financial analysis of novartis

Financial Statement Analysis

Short Term Ratios

Current ratio

YEARS %age %age change

2004 2 100

2005 1.39 69.5

2006 1.32 66

2007 1.65 82.5

2008 1.27 63.5

Current ratio tells us that how much asset we have in our company which can

meet our current liabilities.

Over the 5 years period the ration has declined below 1 this is not a good sign

for the organization as the matter could become worse when it comes in

meeting short term liabilities

By Salman Ali Haider


Quick ratio

YEARS %age %age change2004 1.58 100

2005 1.06 67.08861

2006 0.87 55.06329

2007 1.17 74.05063

2008 0.79 50

Quick ratio measures the liquidity situation excluding inventories.

This ratio also decreased over five year period. Indicating the management is

not working properly to maintain sufficient current assets to maintain current

liabilities.



Cash ratio


2005 0.71 60.68376

2006 0.49 41.88034

2007 0.79 67.52137

2008 0.37 31.62393

Cash ratio tells us that how much we have immediate cash or cash equallnt to meet our current liabilities.

This ratio had also decreased our period of five year. Just like quick and current ratio. So management need to consider this matter and need to take corrective measure to improve this ratio and in short term find ways and means to best meet their current liabilities.

Avg. collection period

YEARS Days %age change



2004 61 100

2005 62.04 100.3883

2006 61.56 99.61165

2007 62.9 101.7799

2008 61 100

The average collection period shows the number of days after which we

convert all our receivables to cash.

These numbers of days has been constant. This is an achievement for the

organization. Cause company holding expenses along with obsolesce expense

would decrease.

Turnover of inventory

YEARS Times %age change



2004 1.86 100

2005 2.22 119.3548

2006 2.29 123.1183

2007 2.02 108.6022

2008 2.03 109.1398

Age of inventory

YEARS Days %age change



2004 193.3 100

2005 162.3 83.96275

2006 157.3 81.3761

2007 178.01 92.09002

2008 176.6 91.36058

It is the period after which inventory is sold.

This period has to decrease to 176. Over the period of five years this shows

the increase in company sales and reputation of the company. This change is

also because of the decrease in profit margin ratio. Which means that

company has decrease its profit on per sale of unit.

Operating cycle

YEARS Days %age change2004 255.1 100



2005 224.4 87.9655

2006 218.79 85.76637

2007 240.9 94.43356

2008 237.6 93.13995

The number of days after which company purchases raw material, sell goods

and recover its collectables.

The operating cycle has decreased only because of decrease in average

inventory period. This is good for company reputation cause as operating cycle

decreases organisation would have cash more quickly to run its operations.

Turnover of working capital

YEARS Times %age change2004 0.7 100

2005 0.73 104.2857



2006 0.7 100

2007 0.65 92.85714

2008 0.67 95.71429

Avg. payment period

YEARS Days %age change2004 100 100

2005 85.1 85.1

2006 72.43 72.43

2007 83.3 83.3

2008 98 98



The number of days after which the company pay it’s payable.

The number of days has increased this shows that company is trying to utilize

money efficiently. As it is in the best interest of the company to retain money

for as long as it takes cause company could invest it in short term investment.

Cash cycle

YEARS Days %age change2004 155.5 100

2005 139.3 89.58199

2006 146.4 94.14791

2007 157.6 101.3505

2008 139.6 89.77492



It is the period for which we have cash in our pocket. This cash is after

collecting and paying activities.

This period had remained constant due to decrease in average inventory

period and increase in average payment period. So its good.

Long Term Ratios

T.I.E.R (Time interest Earned ratio)


2004 22.2 100



2005 23.13 104.1892

2006 29.88 134.5946

2007 28.61 128.8739

2008 30.9 139.1892

Through his ratio we calculate that how much times we have earned than the interest we have paid.

This ratio has increased over five year time. This shows efficiency of the organisation’s operations.

Debt to equity


2005 0.16 89.88764

2006 0.154 86.51685

2007 0.123 69.10112



2008 0.145 81.46067

Here we compare debt especially long-term debt with total assets.

This ratio has decreased because of increase in total assets and this ratio must

remain as low as it takes.

Debt to Tangible net Worth


2005 0.225 107.1429

2006 0.244 116.1905

2007 0.186 88.57143

2008 0.214 101.9048



This ratio compares long term debt with assets excluding factitious assets.

Thus showing real worth of assets of the organisation.

This ratio has remained constant over the period of five accounting periods.

Due to investment in fixed asset as business growing.

Debt/Equity ratio


2005 0.741 109.6154

2006 0.647 95.71006

2007 0.528 78.10651

2008 0.552 81.6568



This ratio tells us total debt compared to equity. This equity is asset –

liabilities.

This ratio has decreased. Due to greater increase in equity than debt.

Gearing ratio


2005 0.218 95.19651

2006 0.202 88.20961

2007 0.16 69.869

2008 0.145 63.31878



This ratio is calculated with respect to the scenario of Pakistan.

This ratio compares liability with sum of total equity and long term liability.

This ratio has decreased. Due to increase in equity of the organisation.

Profitability ratios

Net Profit margin


2005 0.21 91.30435

2006 0.22 95.65217

2007 0.17 73.91304

2008 0.21 91.30435



This is the Comparing of net income to net sales is called net profit margin.

This has decreased showing that company is trying to give access to more

people by decreasing profit earned. This also shows change in company

change in policy.

Total asset turnover


2005 0.56 119.1489

2006 0.57 121.2766

2007 0.53 112.766

2008 0.54 114.8936



It has increased over 5 years showing that assets are used more efficiently and

effectively as number of products produced and sold had increased.

Du Pont Return on asset ( Return on Asset )


2005 0.123 99.19355

2006 0.126 101.6129

2007 0.094 75.80645

2008 0.136 104.54839



Return has increased due to more increase in asset turnover than net profit

margin.

Operating asset Turnover


2005 3.57 107.5301

2006 3.29 99.09639

2007 3.01 90.66265

2008 3.16 95.18072



Return on Equity


2004 0.209 100

2005 0.206 98.56459

2006 0.193 92.3445

2007 0.137 65.55024

2008 0.178 85.16746



Return or equity has decreased due to companies increased in equity over five

years period.

Summery:

Analyzing companies performance over five year. Had shown fluctuation in the

calculation of ratios and to make sure that it is easy to understand we had

made an assumption that if the ratio is showing increasing trend then ratio

had been considered as improving. The main causes for fluctuation are

increase in assets, sales and profit of the company. So we had taken

comparative increases and decreases in each item and analyzed that the



company is growing at a amazing rate but it need to considered many things

like current, quick and cash ratios must be greater than 2 as this ratio is taken

into consideration by all the investor. Rest of the ratios are good the way they

must be so from me side thumbs up.
