Merck Novartis Merck and Novartis Financial Statements

Merck Novartis

Merck and Novartis Financial Statements 2012

Balance Sheet

• What components of stockholders' equity do each of the companies disclose?

Merck & Co. provides a consolidated statement of stockholders equity on their balance sheet. They disclose the number of shares, share types, retained earnings, and some historical data (Merck & Co., 2013).

Novartis provides a much more thorough and detailed report of their shareholders equity in their annual report. Not only do they report all of the same accounts as Merck, but they also provide a detailed analysis of the movements in shareholders' equity as well as many of the motivations that are responsible for changes (Novartis, 2013)

• Do the companies have preferred stock shares outstanding? If so, what special features do these shares contain?

Both companies have preferred stock. Preferred stock accounts are paid before the common stock accounts. They are given priority when there is a decision to be made about who gets paid first and how much.

• Do either of the companies report treasury shares? If so, do the companies disclose the reason for reacquiring the shares?

Both companies report treasury shares. Novartis received some treasury shares when it merged with Alcon as report on their financial statements (Novartis, 2013). Merck discloses their treasury holdings, however they do not discuss motivations for such on their report.

Income Statement

• What are the basic and diluted earnings per share for each company?

Merck - $3.82

Novartis - $5.25

• Have the companies reported any discontinued operations?

Yes. Merck has went through a series of cost reduction programs. As of the end of 2012 for example, Merck had achieved its projected $3.5 billion in annual net cost savings from these activities since the merger with Schering-Plough Corporation. Novartis seemed to focus more on acquisitions than cost reduction measures.

• 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

Novartis -- 67%

Merck - 64.43%

Net profit margin

Novartis -- 17%

Merck - 34.04%

Return on stockholders' equity

Novartis -- 14%

Merck -- 9.77%

• Liquidity ratios: Current ratio

Novartis -- 1.16

Merck - 2

Quick ratio

Novartis -- 88%

Merck -- 1.4

Inventory turnover

Novartis -- 8.4

Merck -- 7.23

• Leverage ratios: Debt-to-assets

Novartis -- 0.22

Merck -- 53.1

Debt-to-equity

Novartis -- .29

Merck -- 56.2

What type of information do you find in footnotes to the financial statements?

Novartis does not use footnotes rather they discuss all of the information in the actual report's body. Merck on the other hands uses footnotes extensively and most of these are to explain different aspects of the financial statement. The use of footnotes makes it much easier to dissect the financials quickly.