FINANCIAL ACCOUNTING PROJECT
ANALYZING FIRMS IN THE PHARMACEUTICAL INDUSTRY
Company A (US) vs. Company B (Switzerland) vs. Company C (UK) vs. Company D (France) vs.
Company E (Japan) vs. Company F (Israel)
I.
1.
2.
3.
4.
5.
6.
7.
8.
II.
1.
IMPORTANT NOTES
The Excel file FINANCIAL ACCOUNTING PROJECT EXCEL WORKSHEETS contains the financial statements of
companies. These are real companies with actual financial statements. The companies have been disguised to
prevent downloading solutions from the web. The Raw Income Statement (IS) and Raw Balance Sheet (BS) have
been provided for each of the firms for two consecutive years. Also, to ensure consistency of answers,
classification of some operating (OP) and nonoperating (NO) elements is provided. Use your judgment on the
others. In the Raw IS and Raw BS indicate what items are operating (OP) and what are nonoperating (NO).
Your team should consist between 4-6 students. Each student will pick a company to analyze. If you have less
than six members in your team, you can choose any of the above six firms.
The group will make one submission. For questions marked “Group”, you will work together and provide one
response. For questions marked “Individual”, you will do the work individually. The group will make ONE
submission – in Excel on Canvas.
The first worksheet of the Excel file, “Team Members”, will have the names of the students and the names of
the firms they are analyzing
Since you will be calculating ratios, you do not have to convert the statements into US dollars.
Each group will submit the following:
i.
Individual responses to Parts 1 & 2 (in Excel). Each individual student will have 5 worksheets: “Firm
Name – Raw IS, “Firm Name – Raw BS”, “Firm Name – Template IS, “Firm Name – Template BS” “Firm
Name – Analysis”.
ii.
Group responses to Part 3 (in Excel) – “Group Analysis”
Make sure that the Excel worksheets are appropriately formatted so that they look professional. Ensure there
is consistency of format across all firms.
Use formulas with cell addresses, not numbers.
INSTRUCTIONS
(Individual) One challenge of comparing firms, even within the same industry, is that the firms use different
formats and classifications in preparing their financial statements. One way to address this situation is to convert
the financial statements of firms into a standard format before undertaking financial analysis.
For each firm, convert the Income Statement and Balance Sheet of the firm into the standard format shown in
Appendix A. Indicate in the Excel spreadsheet how you mapped the items from the financial statements to the
standard format. In addition, Also, indicate the items in the Income Statement you tagged as non-recurring (with
reasons for doing so) and hence did not include in the standard format. Note: You cannot make any changes to
the template.
2.
(Individual) For each firm, using the model developed in Module 4 of the text, disaggregate ROE into its
operating and nonoperating components. Discuss the impact financial leverage has on firm’s ROE. Further,
disaggregate RNOA into its components and analyze each of the components further to gain insights into the
factors driving firm’s performance. Using the disaggregation analysis, comment on the firm’s performance (use
the Excel worksheet – “Firm name – Analysis”
Using appropriate ratios, analyze the riskiness (short-term liquidity and long-term solvency) of the firm.
3.
III.
(Group) Compare and analyze the profitability and risk of the four/five/six firms. Calculate the trailing PE ratio
for each of the firms as of the fiscal year-end. Based on your analysis in (2) above and the PE ratio, which of the
companies is the best investment to buy. Why?
OTHER CONSIDERATIONS
1.
You need to calculate ratios only for 2018 (not 2017), since you cannot calculate averages for 2017.
2.
For students who have Company C, I would recommend taking the average tax rate of the previous 5 years
(2014-2018), calculated as follows:
*Took average of five years (2014-2018) due to 15% tax rate in 2018 alone
Year
Provision for tax Income before tax
Tax rate
2014
2,222
7,891
28.16%
2015
1,304
3,157
41.31%
2016
2,220
7,625
29.11%
2017
1,922
6,600
29.12%
2018
1,019
6,647
Average
3.
15.33%
28.61%
Students who have Company F will notice that the tax rate for both years is negative. I would recommend taking
a tax rate of 1.72% for 2018, calculated as follows:
*Took average of five years (2014-2018) due to negative tax rate in 2018
Year
Provision for tax
2014
166
Income before tax
2,203
7.54%
2015
283
3,646
7.76%
2016
127
2,956
4.30%
2017
-137
1,819
-7.53%
2018
-43
1,250
-3.44%
Average
Tax rate
1.72%
4.
If you believe a team member did not devote his or her fair share of time and effort to the project or if the team
member did not submit their company analysis in Excel on time, then the team members who have a complaint
and jointly send me (at Suneel.udpa@faculty.hult.edu) and my TA (at margaritamartins@gmail.com) a
confidential email describing the complaint. If you believe all members did their fair share, you don’t need to
send an email.
IV.
APPENDIX A
Template for Income Statement
Income Statement
Sales (Net)
Cost of Goods Sold
Gross Profit
R&D Expense
SG&A Expense
Other Operating Expenses (Net)
EBIT (=Operating Income)
Net Non-Operating Expense/Income
EBT (Earnings Before Taxes)
Income Taxes
Net Income before Nonrecurring Items
Preferred Dividends
Net Income (available to common)
Current fiscal Year
Past fiscal year
Note: If your firm has Minority Interest in Earnings, ignore it in the calculation of Net Income
Template for Balance Sheet
Balance Sheet
Operating Cash
Short-term Investments
Receivables
Inventories
Other Current Assets
Total Current Assets
PP&E (Net)
Investments
Intangibles
Other Long-term Assets
Total Assets
Current fiscal year
Prior fiscal year
Current Portion of Debt
Accounts Payable
Income Taxes Payable
Other Current Liabilities
Total Current Liabilities
Long-Term Debt
Other Long-term Liabilities
Total Liabilities
Preferred Stock
Paid in Common Capital (Net)
Retained Earnings
Total Common Equity
Total Liabilities & Common Equity
Note:


If your firm has Minority Interest take it as part of Common Shareholder’s Equity
Include Deferred Tax Assets and Deferred Tax Liabilities as Other Long-term Assets and Other Long-term
Liabilities respectively. Consider as Operating.