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An in-depth analysis of Celgene and Gilead, two independent biotechnology companies with a focus on developing innovative therapies. profiles of each company, their business histories, locations, number of employees, products, and financial ratios. The analysis also includes a comparison of their ratios and a conclusion on which company is a safer investment for conservative investors and a better option for growth-oriented investors.
What you will learn
Typology: Exercises
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Use this Excel spreadsheet to compute ratios; show your computations for all ratios on this tab, and also include your commentary. The 2014 financial statem ents used to calculate these ratios are available in the Investor Relations sections of the Tootsie Roll and Hershey w ebsites.
Interpretation and com parison betw een the tw o com panies' ratios (reading Chapter 13 w ill help you prepare the com m entary)
Earnings per Share of Com m on Stock (basic - com m on) As given in the income statement $2.57 $ 10.
Current Ratio Current Assets $10,868 = 3.67 $19,588 = 2.
This ratio w oud be best higher because it show s w hether a company has enough resources to meet short- term obligations, w hich is w hy Celgene has a higher advantage compared to Gilead. Current Liabilities $2,959 $9,
Gross (Profit) Margin Percentage Gross Margin $10,747 = 96.1% $26,129 = 87.2%
Gross profit margin is the percentage of revenue that the company w ill have after deducting the cost of goods sold. Celgene his the advantage by having close to 100%. Net Sales $11,185 $29,
Rate of Return (Net Profit Margin) on Sales Net Income $1,999 = 17.9% $13,502 = 44.4%
It is the gain or loss on an investment over a specified time period, expressed as a percentage of the investment's cost. Gilead show s the higher ratio meaning they are in better standings then Celgene. Net Sales $11,185 $30,
Inventory Turnover Cost of Goods Sold $438 0.9 $4,261 2.
Gilead can turnover their products faster compared to Celgene because it show s how many times the entire inventory of a company has been sold during an accounting period, so its best to have higher numbers.
Average Inventory $498 times $1,771 times
Days' Inventory Outstanding (DIO) 365 Days 392 365 = 415 365 = 152
This ratio indicates how many days on average a company turns its inventory into sales. Gilead can move their products out of their w arehouse in less then half a year compared to Celgene having products for more then over a year meaning its best to have a low er ratio. Inventory Turnover 0.9 days 2.4 days
Accounts Receivable Turnover Net Credit Sales $11,185 = 7.4 $29,953 = 5.8 Celgene has the higher ratio here because they are effectively using their assets. Average Net Accounts Receivable $1,511 $5,
Days' Sales Outstanding (DSO) 365 365 = 49.6 365 = 62.9 It is best to have a low er ratio because this determines the effectiveness of a company's credit and collection efforts in allow ing credit to reputable customers, as w ell as its ability to collect from them, so Celgene does w ell in th Receivable Turnover Ratio 7.4 days 5.8 days
Asset Turnover Net Sales $11,185 = 0.40 $29,953 = 0.53 Gilead is having the ideal ratio on the high side because this ratio determines efficiency of use on assets in generating sales revenue or sales income to the company. Average Total Assets $28,086 $56,
Rate of Return on Total Assets (ROA) Rate of Return on Sales times Asset Turnover 17.9X.04 = 7.1% 45x.53 = 2.1% Celgene having the higher ratio puts them at an advantge because this show s that the company earns higher revenue before interest and taxes (EBIT) relative to its total net assets.
Debt Ratio Total Liabilities $21,486 = 76.5% $37,614 = 66.0% It is best to have a low ratio in this category like Gilead does because it measures the extent of a company's leverage. Total Assets $28,086 $56,
Tim es Interest–Earned Ratio Income From Operations $3,167 = 6.3 17,633 = 18.3 Best to have a high ratio because Gilead show s that is has the ability to honor its debt payments. Interest Expense $500 $
Dividend Yield on Com m on Stock Dividend per Share of Common Stock (Yahoo Finance 10/05/2018) $0.00 = 0.0% $10.08 = 11.3% It is best to have a high ratio because then investors w ill like w hat the company pays out in dividends each year relative to its share price so automatically Gilead w ins w ith its 11.3% (Please follow the Course Project instructions to calculate the current dividend yield.) Market Price per Share of Common Stock (Yahoo Finance 10/05/2018) $115.75 $89.
Rate of Return on Com m on Stockholders' Equity (ROE) Net Income - Preferred Dividends $1,999 = 31.9% $13,501 = 70.2% Gilead has the higher ratio meaning that they are successful in generating income for the benefit of common stockholders, w hich w ill then lead to more investments. Average common stockholders' equity $6,259 $19,
Free Cash Flow = 16,669-11,985 = $ 4,684.00Gilead is the w inner w ith the higher ratio beause more cash is produced through its operations rather then from the cost of expenditures on assets.
Price-Earnings Ratio (Multiple) Market Price as of 5/30/2014 for Nike and as of 12/31/2014 for Under Armour $115.75 = 45 $89.15 = 9 (Please see the Course Project instructions for the dates to use for this ratio.) EPS $2.57 $10.08 It is like a 401(K) plan for investors. Investors for Gilead know that if they invest $9 into the company they w ill receive $1 back so that is w hy having a low er ratio is best.
The comparison of the ratios is an important part of the project. A good approach is to briefly explain what the ratio tells us. Indicate whether a higher or lower ratio is better. Then compare the two companies on this basis. Remember that each ratio below requires a comparison.
Celgene Gilead
Net Cash Provided by Operating Activities minus Cash Payments Earmarked for Investments in Plant Assets
You all get the chance to play the role of financial analyst below. The summary should
be a comparison of each company's performance for each major category of ratios
listed below. Focus on major differences as you compare each company's performance.
A nice way to conclude is to state which company you feel is the better investment and
why.