Eli Lilly and company Matt SpahlingerACG 2021-003

Executive Summary

Eli Lilly is a strong company with sales increasing yearly. The recession of the pharmaceutical

industry caused the stock prices to level off at the end of the 90’s. Although the company is owned mostly by creditors it is a productive corporation

that will continue to provide breakthroughs in medicine for years to come.

http://www.lilly.com/investor/annual_report/lillyar2005.pdf

Part A. Introduction(dollars in millions)

• CEO: Sidney Taurel• Administrative headquarters: Indianapolis,Ind• Latest fiscal year ended Dec 31, 2005.• Eli Lilly is a pharmaceutical company that is leading

the field in research and development of new medicines.

• United States 2005 7,798.1$ in sales Europe, Middle East, and Africa 2005 1,563.1$ in

sales other foreign countries 2005 1740.7$ in sales

Part A. Audit Report

• Eli Lilly’s independent auditors are Ernst and Young.

• The auditors of Ernst and Young agree that all of the information provided in the financial statements are accurate representations of the financial happenings of Ely Lilly and Company for the 2005 fiscal year

Part A. Stock Market Information

• As of Oct 9, 2006 Eli Lilly stock was 57.51$ per share.

• Over the past twelve months, the price of stock has been as high as 59.24$ per share and as low as 49.47$ per share.

• Dividends paid on 9/08/2006 were .400$ per share

• As of 10/9/2006

• Upon looking at the stock trends for the last ten years, Eli Lilly and Company is not at it’s peak price per share, however the price has been quite stable for the last 5 years with the highest stock prices occurring at the end of winter. I would recommend holding your shares until the beginning of February and then selling when the shares have reached their peak price.

Part B. Industry Situation and Company Plans

The pharmaceutical industry is facing many problems. The rising cost of health care is putting increasing pressure on the federal government to pay for more health care. Starting in January the government will start paying for prescription drugs for 42 million people increasing the current amount

of Eli Lilly drugs being paid for by the federal government from 33% to 50%. In addition increased incident's with Vioxx recalls and reports of anti

depressants being a cause of suicide have forced the FDA to require manufacturers to increase the amount of warning labels on their packaging. These two factors along with the decreased amounts of drugs that the FDA approves for sale every year are putting increased strain on the industry. Eli Lilly and Company are looking towards the future by staying ahead of

the competition and leading the industry in research and development, patenting new drugs and providing innovations in health care.

Part C. Income Statement(dollars in millions)

•The income statement for Eli Lilly and company is a single step income statement.

2004 2005

Gross profit

4.298$ 4.215$

Income from op.

4160.5$ 3860.7$

Net income

1810.1$ 1979.6$

Part C. Balance Sheetliabilities SHE Assets

2004 13,947.1$ 10,919.9$ 24,867$

2005 13,788.9$ 10,791.9$ 24,580.8$

Note: (Dollars in Millions). The amount in the stockholders equity account changed the most of all of he accounts on the balance sheet

Part C. Statement of Cash Flows(dollars in millions)

•Cash flows from operations were 1881.1$ more then net income for 2005 and 2350.4$ more then net income in 2004•Eli Lilly and Company has grown from its investments in the past two years however its net income from operations in 2003 was higher then its has been in the last two years and has not yet returned to its peak levels. With its long term investments in diabetes research, company officials hope to boost gains from operations in the near future. •Eli Lilly and Company’s primary source of financing is from long term loans for 3000.00$ Other incomes include the selling of stock for 377.9$•Over the past two years cash flow has decreased from 5365.3$ in 2004 to 30063.7$ in 2005

Part D. Accounting Policies•Significant accounting policies

short term investments/cash:All highly liquid investments are considered to be cash equivalents.

revenue recognition: They recognize revenue from sales at the time title of goods passes to the buyer and he buyer assumes risks and rewards of ownership.

inventories: All US based inventories are calculated by the last in first out method. All non US based inventories are calculated by the first in first out method.

property and equipment: Stated on the basis of cost provisions for depreciation of buildings & equipment are computed generally by the straight line method at rates based on their estimated useful lives. (12-50 years buildings 3-18 years equipment)

Note Topics

1)summary of significant accounting policies

2)implementation of new financial accounting pronouncements

3)acquisitions

4)asset impairments, restructuring & other special changes

5)financial instruments and investments

6)borrowings

7)stock plans

8)other assets & other liabilities

9)shareholders equity

10)earnings per share

11)income taxes

12)retirement benefits

13)contingencies

14)other comprehensive income

Part E. Financial AnalysisLiquidity Ratios

Liquidity ratios for he past two fiscal years (dollars in millions):

• The amount of working capital in 2005 is 10,791.9$, 2004 10,919.9$

• The current ratio of Eli Lilly and company for 2005 is 1.78, 2004 1.782

• The receivable turnover ratio for 2005 is 6.7, for 2004 6.33• On average, the amount of sales not collected per day in

2005 is 54.4$, 2004 57.6$• The inventory turnover ratio for 2005 is 1.66, for 2004 1.54• The average amount of inventor on hand per day for 2005

is 219.8$, for 2004 237$

Part E. Financial AnalysisProfitability Ratios

Profitability ratios for the past two fiscal years (dollars in millions):

• The profit margin ratio for 2005 is 13.5%, 2004 13%• The asset turnover ratio for 2005 is .629 times, for

2004 .56 times• The return on assets for 2005 is 8.1%, 2004 7%• The return on equity for 2005 is 15%, for 2004 16.6%

Part E. Financial AnalysisSolvency Ratio

Debt to equity ratios for the last two years:

• 2005- 127%

• 2004- 127%

• For both years creditors own more then half of the company

Part E. Financial AnalysisMarket Strength Ratios

Market strength ratios for the last two years (dollars in millions):

• Price /earnings per share 2005 1.82$$ price/earnings per share for 2004 1.67$$

• The dividend yield for 2006 stock prices is .6%, dividend yield for 2005 stock prices is .7%.