Accounting concepts and applications

Accounting - Merck & Co., Inc. (Merck) and ICN Pharmaceuticals Inc. (ICN)

ICN's and Merck's Business Activities

Merck & Co., Inc. (Merck) and ICN Pharmaceuticals Inc. (ICN) are both major pharmaceutical companies.

Merck is a global research-driven pharmaceutical company that discovers, develops, manufactures and markets a broad range of human and animal health products. Human and health products include therapeutic and preventive agents, generally sold by prescription. Other Merck products include sales of other human pharmaceuticals, continuing sales to divested businesses, pharmaceutical and animal health supply sales to the Company's joint ventures as well as suplly sales to AstraZeneca LP (AZLP). Also included in this category are rebates and discounts on Merck pharmaceutical products.

Meanwhile, ICN, a specialty pharmaceuticals business, is a global enterprise with high-branded margin products, divided regionally into ICN Americas, and ICN International. In America, it is the leader in dermatology, and in Europe, one of the largest specialties in pharmaceuticals businesses. ICN America is comprised of pharmaceuticals, research chemical and medical laser operations. ICN International has over 466 ethical products and 266 OTC products. Its broad product portfolio focuses on Central nervous system, antivirals, dermatology and oncology.

In evaluating both Companies' profitability, Merck and ICN's sales and net income for the years 1999-2001 are as follows:

Merck & Co., Inc.

ICN Pharmaceuticals, Inc.

Sales

33B

757M

40B

800M

48B

858M

Net Income

6B

189M

7B

184M

7B

199M

Both Companies display a positive bottom figure in terms of income. However, we can say that ICN Pharmaceuticals, Inc. is more profitable compared to Merck's in computation of Return on Sales (computed by dividing net income with net sales). In every $1 sale, Merck is able to earn $0.18 in 1999, $0.17 in 2000 and $0.15 in 1999. Meanwhile, ICN's ratio of sales to income is $1: $0.25 in 1999, $0.24 in 2000 and $0.23 in 2001. This earning is after deducting cost of sales and operating expenses.

The following were the cash flows from 3 activities of Merck and ICN (figures were in dollars):

Cash inflow (outflow)

Merck & Co., Inc.

ICN Pharmaceutical Inc.

From operating activities

6.1B

7. 7B

9.1B

87.1M

From Investing activities

2.8B)

3.6B)

4.3B)

50.36M)

90.08M

119M)

From Financing activities

3.9B)

3.4B)

5.1B)

36.4M

Operating cash flow is the cash that the Company generates through running its business. Considering cash flows of both Companies were positive, it can mean that their working capital is more than adequate to meet the operating requirements of the Company.

Cash flow from investing activities were aggregate change in a company's cash position resulting from any gains (or losses) from investments in the financial markets and operating subsidiaries, and changes resulting from amounts spent on investments in capital assets such as plant and equipment. Merck's outflow was mainly due to environmental facilities while ICN on research and development and distribution facilities, in addition to acquisitions of license rights, product lines and businesses