48% This is based on a $51.80 price today growing to $282.41 ED ACRR USING AVERAGE EPS $4.17 From Value Line spreadsheet $11.60 This is the 10-year ACGR times last years EPS $190.78 This is the projected EPS IN 10 years times the average 13.93% This is the average growth rate based on a $51.80 price g The average compounded rate of return computed as an equity bond of 18.48% is greater th Rate in EPS from Value Line while the ACRR based on average earning per share indicate that this investment should not placed on the second method for the simple reason that it is more conservative and realistic in the stock, in contrast to the safety feature associated with the equity bond. Page 25 BUFFETT atories 6/5/2011 4% $51.80 1548 $14.45 s equal to EPS divided by share price recent EPS divided by the yield on U.S. Treasury bonds $4.17/.04 = $104.25 Line page, last Dividend Payout % nus the average dividend payout ratio in the cell above s Average ROE times 59% s $14.45 times 1.1 raised to the 10th power s future book value times 10% verage from VALUE LINE, CELL B16 rojected EPS times the average P/E ratio d on a $51.80 price today growing to $282.41 in 10 years Line spreadsheet 0-year ACGR times last years EPS rojected EPS IN 10 years times the average P/E ratio of 16.45 verage growth rate based on a $51.80 price growing to $190.78 in 10 years as an equity bond of 18.48% is greater than the minimum required 15%, indicate that this investment should not be pursued . Greater weight is hat it is more conservative and realistic in nature factoring in the volat d with the equity bond. Page 26 BUFFETT 190.78 in 10 years nimum required 15%, d . Greater weight is ctoring in the volatility of Page 27 ROE Abbott Laboratori Projected ROE Based on P/E Ratios Projections for 10 year period Reinvested Dividends Year Equity Value Per Share Earnings Dividends Paid Out High P/E 1 $16.70 $3.82 $1.57 $1.57 2 $19.31 $4.41 $1.81 $1.81 3 $22.32 $5.10 $2.09 $2.09 4 $25.80 $5.90 $2.42 $2.42 5 $29.82 $6.82 $2.80 $2.80 6 $34.47 $7.88 $3.23 $3.23 7 $39.85 $9.11 $3.74 $3.74 8 $46.06 $10.53 $4.32 $4.32 9 $53.25 $12.18 $4.99 $4.99 10 $61.55 $14.07 $5.77 $5.77 $32.73 $32.73 Price Appreciation (Low P/E) $170.29 Price Appreciation (High P/E) Rate of Return on Appreciation 228.75% Rate of Return on Appreciation Annualized 12.64% Annualized With reinvested dividends 291.94% With reinvested dividends Annualized 14.64% Annualized With out reinvested dividends 228.75% With out reinvested dividends Annualized 12.64% Annualized INPUT VARIABLES Current Price $51.80 ROE 26.4% Initial Book Value $14.45 Payout Ratio 41.0% P/E - High 19.2 P/E - Low 12.1 Page 28 ROE bbott Laboratories atios Commentary The purpose of the ROE Model is to present an estimation Low P/E Retained Earnings of the future return on equity for a ten year period. This $1.57 $2.25 model is based on using a range in P/E ratios that come $1.81 $2.60 directly from the Value Line data. $2.09 $3.01 Abbott Laboratories has a potential range in ROE values $2.42 $3.48 of 14.64% (with a low P/E of 12.1), or 19.32% (with a high $2.80 $4.02 P/E of 19.2). Based on the 15% investor return $3.23 $4.65 expectation, this analysis would result in a positive buy $3.74 $5.38 decision since the 'low' P/E' ROE ratio falls only slightly $4.32 $6.21 short of meeting the 15% threshhold and the ROE based $4.99 $7.18 on 'high P/E' overshoots the benchmark $5.77 $8.30 $32.73 $47.10 $270.22 421.65% 17.96% 484.84% 19.32% 421.65% 17.96% Page 29 ROE se of the ROE Model is to present an estimation ure return on equity for a ten year period. This ased on using a range in P/E ratios that come om the Value Line data. has a potential range in ROE values (with a low P/E of 12.1), or 19.32% (with a high 2). Based on the 15% investor return on, this analysis would result in a positive buy the 'low' P/E' ROE ratio falls only slightly meeting the 15% threshhold and the ROE based /E' overshoots the benchmark. Page 30 SUMMARY Abbott Laboratories Decision Summary Model Method Value 2008 27.86% 2009 25.09% DuPont Analysis 2010 20.58% Geometric Mean 24.32% Pessimistic 1.14 Optimistic 2.22 Intrinsic Value Analysis Most Likely 1.59 Group A 1.5 The Graham Model Group B 1 Combined 2.5 ACRR - Equity Bond 18.48% Buffett Model ACRR - EPS 13.93% Low P/E 14.6% ROE Projections High P/E 19.32% Page 31 SUMMARY Abbott Laboratories Decision Summary Recommendation Commentary After conducting much research with respect to Abbott's nature o f business, years o existence, and historical performance, it was decided to carry out further fundamen Yes financial analysis in order to determine whether holding his stock would in fact bene potential investors. After applying five varied analysis models it is recommended th investors pursue this investment opportunity. The ex-post ratio and DuPont analysis was used to determine the current financial w No of Abbott Laboratories, which overshoots the threshold of a 15% geometric mean . Yes strategic financial analysis using Value Line Investment Survey data was performed cash flow and and identify the company’s strengths, weaknesses, opportunities and Yes Although we aim to be conservative in basing a decision off the instrinsic value anal ought to keep economic cycles in mind. It is with great expectation that Abbotts fina performance will rapidly take off as the economy enters the expansionary phase. Ad as Abbot expands its market share and recent major aquisitions begin to yield reven is much potential for growth. Thus, over and above the numbers, Abt is selling at a d price in relation to the market. This instrinsic value analysis was given a larger weig evaluating the investment opportunity, while the graham model was not consider No stringent and unrealistic nature. The ROE projections model confirm our recoomenda based on the 15% investor return expectation, this analysis would result in a positive decision since the 'low' P/E' ROE ratio falls only slightly short of meeting the 15% thr and the ROE based on 'high P/E' overshoots the benchmark. Contrary to Yes results, are those from the Buffet Model, which present an ambiguous situation. Wh average current rate of return when treated an an equity bond poses a positive buy, No relevant realistic ACRR based on EPS suggests a 'do not buy.' Thus overall, it is a strong suggestion that the potential shareholder of Abbott Labor No hold this stock in a well diversified portfolio as to minimize risk, but reap the reward expect to see materialize in the near future. Yes Page 32 SUMMARY y ott's nature o f business, years of d to carry out further fundamental ing his stock would in fact benefit s models it is recommended that etermine the current financial well-being old of a 15% geometric mean . Second, a nt Survey data was performed to project weaknesses, opportunities and threats. sion off the instrinsic value analysis, one at expectation that Abbotts financial ers the expansionary phase. Additionally, aquisitions begin to yield revenue, there he numbers, Abt is selling at a discounted nalysis was given a larger weight in raham model was not considered due its model confirm our recoomendation; nalysis would result in a positive buy ly short of meeting the 15% threshhold . Contrary to our favorable analysis nt an ambiguous situation. While the quity bond poses a positive buy, the more ial shareholder of Abbott Laboratories imize risk, but reap the rewards that we Page 33

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