understanding financial reports

Review the financial
statements of Merck and Novartis to learn additional information. The emphasis
of this Case is to review the income statement, balance sheet and computation
of ratios.
Review the financial
statements for the companies and answer the following questions for the last
reporting year:
 
Balance Sheet
• What components of stockholders’ equity does each
of the companies disclose?
• Does the companies have preferred stock shares
outstanding? If so, what special features do these shares contain?
• Does either of the companies report treasury
shares? If so, do the companies disclose the reason for reacquiring the shares?
Income
Statement
• What are the basic and diluted earnings per share
for each company?
• Have the companies reported any discontinued
operations?
• Do the companies disclose any stock compensation
plans? If so, are they reporting such plans under the fair value or intrinsic
value methods? What was the value of compensation expense measured for any
outstanding stock option plans?
Financial Ratios
Compute the following ratios. Also, interpret and
assess each group of ratios for the company. What type of story are the ratios
telling the analyst?
• Profitability
ratios:
?
Gross profit margin
?
Net profit margin
?
Return on stockholders’ equity
• Liquidity
ratios:
?
Current ratio
?
Quick ratio
?
Inventory turnover
• Leverage
ratios:
?
Debt-to-assets
?
Debt-to-equity
?
Times-covered ratio
What type of information do you find in footnotes
to the financial statements?
Do you find the balance sheet, income statement
or other measures such as ratios the most informative? Comment on the
advantages and disadvantages of using ratios for analysis.
Modular Case Assignment Expectations
It is important to answer the questions as
posed. The discussion should be from 3 to 5 pages and written in a
clear and concise manner. Support your discussion with references in APA
format. You are encouraged to use Excel or other compatible spreadsheet when
computations are involved.