Running head: LTP COMPREHENSIVE FINANCIAL ANALYSIS PAPER
LTP Comprehensive Financial Analysis Paper
Jessica Cusac, Melania Estes, Russell Furst, Connie Lane, Careea Norde, Mary Stephens
Siena Heights University
LDR 640 Financial Systems Management
Prof. Lihua Dishman
May 25, 2013
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Abstract
This paper is presented as an exercise in applying financial analysis techniques to a large, multinational, publically-traded, manufacturing concern. Stryker is chosen as the organization to
evaluate and a general description of Stryker is provided. Financial ratio analysis is the primary
mechanism used to evaluate Stryker’s financial health and performance. The financial ratios
used include those that are designed to assess liquidity, solvency, debt management, asset
management and utilization, profitability, and market value. The authors discuss various ratios
and describe how each is calculated. Financial statements from Stryker’s form 10-K annual
report to the Securities and Exchange Commission are included. Accounting data from Stryker’s
income statement and balance sheet are used to calculate many commonly used ratios. Ratios
calculated from Stryker’s 2010 – 2012 financial statements are provided and used as the basis of
a trend analysis. Financial ratios from two of Stryker’s competitors are compared with Stryker’s
as part of a peer-group analysis. An analytical summary of Stryker’s overall financial condition
and performance is included. Retrospective and prospective analyses of what Stryker might have
done differently along with recommendations for future strategy are discussed.
LTP COMPREHENSIVE FINANCIAL ANALYSIS PAPER
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LTP Comprehensive Financial Analysis Paper
Successful executives, financial managers, and others tasked with financial management
responsibilities make decisions that add value to their organizations. Understanding how to read
and interpret financial statements are key elements of making informed decisions. Applying
analytical techniques such as ratio analysis is a systematic and evidence-based approach to
evaluating historical, current, and the possible future performance of an organization. This paper
establishes financial ratio analysis as a key analytical tool, applies these techniques to Stryker
Corporation, and draws conclusion regarding Stryker’s performance.
Financial Statement Analysis
Judgments about the financial health of a company can be informed by analyzing data
from its financial statements. Ratio analysis is one useful method often employed to accomplish
this undertaking (Gapenski, 2009). Beyond considering accounting data as discrete bits of
information, comparing values and understanding their relationship to one another provides
insight into an organization’s financial health and possible future performance. Financial ratios
are utilized to understand an organization’s (a) liquidity, (b) solvency and debt management, (c)
asset management and utilization, (d) profitability, and (e) indications of market value
(Hawawini & Viallet, 2011).
Measures of liquidity emphasize a, “firm’s ability to pay off short-term obligations as
they come due” (Block & Hirt, 2008, p. 55). Solvency and debt management ratios put a
company’s level of debt into perspective. Debt-based ratios illustrate the balance that exists
between equity and debt financing. The ability to effectively utilize assets and manage inventory
can be demonstrated by asset management ratios. Profitability indicators compare earnings to
sales, assets, and equity. Financial analysts often favor ratios that combine market data with an
LTP COMPREHENSIVE FINANCIAL ANALYSIS PAPER
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organization’s accounting data to help understand and compare market value while organizations
use this information internally to drive managerial decisions (Hawawini & Viallet, 2011).
Investors, analysts, and other interested parties in the financial community also utilize financial
ratios calculated from publically reported data as they evaluate and value a company (Hawawini
& Viallet, 2011).
Other analytical techniques sometimes employed include the common size analysis and
percentage change analysis (Gapenski, 2009). Common size analysis evaluates items on the
income statement as a percentage of total revenue and items on the balance sheet as a percentage
of total assets. This technique helps eliminate size bias when comparing companies. Percentage
change analysis involves calculating the percentage change in income statement and balance
sheet items from year to year which is a simple way to see the magnitude of change over time.
Although multiple financial analysis tools are available, the focus of this paper is on ratio
analysis.
Financial Statement Analysis for Stryker Corporation
Introduction to Stryker
Stryker Corporation is a worldwide leader in the medical technology industry. Founded
in 1941 by orthopedic surgeon Dr. Homer Stryker and headquartered in Kalamazoo, Michigan,
Stryker has grown into an international organization with a presence in over 100 countries.
Specializing in implants and materials used in reconstructive surgery, medical and surgical
equipment, and neuro-technology and spine implants, Stryker has enjoyed 33 years of continuous
sales growth. In 2013, Stryker was named as one of the 100 best places to work by Fortune
magazine (Stryker, 2013). Financial statements for Stryker’s 2012 fiscal year are included in
their form 10-K annual report to the Securities and Exchange Commission (SEC). The 2012
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consolidated statement of earnings, consolidated balance sheet, and consolidated cash flow
statement are depicted in Appendix A, Appendix B, and Appendix C respectively. Reviewing
these statements provides a window through which Stryker’s financial health may be evaluated.
Key Financial Ratios
Financial ratio analysis, “is a technique that helps interpret the data contained in a
business’s financial statements” (Gapenski, 2009, p. 377). Comparing various values on the
financial statements in the form of ratios and integrating market data provides a much more
meaningful understanding of an organization’s past and possibly future financial performance.
Gapenski (2009) explains that, “Ratio analysis combines data to create single numbers that have
easily interpreted significance” (p. 377). Hawawini and Viallet (2011) describe a number of
standard financial ratios that are helpful in determining the financial health of an organization.
Table 1 depicts many of these financial ratios along with values calculated using data from
Stryker’s 2012 financial statements.
Measures of liquidity provide insight into an organization’s ability to meet current
expenses with current assets such as cash and other easily convertible assets (Hawawini &
Viallet, 2011). The current ratio simply compares current assets with current liabilities. The
limitation on the efficacy of this comparison is that some current assets such as inventories may
not be easily liquidated and doing so is not something an ongoing concern would likely do in any
event (Hawawini & Viallet, 2011). The quick ratio removes inventories from current assets in
the liquidity calculation to provide a more realistic picture of an organization’s ability to pay its
obligations in the short term. The quick ratio generally includes accounts receivable and if the
receivables turnover ratio is low, this asset may not be readily convertible either (Loth, 2013). A
liquidity ratio of 1:1 (or simply, 1) implies that an organization has just enough
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Table 1
Stryker’s 2012 Financial Ratio Calculation
Ratio Name
Current Ratio
Quick Ratio
Formula
Current Assets / Current
Liabilities
(Current Assets Inventories) / Current
Liabilities
Total Debta / Total Assets
Total Debta / Total Equity
Earnings Before Interest
and Tax / Interest
Cost of Goods Sold /
Inventories
Sales / Net Fixed Assets
Debt Ratio
Debt-to-Equity Ratio
Times-InterestEarned Ratio
Inventory Turnover
Ratio
Fixed Asset
Turnover Ratio
Total Asset Turnover Sales / Total Assets
Ratio
Return On Sales
Earnings After Tax / Sales
Return on Total
Assets
Return on Total
Equity
Earnings Per Share
Price to Earnings
Ratio
Calculation
8148 / 1,876
Ratio
4.34
(8148 - 1,265) / 1,876
3.67
1,746 / 13,206
1,746 / 8,597
1,741 / 63b
0.13
0.2
27.63
2,781 / 1,265
2.2
8,657 / 948
9.13
8,657 / 13,206
0.66
1,298 / 8,657
0.15
Earnings After Tax / Total
Assets
Earnings After Tax / Equity
1,298 / 13,206
0.1
1,298 / 8,579
0.15
Earnings After Tax /
Outstanding Common
Stockc
Share Priced / Earnings per
Share
1,298 / 380
$3.42
55.54 /3.42
16.24
Note: Calculation values are in millions except for earnings per share and share price. Values are taken from
Stryker’s form 10-K annual report to the SEC for 2012 retrieved from
http://www.dailyfinance.com/quote/NYSE/stryker/SYK/sec-filings?source=itxwebtxt0000014. Ratio names and
formulas are found in Hawawini and Viallet (2011).
a
Total debt is long-term debt excluding current maturities as stated on the balance sheet. bInterest expense is taken
from note 7 on page 34 of the 2012 form 10-K. cOutstanding common stock number taken from 2012 balance
sheet. dShare price is from the opening price on January 2, 2013 retrieved at
http://finance.yahoo.com/q/hp?s=SYK&a=00&b=2&c=2013&d=00&e=2&f=2013&g=d.
cash and easily convertible assets to pay its short term expenses. A 1:1 liquidity ratio indicates a
very tenuous situation and organizations should maintain greater liquidity thus demonstrating
LTP COMPREHENSIVE FINANCIAL ANALYSIS PAPER
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their ability to meet short-term obligations while maintaining an operating reserve. Stryker’s
current ratio of 4.34 and quick ratio of 3.67 indicates that the organization is in a good position to
meet short-term obligations.
An organization’s solvency is typically evaluated using debt-based ratios. Debt
management ratios are used as measures of leverage: the level of debt capital employed. The
higher the ratio, the more leveraged an organization is and the greater the risk. More debt
indicates that creditors are bearing a higher level of a company’s risk compared to shareholders
(Gapenski, 2009). It is important to note that debt can be defined several ways and any debt ratio
analysis should take into consideration what actual components make up that debt. For instance,
debt may include operational liabilities such as accounts payable and tax payable which are not
usually considered as money having been borrowed. The debt-to-asset ratio compares total debt
to total assets while the debt-to-equity (D/E) ratio compares total liabilities to equity (Hawawini
& Viallet, 2011). In either case the organization’s leverage is being evaluated. Debt
management ratios are easily understood if displayed in a percentage form. For example, a D/E
ratio that results in a value of .25 indicates that the level of debt is 25% of equity. Stryker’s debt
and D/E ratios are 13% and 20% respectively indicating a relatively low level of debt and a very
solid equity position. By comparison, the medical equipment and supplies industry average
debt-to-equity ratio for 2012 was 52% (“Financial Strength,” 2013).
The ability to service debt is another measure of solvency. The times-interest-earned
ratio, or interest-coverage ratio as it is often called, indicates the likelihood of being able to
continue paying interest on outstanding debt using earnings before interest and tax (Hawawini &
Viallet, 2011). The higher this ratio the more able a company is to continue covering interest
expenses implying lower risk (Loth, 2013). Stryker’s interest coverage ratio of 27.63 means that
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it has $27.63 of earnings before interest and taxes (EBIT) for every dollar of interest expense.
This puts Stryker in a great position to continue meeting its interest expense obligations. By
comparison, the 2012 medical equipment and supplies industry average was 18.07 (“Financial
Strength,” 2013).
How efficient an organization utilizes assets can be evaluated by assessing how
effectively inventory and other assets are being used to generate sales (Hawawini & Viallet,
2011). The inventory turnover ratio compares sales to the cost of goods sold and is a measure of
how quickly inventory items are being used and turned into sales. Higher turnover rates require
less working capital which is advantageous (Hawawini & Viallet, 2011). Comparing sales to
total assets help us understand if the amount invested in assets is reasonable for the amount of
revenue that is being produced. If the asset turnover ratio is low it may indicate that the
company has a capital cost higher than necessary (Gapenski, 2009). Stryker experienced a total
asset turnover ratio of .66 as compared to 1.51 for the industry in 2012 (“Industry Efficiency,”
2013) suggesting that Stryker does have a higher than normal working capital requirement.
Profitability can be measured by comparing earnings after tax (EAT) with sales, assets,
and equity (Hawawini & Viallet, 2011). These comparisons illustrate how well an organization
is creating profits from these activities and investments. Each comparison varies in importance
to the range of interested parties depending on what role they have related to the organization. A
sales manager may be most interested in return on sales (ROS) since sales are what they are
directly responsible for while an investor may be more interested in profit generated from their
investment. The return on assets (ROA) ratio indicates how successful an organization is at
generating profits with the assets that are at their disposal. Higher ratios indicate an organization
is generating higher levels of profit from a fixed level of investment (Gapenski, 2009).
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Similarly, ROS illustrates the profitability of sales. Unfortunately, ROS and ROA are affected
by interest and tax expenses which limit the value to operational manager that have no control
over these expenses.
Hawawini and Viallet (2011) state that return on equity (ROE), “is the most
comprehensive indicator of profitability because it is the final outcome of all the firm’s activities
and decisions made during the year” (p. 144). ROE is a very valuable measure to investors since
it tells them what amount of return they will be receiving for each dollar of their investment.
However, when evaluating and comparing profitability ratios it is important to note that
profitability levels range significantly from industry to industry and fair comparisons can only be
made within a particular industry (Hawawini & Viallet, 2011). Stryker’s 2012 ROE of 15%
compares favorably with the 2012 medical equipment and supply industry average of 12.87%
(“Management Effectiveness,” 2013). Stryker’s solid ROE demonstrates an attractive return on
investment for shareholders and perspective investors.
Combining market data with accounting data from financial statements provides another
perspective of profitability. Earnings-per-share (EPS) and the price-to-earnings (P/E) ratio are
widely used as profitability indicators by investors with the P/E ratio being a multiple of earnings
(Hawawini & Viallet, 2011). EPS compares EAT with the number of shares outstanding while
the P/E ratio compares the share price with the EPS. P/E values indicate what value the market
is placing on each dollar of company earnings (Hawawini & Viallet, 2011). Sisson (2013) states
that, “A market-value ratio is a metric used to gauge a company's viability in terms of such
variables as profitability and the market valuation of its stock” (para. 1) and goes on to explain
that, “A market-value ratio is an indicator that expresses the value of a company's stock in terms
of a specific item in its financial statements” (para. 2). Stryker’s 2012 year-end EPS of $3.42
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compares favorably with their direct competitor’s current trailing-twelve-month average of .82
(“Competitors,” 2013). Stryker’s P/E ratio of 16.24 compares unfavorably with their direct
competitor’s current trailing-twelve-month average of 20.11 (“Competitors,” 2013).
Trend Analysis
Financial ratios have more meaning when they are evaluated over a period of time.
Trends that emerge can indicate the direction a company is heading financially (Gapenski, 2009).
Table 2 tracks Stryker’s key financial ratios over the last three years. Stryker’s liquidity ratios
have experienced some volatility during the years 2010 to 2012. The quick ratio dropped
significantly from 2010 to 2011 due to current assets decreasing by $421 million while current
liabilities increased by $223 million (Stryker, 2012, p.21). However, 2012 saw a nice recovery
in the quick ratio due to a significant increase in current assets compared to current liabilities
(Stryker 2013, p.23). Debt management ratios have skewed slightly downward. Debt-to-equity
jumped significantly from 2010 to 2011 resulting in a correspondingly lower interest coverage
rate. Stryker’s long-term debt increased $755 million from 2010 to 2011 while total shareholder
equity increased $509 million resulting in a capital structure with greater leverage (Stryker,
2012, p.21). The issuance of $750 million in senior unsecured notes in 2011 contributed
significantly to this increase (Stryker, 2012, p.32). Asset and inventory management ratios have
remained very steady suggesting solid control of sales related operations. Profitability has
trended down slightly and Stryker will need to stop this erosion of returns.
Peer-group Analysis
Comparing Stryker’s financial performance with similar organizations within their
industry provides insight into how well they are performing compared to their competitors. This
peer-group contrast prevents analytical judgments made in isolation from what the overall
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Table 2
Three Year Financial Ratios Trend
Ratio Name
Current Ratio
2012
4.34
2011
3.94
2010
4.75
Quick Ratio
3.67
3.24
4.1
Debt Ratioa
0.13
0.14
0.15
Debt-to-Equity Ratioa
0.2
0.23
0.14
27.63
14.31
32.92
Inventory Turnover Ratio
2.2
2.2
2.16
Fixed Asset Turnover Ratio
9.13
9.35
9.17
Total Asset Turnover Ratio
0.66
0.67
0.67
Return on Sales
0.15
0.16
0.17
Return on Total Assets
0.1
0.11
0.12
Return on Total Equity
0.15
0.17
0.18
Earnings Per Share
$3.42
$3.53
$3.26
Price to Earnings
16.24c
14.4d
15.5e
Times-Interest-Earned Ratio
Note: All values except price-to-earnings are calculated from Stryker’s form 10-K annual reports filed with the SEC
for years 2010-2012 retrieved from http://www.dailyfinance.com/quote/NYSE/stryker/SYK/secfilings?source=itxwebtxt0000014.
a
Total debt is long-term debt excluding current maturities as stated on the balance sheet. bInterest expenses used are
from the long-term debt and credit facilities notes in the form 10-K annual reports. cShare prices used in P/E
calculation for 2012 was $55.54 which was the opening price on January 2, 2013; for 2011 was $50.65 which was
the opening price on January 3, 2012; for 2010 was 53.93 which was the opening price on January 3, 2011, all
retrieved at http://finance.yahoo.com/q/hp?s=SYK&a=00&b=2&c=2013&d=00&e=2&f=2013&g=d.
industry is experiencing. Two companies similar to Stryker that are useful for comparison are
Smith & Nephew (S & N) and Zimmer. Both companies are large, multi-national, publically
traded, medical equipment manufacturing concerns. Comparisons of many common financial
ratios can be made from data depicted in Table 3. S & N enjoys a higher level of liquidity than
either Stryker or Zimmer suggesting that they are more prepared to meet their short- term
obligations. S & N has a relatively small amount of debt compared to Stryker of Zimmer.
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Table 3
Peer-Group Financial Ratio Comparison for 2012
Ratio Name
Current Ratio
Stryker
4.34
Zimmer
4.28
Smith & Nephew
6.07
Quick Ratio
3.67
3.13
5.10
Debt Ratio
0.13
0.36
0.08
Debt-to-Equity Ratio
0.2
0.55
0.12
27.63
13.37
122.22
Inventory Turnover Ratio
2.2
1.13
1.19
Fixed Asset Turnover Ratio
9.13
3.69
5.22
Total Asset Turnover Ratio
0.66
0.50
0.73
Return on Sales
0.15
0.19
0.18
Return on Total Assets
0.1
0.09
0.13
Return on Total Equity
0.15
0.14
0.19
Earnings Per Share
$3.42
$3.22
$0.81.3d
Price to Earnings Ratio
16.2a
21b
69.96c
Times-Interest-Earned Ratio
Notes: All values except P/E are calculated from Stryker’s 10-K, Zimmer’s 10-K, and Smith & Nephew’s 20-F
annual reports that were submitted to the SEC for 2012. S & N’s form 20-F retrieved at
http://markets.ibtimes.com/ibtimes/action/getedgarwindow?accesscode=119312513082636. Zimmer’s form 10-K
retrieved from http://yahoo.brand.edgar-online.com/displayfilinginfo.aspx?FilingID=9119391-805426245&type=sect&dcn=0001193125-13-079914. Stryker’s form 10-K retrieved from
http://www.dailyfinance.com/quote/NYSE/stryker/SYK/sec-filings?source=itxwebtxt0000014.
a
Stryker’s January 2, 2013, opening share price of $55.70 was used to calculate P/E ratio and was retrieved from
http://finance.yahoo.com/q/hp?s=SNN&a=00&b=2&c=2013&d=00&e=2&f=2013&g=d
b
Zimmer’s January 2 2013 opening share price of $67.60 is used to calculate their P/E ratio. Retrieved from
http://finance.yahoo.com/q/hp?s=ZMH&a=00&b=2&c=2013&d=00&e=2&f=2013&g=d
c
S & N’s January 2, 2013 opening share price of $59.47 was used to calculate P?E ratio and was retrieved from
http://finance.yahoo.com/q/hp?a=00&b=2&c=2013&d=00&e=2&f=2013&g=d&s=SNN%2C+&ql=1.
d
S & N’s earnings per share are stated on page 244 of their form 20-F SEC filing and is calculated based on the
897M shares outstanding and attributable profit for the year of $729M.
Zimmer’s solvency ratios are noticeably higher than those of Stryker or S & N indicating that
they are more highly leveraged and a greater risk for investors. Relatedly, Zimmer’s higher
leverage drives its debt coverage capacity lower again indicating higher risk. Stryker has
demonstrated a greater ability for generating sales from fixed assets compared to Zimmer and S
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& N although when considering all assets, the three company’s efficiency in creating sales from
assets show less variability. This suggests that Stryker has a lower percentage of debt and equity
tied up in property, plant, and equipment (PP&E) and they are utilizing their PP&E more
efficiently to generate sales than Zimmer or S & N. S&N experiences greater profitability than
either Stryker or Zimmer whose profitability ratios are similar. Investors in S & N enjoyed a
19% return on their investments in 2012 as opposed the 15% return Stryker’s investors received.
S & N’s P/E ratio is significantly higher than Stryker and Zimmer indicating that the market
believes S & N is undervalued. If these differences in market indicators were to persist over
several years it may tempt investors to shift their investments from Stryker to S & N.
Analytical Report of Financial Performance
Stryker’s financial statements and ratios indicate that Stryker is financially stable and
well-placed within the medical equipment and supplies industry. Stryker’s cash and other shortterm assets provide adequate working capital and liquidity. Levels of debt indicate a low default
risk. Stryker’s shifting debt-to- equity ratio from year to year demonstrates a willingness to
change their capital structure as their needs require. Inventory and assets have been consistently
managed over the last three years. Total asset turnover lags the broad industry average but asset
and inventory managements as a whole compares more favorably to their direct competitors.
Profitability has been trending slightly downward which is a cause for concern although earnings
per share for 2012 compare favorably with S & N and Zimmer. Stryker’s financial statements
and financial ratios reveal a well-run organization that increases value for its shareholders.
Assessment and Recommendations
Retrospective Financial Assessment
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International revenue was an area of weakness for Stryker in 2012. Stryker experienced a
2011 to 2012 sales reduction of 9.2% in the geographic areas of Europe, the Middle East, and
Africa. During this period they also experienced an increase in net PP&E of 5.1% (Stryker
Corporation, 2013, p. 40). Revenue from international markets was flat while the domestic
market experienced healthy growth (“Revenue,” 2013). More attention should have been
focused on generating greater sales from their PP&E investments in the international market.
Like most manufacturers of medical products, Stryker is subject to product liability
lawsuits and recalls of their products by the Food and Drug Administration (FDA). Stryker faces
a number of FDA recalls and the financial implications are not yet fully known. These costs
have lowered Stryker’s earnings. Stryker reported in its 2012 10-K report to the SEC that its,
“hip recall ultimately could cost the company between $190 [million] and $390 [million],
including the cost of patient testing and treatment, revision surgeries, insurance claims and
lawsuits” (Stryker, 2013, p. 32). Stryker (2013) goes on to state that, “Accordingly, in December
2012 we recorded a charge to earnings of $174 [million] representing the excess of the $190
[million] minimum of the range over the previously recorded reserves” (p. 32). This reduction in
earnings for 2012 should have been avoided by better product design and quality control.
Stryker did not control selling, general, and administrative (SG&A) expenses during
2012 as well as they should have. Accounting data from Stryker’s consolidated statement of
earnings shown in Appendix A indicates that SG&A expenses increased 10% over 2011
significantly surpassing sales increases of 4.2%. Although the cost of sales actually decreased
1% from 2011 to 2012, the disproportionate increase in SG&A expenses was a missed
opportunity for cost control. Ultimately, this increase in SG&A expenses, coupled with a
reduction of interest expense, resulted in a decrease in EAT of 3.6% during this period of sales
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growth. Stryker needs to do a better job of proportionately aligning their expenses with revenue
so that sales growth will be better reflected in EAT.
Future Business Strategies
Over the next three years Stryker should continue looking for opportunities to expand its
market presence into emerging markets and geographic areas where it is underrepresented.
“The emerging economies, comprised of China, India, Brazil, Russia, and South
Africa…represent the next big opportunity for the leading medical equipment and device
manufacturers” (Research, 2013, para. 4). China, in particular, “is home to more than 120
million people who are aged 65 or older, a population in continuous need of medical care”
(Research, 2013, para. 4). Stryker made a significant foray into the Chinese market in the first
quarter of 2013 when it used its strong cash flow to acquire Trauson Holdings, a Chinese
orthopedics company, for $764 million in cash (Simpson, 2013). Some claim this move will be
“the revenue growth driver of the company” (Portfolio, 2013) while others note that, “Stryker
acquired Trauson Holdings in order to expand its presence in China with a product portfolio and
pipeline that is targeted at the large and fast growing value segment of the Chinese orthopedic
market” (Research on Stryker and Zimmer, 2103, para. 8).
Stryker should also analyze the influences that are inhibiting profitability in its European
markets (Porter, 2008). The sluggish European economy and, “internal issues in the company’s
European wing” (Portfolio, 2013, p. 3) demand that management take the appropriate actions
(Simpson, 2013) to promote future growth in European markets.
As the US population ages, Stryker should capitalize on the “rebounding domestic
orthopedic market” (Portfolio, 2013, p.3) and should maintain headway by expanding new
products in its Neurovascular, Knee, and Spine segments (Portfolio, 2013). “The number of US
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citizens over age 65 years of age is expected to nearly double by the year 2030” (Portfolio, 2013,
p. 4), requiring more orthopedic implants, as their joints suffer from attrition (Portfolio, 2013).
Conclusion
This financial analysis based upon 2012 corporate financial statements has provided an
accurate description of Stryker Corporation a global leader in the medical equipment industry.
By utilizing ratio analysis as a tool for measuring financial health, Stryker Corporation has been
shown to earn an adequate return on sales, be in a good position to pay short-term obligations,
and manage its debt appropriately. Stryker’s corporate managers have successfully created value
for the organization. Although the organization will be challenged to continue seeking global
opportunities, strengthen internal weaknesses, and monitor trends in order to maintain its strong
financial position, Stryker’s consistently solid past performance points to a bright future.
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Appendix A
Consolidated Statement of Earnings for Years 2010 – 2012.
Year ended December 31
Net sales
Cost of sales
Gross profit
Research, development and engineering
expenses
Selling, general and administrative expenses
Intangible asset amortization
Property, plant and equipment impairment
Restructuring charges
Total operating expenses
Operating income
Other income (expense), net
Earnings before income taxes
Income taxes
Net earnings
Net earnings per share of common stock:
Basic net earnings per share of common stock
Diluted net earnings per share of common
stock
Weighted-average shares outstanding—in
millions:
Basic
Net effect of dilutive employee stock options
Diluted
Anti-dilutive shares excluded from the
calculation of net effect of dilutive employee
stock options
2012
8657
2,781
5,876
2011
8,307
2,811
5,496
2010
7,320
2,286
5,034
471
3,466
123
—
75
4,135
1,741
-36
1,705
407
1,298
462
3,150
122
—
76
3,810
1,686
—
1,686
341
1,345
394
2,707
58
124
—
3,283
1,751
-22
1,729
456
1,273
3.41
3.48
3.21
3.39
3.45
3.19
380.6
2.4
383
386.5
3
389.5
396.4
3.1
399.5
6.4
7.8
7.5
Note: Numbers are in millions of dollars except for earnings per share values. Retrieved from
http://www.dailyfinance.com/quote/NYSE/stryker/SYK/sec-filings?source=itxwebtxt0000014
LTP COMPREHENSIVE FINANCIAL ANALYSIS PAPER
18
Appendix B
Consolidated Balance Sheets for Years 2011 – 2012.
Year Ending December 31
ASSETS
Current assets
Cash and cash equivalents
Marketable securities
Accounts receivable, less allowance of $58 ($56 in 2011)
Inventories
Materials and supplies
Work in process
Finished goods
Total inventories
Deferred income taxes
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment
Land, buildings and improvements
Machinery and equipment
Total property, plant and equipment
Less allowance for depreciation
Net property, plant and equipment
Other assets
Goodwill
Other intangibles, net
Other
Total assets
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable
Accrued compensation
Income taxes
Dividend payable
Accrued expenses and other liabilities
2012
2011
1,395
2,890
1,430
905
2,513
1,417
202
71
992
1,265
811
357
8,148
185
46
1,052
1,283
777
312
7,207
625
1,607
2,232
1,284
948
600
1,455
2,055
1,167
888
2,142
1,424
544
13,206
2,072
1,442
537
12,146
288
467
70
101
934
345
444
155
81
798
2010
LTP COMPREHENSIVE FINANCIAL ANALYSIS PAPER
Current maturities of debt
Total current liabilities
Long-term debt, excluding current maturities
Other liabilities
Shareholders' equity
Common stock, $0.10 par value:
Authorized: 1 billion shares, outstanding: 380 million shares (381
million in 2011)
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
Total shareholders' equity
Total liabilities & shareholders' equity
19
16
1,876
1,746
987
17
1,840
1,751
872
38
1,098
7,332
129
8,597
13,206
38
1,022
6,497
144
7,683
12,146
Notes: Numbers are in millions of dollars. Retrieved from
http://www.dailyfinance.com/quote/NYSE/stryker/SYK/sec-filings?source=itxwebtxt0000014
LTP COMPREHENSIVE FINANCIAL ANALYSIS PAPER
20
Appendix C
Consolidated Statement of Cash Flow for Years 2010-2012
Year Ending December 31
Operating activities
Net earnings
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation
Intangibles amortization
Share-based compensation
Restructuring charges
Property, plant and equipment impairment
Sale of inventory stepped up to fair value at
acquisition
Deferred income tax credit
Changes in operating assets and liabilities, net of
effects of acquisitions:
Accounts receivable
Inventories
Accounts payable
Accrued expenses and other liabilities
Income taxes
Other
Net cash provided by operating activities
Investing activities
Acquisitions, net of cash acquired
Purchases of marketable securities
Proceeds from sales of marketable securities
Purchases of property, plant and equipment
Proceeds from sales of property, plant and equipment
Net cash used in investing activities
Financing activities
Proceeds from borrowings
Payments on borrowings
Proceeds from issuance of long-term debt, net
2012
2011
2010
1,298
1,345
1,273
154
123
75
75
—
160
122
75
76
—
165
58
69
—
124
18
-39
143
-164
7
-104
-20
18
-48
180
-159
-18
1,657
-152
-166
44
158
-95
-112
1,434
-121
-131
96
91
-24
44
1,547
-154
-3,480
3,108
-210
—
-736
-2,066
-6,779
6,869
-226
67
-2,135
-265
-5,619
5,210
-182
61
-795
178
-182
—
178
-190
749
100
-81
996
LTP COMPREHENSIVE FINANCIAL ANALYSIS PAPER
21
Dividends paid
Repurchase and retirement of common stock
Other
Net cash (used in) provided by financing activities
-324
-108
-13
-449
-279
-622
3
-161
-238
-426
59
410
Effect of exchange rate changes on cash and cash
equivalents
Change in cash and cash equivalents
18
490
9
-853
-63
1,099
905
1,395
1,758
905
659
1,758
599
574
579
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental cash flow disclosure:
Cash paid for income taxes, net of refunds
Notes: Numbers are in millions of dollars. Retrieved from
http://www.dailyfinance.com/quote/NYSE/stryker/SYK/sec-filings?source=itxwebtxt0000014
LTP COMPREHENSIVE FINANCIAL ANALYSIS PAPER
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