The analysis of financial statements: case of Abbott Laboratories Pakistan year: 2004-2010

Abstract

At the time of independence,Pakistan was lacking behind in Pharmaceutical industry but today Pakistan has about 400 manufacturing units including those operated by 25 multinationals.The demand of finished medicine in a country is 70% and our pharmaceutical industry is showing increase in growth over the last decade.

Over the last few years, the Pharma industry had made large investment to upgrade and expand itself resultantly we can see today, that’s why Pharma industry is exercising, and following good manufacturing and developing techniques.

Now the Pharma industry is capable of manufacturing different products including value added compounds, oncology, and simple pills. About near to half of the population do not have access to modern medicines even though the industry is expanding.

Total sales revenue generated by pharmaceutical companies in 2007 was around $1.4 billion and is likely to increase up to $2.3 billion in 2012.

There are several national and multi-national pharmaceutical companies operating in Pakistan. Other than Abbott Laboratories Pakistan, Ferozsons laboratories, IBL healthcare ltd, Glaxo-Smith Kline Pakistan, Highnoon laboratories, Otsuka Pak, Sanofi-Aventis, Searle Pakistan and Wyeth Pak ltd are some leading pharmaceutical companies, performing their operations in Pakistan and are also listed on Karachi Stock Exchange. Our Pharma industry is engaged in delivering the best quality products at suitable prices national as well as international markets.From last five years, the international Pharma market’s sales were almost doubling similar to its domestic market. Till 2013, the industry is looking to concentrate its export level to $500 million.

1. Problem Statement Abbott laboratories Gross Profit ratio is increasing but increase in Gross Profit Margin is relatively less as compare to increase in sales volume.

2. Objectives of Study The research work is aimed to examine the factors that played the part in declining net profit margin of Abbott Pakistan. To analyze this problem research is going to achieve following objectives:

• Financial statement analysis of “Abbott’s financial statements” in order to find out the reasons of the above stated problem. • Will be emphasizing on quantitative techniques such as fundamental analysis, profitability ratios, asset management ratios and leverage ratios and their impact on companies financials.

3. Research Methodology The qualitative data would be collected from kse official site and for the quantitative data we would be relying on company’s annual reports. The Annual reports for the past 7 years will be collected so that the analysis should be précised and represents the true picture of a company. This will help us to compare the assets and liabilities of the company’s over a period of time and the positive or negative relationship of company’s current performance. Once all the data has been collected financial analysis will be carried out on the data.

a) Type of study

The type of study/data that is utilized in the project is secondary data in the form of annual reports which includes financial statements, their achievements and management policies. The financial statements will form the bases for the quantitative analysis that we will be going to undertake.

b) Population/Sample

The financial information regarding Abbott laboratories was collected and analyzed and the significant ratios were calculated to find out the financial situation of the company of five years (2004-2010).

c) Instruments and Measures Instruments that we used in our project are quantitative and qualitative techniques including fundamental analysis, profitability ratios, liquidity ratios, asset management ratios and leverage ratios. We are expecting that by the end of this project we would be able to suggest, how company can increase its profitability and how effectively assets can be utilized.

4. Scope and Limitations

a) Scope Financial ratios are helpful for analysts to come-up with solutions for particular industries and also for individual companies and they often used to conclude different by analyzing same ratios. While determining financial risk, creditor analysts put a great effort to liquidity and leverage ratios. They analyze the ratios from lender’s point of view by concentrating on its downside