Abbott's financial ratio analysis(Shraddha Bhatt & Jincey Jose),SVKM'S NMiMS

50
Financial Ratio Analysis of Abbott Laboratories Presented by : Jincey Jose (A009) Shraddha Bhatt (A024)

Transcript of Abbott's financial ratio analysis(Shraddha Bhatt & Jincey Jose),SVKM'S NMiMS

Page 1: Abbott's financial ratio analysis(Shraddha Bhatt & Jincey Jose),SVKM'S NMiMS

Financial Ratio Analysis of

Abbott Laboratories

Presented by:

Jincey Jose (A009)

Shraddha Bhatt (A024)

Page 2: Abbott's financial ratio analysis(Shraddha Bhatt & Jincey Jose),SVKM'S NMiMS

Contents

• About ABBOTT Laboratories

• SWOT analysis

• Competitors

• Annual Balance Sheet (2011-2013)

• Financial statement analysis

• Financial ratio analysis

• Conclusion

• Reference

Page 3: Abbott's financial ratio analysis(Shraddha Bhatt & Jincey Jose),SVKM'S NMiMS

About ABBOTT laboratories

• Headquartered in Mumbai

• Founded in 1888, by a young Chicago based physician, Dr.Wallace Calvin Abbott

• 150 countries

• 35 distribution points, over 4,500 stockists and 150,000 retail outlets

• The current market capitalisation stands at Rs.3,625.98 crore.

• Sales of Rs.471.81 crore and a Net Profit of Rs 53.46 crore for the quarter ended Dec 2013.

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The Six Pillars of Abbott

• One Team

• Agile

• Results

• Mutual Respect

• Trust

• Shape the market

Page 5: Abbott's financial ratio analysis(Shraddha Bhatt & Jincey Jose),SVKM'S NMiMS

SWOT Analysis

• Increasing obsolesce of technology

• Broad-based medical innovation

• Dependent upon mature products

• Available only in certain countries.

• Collaborating with Syngene

• Strong employee force of 90,000

Strength Weakness

ThreatOpportu-

nities

Page 6: Abbott's financial ratio analysis(Shraddha Bhatt & Jincey Jose),SVKM'S NMiMS

Major Competitors

• Sun Pharma

• Dr Reddy’s Labs

• Cipla

• Lupin

• Ranbaxy Labs

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Dec 31, 2013 Dec 31, 2012 Dec 31, 2011

ASSETS

Cash And Cash Equivalents 3,475,000,000 10,802,000,000 6,812,820,000

Short Term Investments 4,623,000,000 4,372,000,000 1,284,539,000

Net Receivables 6,514,000,000 10,599,000,000 10,384,460,000

Inventory 2,693,000,000 3,793,000,000 3,284,249,000

Other Current Assets 1,942,000,000 1,757,000,000 2,002,706,000

Total Current Assets 19,247,000,000 31,323,000,000 23,768,774,000

Long Term Investments 119,000,000 274,000,000 378,225,000

Property Plant and Equipment 5,971,000,000 8,063,000,000 7,873,955,000

Goodwill 9,772,000,000 15,774,000,000 15,705,380,000

Intangible Assets 5,735,000,000 8,588,000,000 9,989,636,000

Accumulated Amortization - - -

Other Assets - - -

Deferred Long Term Asset

Charges2,109,000,000 3,213,000,000 2,560,923,000

Total Assets 42,953,000,000 67,235,000,000 60,276,893,000

ANNUAL BALANCE SHEET ( 2011 , 2012 & 2013)

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LIABILITIES

Accounts Payable 5,948,000,000 10,889,000,000 12,105,473,000

Short/Current Long

Term Debt3,173,000,000 2,391,000,000 3,374,755,000

Other Current

Liabilities386,000,000 - -

Total Current

Liabilities9,507,000,000 13,280,000,000 15,480,228,000

Long Term Debt 3,388,000,000 18,085,000,000 12,039,822,000

Other Liabilities 4,791,000,000 9,057,000,000 8,230,698,000

Deferred Long Term

Liability Charges- - -

Minority Interest 96,000,000 92,000,000 86,312,000

Negative Goodwill - - -

Total Liabilities 17,782,000,000 40,514,000,000 35,837,060,000

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STOCKHOLDERS' EQUITY

Misc Stocks Options

Warrants- - -

Redeemable Preferred

Stock- - -

Preferred Stock - - -

Common Stock 12,048,000,000 11,755,000,000 9,817,134,000

Retained Earnings 21,979,000,000 24,151,000,000 20,907,362,000

Treasury Stock -6,844,000,000 -5,591,000,000 -3,687,478,000

Capital Surplus - - -

Other Stockholder

Equity-2,012,000,000 -3,594,000,000 -2,597,185,000

Total Stockholder

Equity25,171,000,000 26,721,000,000 24,439,833,000

Net Tangible Assets 9,664,000,000 2,359,000,000 -1,255,183,000

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Financial Statement Analysis

• Financial statement analysis is the process of understanding the risk and profitability of a firm through analysis of reported financial information, by using different accounting tools and techniques.

It consists of :-

• 1) Reformulating reported financial statements

• 2) Analysis and adjustments of measurement errors

• 3) Financial ratio analysis on the basis of reformulated and adjusted financial statements.

Page 11: Abbott's financial ratio analysis(Shraddha Bhatt & Jincey Jose),SVKM'S NMiMS

Financial Ratio Analysis

• Ratio Analysis is a technique of analysis and interpretation of financial statements. It is defined as the systematic use of ratios to interpret the financial statements so that the strengths and weaknesses of a firm as well as its historical performances and current financial condition can be determined.

• Ratios can be expressed as a decimal value, such as 0.10, or given as an equivalent percent value, such as 10%.

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Ratio Analysis

Liquidity Ratio

Profitability Ratio

Turnover Ratio

Solvency Ratio

Classification of Ratio Analysis

Page 13: Abbott's financial ratio analysis(Shraddha Bhatt & Jincey Jose),SVKM'S NMiMS

Liquidity Ratio

• It indicates the short-term position of the organization and also indicates the efficiency with which the working capital is being used.

Liquidity Ratio

Current Ratio

Quick Ratio

Page 14: Abbott's financial ratio analysis(Shraddha Bhatt & Jincey Jose),SVKM'S NMiMS

Current Ratio

• The current ratio is an indication of a firm's market liquidity and ability to meet creditor's demands.

• Current ratio= Current Assets

Current Liabilities

• Standard Ideal value: 2:1

Page 15: Abbott's financial ratio analysis(Shraddha Bhatt & Jincey Jose),SVKM'S NMiMS

Years Dec 31,

2013

Dec 31,

2012

Dec 31,

2011

Dec 31,

2010

Dec 31,

2009

Selected Financial Data (USD $ in millions)

Current

assets

19,247 31,323 23,76

9

22,318 23,314

Current

Liabilities

9,507 13,280 15,48

0

17,262 13,049

Current Ratio Comparison to Industry

Abbott

Laborat

ories

2.02 2.36 1.54 1.29 1.79

Industry

Health

Care

1.69 1.64 1.73 1.7 1.72

Current Ratio

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Calculation & Interpretation

Year Calculation Ratio Interpretation

2011 23,769 15,480 1.54 Unsatisfactory

2012 31323 13,280 2.36 Satisfactory

2013 19,247 9,507 2.02 Satisfactory

Interpretation:•As compared to Industry Health Care, the current ratio for years 2012 and 2013 are good.

•A high current ratio indicates that there are sufficient assets available with the organization, which can be converted in the form of cash and a low current ratio indicates that a firm may have difficulty meeting current obligations.

•A too high current ratio signifies the availability of idle cash and inefficient usage of current assets or short term financing facilities.

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Quick Ratio

• The Acid-test or quick ratio or liquid ratio measures the ability of a company to use its near cash or quick assets to extinguish or retire its current liabilities immediately.

• Quick Assets = Current Assets – (Inventory + Prepaid Expenses)

• Quick ratio = Total quick assets Current liabilities

• Standard Ideal value: - 1:1

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Quick RatioDec 31, 2013 Dec 31, 2012 Dec 31, 2011 Dec 31, 2010 Dec 31, 2009

Selected Financial Data (USD $ in millions)

Cash and cash

equivalents

3,475 10,802 6,813 3,648 8,809

Investments,

primarily bank

time deposits

and U.S. treasury

bills

4,623 4,372 1,285 1,803 1,123

Restricted funds

, primarily U.S.

Treasury Bills.

– – – 1,872 –

Trade receivables

less allowances

3,986 7,613 7,684 7,184 6,542

Total quick

Assets

12,084 22,787 15,781 14,508 16,474

Current liabilities 9,507 13,280 15,480 17,262 13,049

Quick Ratio, Comparison to Industry

Abbott

Laboratories

1.27 1.72 1.02 0.84 1.26

Industry Health

Care

1.19 1.17 1.27 1.21 1.2

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Calculation and Interpretation

Year Calculation Ratio Interpretation

2011 12,084 9,507 1.27 Good

2012 22787 13,280 1.72 Good

2013 15781 15,480 1.02 Satisfactory

Interpretation:

•As compared to Industry Health Care, the Quick ratio for years 2011, 2012 & 2013 are good.

•The greater the company's liquidity (i.e., the better able to meet current obligations using liquid assets) and if less than 1 cannot currently fully pay back its current liabilities.

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Profitability Ratio

• Profitability ratios measure the company's ability to generate profitable sales from its resources (assets).

Profitability Ratio

Gross Profit Ratio

Net Profit Ratio

Operating Ratio

Page 21: Abbott's financial ratio analysis(Shraddha Bhatt & Jincey Jose),SVKM'S NMiMS

Gross Profit Ratio

• The gross profit ratio indicates the relation between production cost and sales.

• It measures company's manufacturing and distribution efficiency during the production process.

• Gross Profit Ratio = Gross Profit *100

Net Sales

Page 22: Abbott's financial ratio analysis(Shraddha Bhatt & Jincey Jose),SVKM'S NMiMS

Years Dec 31,

2013

Dec 31,

2012

Dec 31,

2011

Dec 31,

2010

Dec 31,

2009

Selected Financial Data (USD $ in millions)

Gross

profit

11,808 24,754 23,311 20,502 17,555

Net sales 21,848 39,874 38,851 35,167 30,765

Gross

profit

margin

ratio

54.05% 62.08% 60.00% 58.30% 57.06%

Gross Profit Ratio

Page 23: Abbott's financial ratio analysis(Shraddha Bhatt & Jincey Jose),SVKM'S NMiMS

Calculation & Interpretation

Year Calculation Ratio

2011 100 23,311 38,851 60%

2012 100 24,754 39,874 62.08%

2013 100 11,808 21,848 54.05%

Interpretation:

•The gross profit margin improved from 2011 to 2012 but then deteriorated significantly from 2012 to 2013.

•A high gross profit margin indicates that the company can make a reasonable profit, as long as it keeps the overhead cost in control.

• A low margin indicates that the business is unable to control its production cost.

Page 24: Abbott's financial ratio analysis(Shraddha Bhatt & Jincey Jose),SVKM'S NMiMS

Net Profit Ratio

• The net profit ratio indicates that portion of sales available to the owners after the consideration of all types of expenses and costs either operating or non operating or normal or abnormal

• FORMULAENet Profit Ratio = Net Profit after Taxes *100

Net Sales

Page 25: Abbott's financial ratio analysis(Shraddha Bhatt & Jincey Jose),SVKM'S NMiMS

Years Dec 31,

2013

Dec 31,

2012

Dec 31,

2011

Dec 31,

2010

Dec 31,

2009

Selected Financial Data (USD $ in millions)

Net

earnings

2,576 5,963 4,728 4,626 5,746

Net sales 21,848 39,874 38,851 35,167 30,765

Net Profit Margin, Comparison to Industry

Abbott

Laboratorie

s

11.79% 14.95% 12.17% 13.15% 18.68

%

Industry

Health Care

16.84% 15.92% 15.50% 14.38% 20.14

%

Net profit ratio

Page 26: Abbott's financial ratio analysis(Shraddha Bhatt & Jincey Jose),SVKM'S NMiMS

Calculation & Interpretation

Year Calculation Ratio

2011 100 4,728 38,851 12.17%

2012 100 5,963 39,874 14.95%

2013 100 2,576 21,848 11.79%

Interpretation:

•Net profit margin improved from 2011 to 2012 but then deteriorated significantly from 2012 to 2013.

•The Net Profit Ratio of Abbott Laboratories is less as compared to the Industry Health Care.

•A high ratio indicates the efficient management of the affairs of business.

Page 27: Abbott's financial ratio analysis(Shraddha Bhatt & Jincey Jose),SVKM'S NMiMS

Operating Profit Ratio

• This ratio indicates the percentage of net sales, which is absorbed by the operating cost.

• This ratio excludes the non-operating expenses such as administrative expenses , selling and distribution expenses.

• Operating Profit Ratio = 100 Operating earnings Net sales

Page 28: Abbott's financial ratio analysis(Shraddha Bhatt & Jincey Jose),SVKM'S NMiMS

Years Dec 31,

2013

Dec 31,

2012

Dec 31,

2011

Dec 31,

2010

Dec 31,

2009

Selected Financial Data (USD $ in millions)

Operating

earnings

2,629 8,085 5,752 6,088 6,236

Net sales 21,848 39,874 38,851 35,167 30,765

Operating Profit Margin, Comparison to Industry

Abbott

Laboratorie

s

12.03% 20.28% 14.81% 17.31% 20.27%

Industry

Health

Care

19.78% 21.20% 21.07% 20.08% 22.02%

Operating Profit Ratio

Page 29: Abbott's financial ratio analysis(Shraddha Bhatt & Jincey Jose),SVKM'S NMiMS

Calculation & Interpretation

Year Calculation Ratio

2011 100 5,752 38,851 14.81%

2012 100 8,085 39,874 20.28%

2013 100 2,629 21,848 12.03%

Interpretation:

•Operating profit margin improved from 2011 to 2012 but then deteriorated significantly from 2012 to 2013.

•Operating Profit Ratio of years 2011, 2012and 2013 are less than the Industry Health Care.

• A higher value of operating margin ratio is favourable which indicates that more proportion of revenue is converted to operating income.

Page 30: Abbott's financial ratio analysis(Shraddha Bhatt & Jincey Jose),SVKM'S NMiMS

TURNOVER GROUP

• Ratios computed under this group indicate the efficiency of the organization to use the various kinds of assets by converting them in the form of sales.

Turnover Ratio

Inventory Turnover

Ratio

Working Capital Turnover Ratio

Page 31: Abbott's financial ratio analysis(Shraddha Bhatt & Jincey Jose),SVKM'S NMiMS

Inventory Turnover Ratio

• A ratio showing how many times a company's inventory is sold and replaced over a period.

• A high inventory turnover ratio indicates that maximum sales turnover is achieved with the minimum investment in inventory.

• Inventory or Stock Turnover Ratio

= Cost of Goods Sold

Avg. Inventory

Page 32: Abbott's financial ratio analysis(Shraddha Bhatt & Jincey Jose),SVKM'S NMiMS

Years Dec 31,

2013

Dec 31,

2012

Dec 31,

2011

Dec 31,

2010

Dec 31,

2009

Selected Financial Data (USD $ in millions)

Net sales 21,848 39,874 38,851 35,167 30,765

Inventories 2,693 3,792 3,284 3,189 3,265

Inventory Turnover, Comparison to Industry

Abbott

Laboratories

8.11 10.51 11.83 11.03 9.42

Industry

Health Care

9.43 9.59 10.41 10.36 8.31

Inventory Turnover Ratio:

Page 33: Abbott's financial ratio analysis(Shraddha Bhatt & Jincey Jose),SVKM'S NMiMS

Calculation & Interpretation

Year Calculation Ratio

2011 38,851 3,284 11.83

2012 39,874 3,792 10.51

2013 21,848 2,693 8.11

Interpretation:•The ITR of the company declined from year 2011 to 2012 and from 2012 to 2013.•As compared to the Industry Health Care the Inventory Turnover Ratio of Abbott Laboratories is good for year 2011 and 2012 and declined in year 2013.•A low turnover rate: overstocking or deficiencies in the product line or marketing effort .•A high turnover rate: inadequate inventory levels, leading to a loss in business as the inventory is too low. This often can result in stock shortages

Page 34: Abbott's financial ratio analysis(Shraddha Bhatt & Jincey Jose),SVKM'S NMiMS

Working Capital Turnover Ratio

• A measurement comparing the depletion of working capital to the generation of sales over a given period.

• A high working capital turnover ratio indicates the capability of the organization to achieve maximum sales with the minimum investment in the working capital.

• Working Capital Turnover Ratio= Net Sales

Working Capital

Page 35: Abbott's financial ratio analysis(Shraddha Bhatt & Jincey Jose),SVKM'S NMiMS

Years Dec 31,

2013

Dec 31,

2012

Dec 31,

2011

Dec 31,

2010

Dec 31,

2009

Selected Financial Data (USD $ in millions)

Current

assets

19,247 31,323 23,769 22,318 23,314

Less:

Current

liabilities

9,507 13,280 15,480 17,262 13,049

Working

capital

9,740 18,042 8,289 5,055 10,264

Net sales 21,848 39,874 38,851 35,167 30,765

Working Capital Turnover, Comparison to Industry

Abbott

Laboratorie

s

2.24 2.21 4.69 6.96 3

Industry

Health Care

3.64 4.07 3.74 3.74 3.38

Working Capital Turnover Ratio

Page 36: Abbott's financial ratio analysis(Shraddha Bhatt & Jincey Jose),SVKM'S NMiMS

Calculation & Interpretation

Interpretation:

• Working capital turnover deteriorated from 2011 to 2012 but then slightly improved from 2012 to 2013.

• As compared to Industry Health Care working Capital turnover for the year 2011 is good and less for the years 2012 and 2013.

• A high turnover ratio- management is being extremely efficient in using a firm's short-term assets and liabilities to support sales.

• A low ratio- business is investing in too many accounts receivable and inventory assets to support its sales, which could eventually lead to an excessive amount of bad debts and obsolete inventory.

Year Calculation Ratio

2011 38,851 8,289 4.69

2012 39,874 18,042 2.21

2013 21,848 9,740 2.24

Page 37: Abbott's financial ratio analysis(Shraddha Bhatt & Jincey Jose),SVKM'S NMiMS

Solvency Group

• Ratios computed under this group indicate the long-term financial prospects of the company. The shareholders debenture holders and other lenders of long-term finance/ term loan may be basically under this group.

Solvency group

Debt-equity Ratio

Proprietary Ratio

Interest Coverage

Ratio

Page 38: Abbott's financial ratio analysis(Shraddha Bhatt & Jincey Jose),SVKM'S NMiMS

Debt-equity Ratio

• Debt-equity ratio indicates the state of shareholders or owners in the organization.

• It indicates the cushion available to the creditors on liquidation of the organization.

• Debt- equity Ratio = Total debt

Total shareholders' equity

• Standard Ideal value: - 2:1

Page 39: Abbott's financial ratio analysis(Shraddha Bhatt & Jincey Jose),SVKM'S NMiMS

Dec 31,

2013

Dec 31,

2012

Dec 31,

2011

Dec 31,

2010

Dec 31,

2009

Selected Financial Data (USD $ in millions)

Short-term borrowings 3,164 2,082 2,348 4,350 4,978

Current portion of long-

term debt

9 309 1,027 2,045 211

Long-term debt,

excluding current

portion

3,388 18,085 12,040 12,524 11,266

Total debt 6,561 20,476 15,415 18,918 16,456

Total Abbott

shareholders'

investment

25,171 26,721 24,440 22,388 22,856

Debt to Equity, Comparison to Industry

Abbott Laboratories1 0.26 0.77 0.63 0.85 0.72

Industry, Health Care 0.46 0.48 0.46 0.43 0.42

Debt-equity Ratio

Page 40: Abbott's financial ratio analysis(Shraddha Bhatt & Jincey Jose),SVKM'S NMiMS

Calculation & Interpretation

Year Calculation Ratio

2011 =15,415 / 24,440 0.63

2012 =20,476 /26,721 0.77

2013 = 6561/25171 0.26

Interpretation:•Debt-to-equity ratio deteriorated from 2011 to 2012 but then improved from 2012 to 2013 exceeding 2011 level.•As compared to Industry Health Care, Debt-to-equity ratio of the company was good for years 2011 & 2012 and deteriorated for year 2013.•A low Debt- equity ratio is considered good according to creditors view as it is secure.•A high Debt- equity ratio is considered risky according to creditors view as it gives lesser margin of safety on liquidity of company.

Page 41: Abbott's financial ratio analysis(Shraddha Bhatt & Jincey Jose),SVKM'S NMiMS

Proprietary Ratio

• This ratio indicates the extent to which the owner funds are sunk in different kinds of assets.

• The proprietary ratio shows the contribution of stockholders’ in total capital of the company.

• Best Ratio considered as 33%

• Proprietary Ratio = Total Shareholders Fund Total Asset

Page 42: Abbott's financial ratio analysis(Shraddha Bhatt & Jincey Jose),SVKM'S NMiMS

Year 2013 2012 2011

Total Assets 42953 67235 60276

Total Abbott shareholders'

investment

25171 26721 24440

Proprietary Ratio 0.58 0.39 0.40

Proprietary Ratio

Page 43: Abbott's financial ratio analysis(Shraddha Bhatt & Jincey Jose),SVKM'S NMiMS

Calculation & Interpretation

Interpretation:

•The proprietary ratio for Abbott Laboratories improved in 2013 as compared to 2012 and 2011.

• The higher the ratio dependency on external sources and loans for working capital will be less and financial condition will be sound.

• A low ratio indicates that the company is already heavily depending on debts for its operations.

Year Calculation Ratio

2011 24440/ 60276 0.40

2012 26721/ 67235 039

2013 25171/ 42953 0.58

Page 44: Abbott's financial ratio analysis(Shraddha Bhatt & Jincey Jose),SVKM'S NMiMS

Interest Coverage Ratio

• This ratio indicates protection available to the lenders of long-term capital in the form of funds available to pay the interest charges i.e. profits.

• It means how easily a company can pay interest on outstanding debt.

• Interest Coverage = Earning Before Interest& Tax

Ratio Interest expense

Page 45: Abbott's financial ratio analysis(Shraddha Bhatt & Jincey Jose),SVKM'S NMiMS

Interest Coverage RatioYears Dec 31,

2013

Dec 31,

2012

Dec 31,

2011

Dec 31,

2010

Dec 31,

2009

Selected Financial Data (USD $ in millions)

Net earnings 2,576 5,963 4,728 4,626 5,746

Add: Interest

expense

157 592 530 553 520

Add: Income tax

expense (benefit)

138 300 470 1,087 1,448

Earnings before

interest and tax

(EBIT)

2,871 6,855 5,729 6,266 7,713

Interest Coverage, Comparison to Industry

Abbott

Laboratories1

18.29 11.57 10.81 11.33 14.84

Industry, Health

Care

15.43 14.51 15.23 14.01 19.04

Page 46: Abbott's financial ratio analysis(Shraddha Bhatt & Jincey Jose),SVKM'S NMiMS

Calculation & Interpretation

Year Calculation Ratio

2011 5,729/530 10.81

2012 6,855/592 11.57

2013 2,871/157 18.29

Interpretation:

Interest coverage ratio improved from 2011 to 2012 and from 2012 to 2013.

As compared to Industry Health Care Interest Coverage Ratio of company is good for year 2013 and satisfactory for year 2011 and 2012.

The lower the ratio, the more the company is burdened by debt expense.

The higher the ratio the more secure the lender is in the payment of the interest regularly.

Page 47: Abbott's financial ratio analysis(Shraddha Bhatt & Jincey Jose),SVKM'S NMiMS

Conclusion

As per year 2013-

• The current and quick ratios are good.

• The Gross Profit Ratio ,Net Profit Ratio and Operating Profit Ratio has deteriorated.

• The Inventory Turnover Ratio has declined while Working Capital Turnover Ratio has slightly improved.

• The Debt-Equity Ratio, Proprietary Ratio and Interest Coverage Ratio has improved.

Page 48: Abbott's financial ratio analysis(Shraddha Bhatt & Jincey Jose),SVKM'S NMiMS

Reference

• www.moneycontrol.com

• www.investopedia.com

• www.researchandmarkets.com

• www.abbott.com

• www.abbott.co.in

• A Textbook of Financial Accounting by A. K. Singhal and H. J. Ghosh Roy

Page 49: Abbott's financial ratio analysis(Shraddha Bhatt & Jincey Jose),SVKM'S NMiMS
Page 50: Abbott's financial ratio analysis(Shraddha Bhatt & Jincey Jose),SVKM'S NMiMS