FIN 460 Final Project

8/6/2019 FIN 460 Final Project

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FIN 460: INVESTMENT MANAGEMENT

PROJECT ON: ECONOMIC, INDUSTRY, FIRM, AND PRICE ANALYSIS.

Submitted To

Mr. Abdullah Al Aabed

Lecturer, School of Business

Submitted By

NAFIZ AL RAZI (0820046) MIZANUR RAHMAN (0820092)

ABU NASER CHOWDHURY (0710234) MOSTAFA REDWANUL AREFIN (0730192)


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TABLE OF CONTENT

Name Page No.

A. Introduction .... 02B. Methodology...02C. Economic Analysis ..03D. Industry Analysis .... 05

E. Company Analysis:Chapter 01 (Johnson & Johnson)..................................... 07

Chapter 02 (Pfizer)...14

Chapter 03 (Novartis)..20

Chapter 04 (GlaxoSmithKline)....27

F. Recommendation / Conclusion...... 33G. References:

Chapter 01.34

Chapter 02.34

Chapter 03.34

Chapter 04.34

H. APPENDIX:....35


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Introduction

The most important job for a security analyst is to find whether or not it will be wise to invest on

the security of selected industry, how are the stocks performing in this industry and which

companies stock would have the best future possibility to have highest return with the risk

associated with. The major objective of the term paper of FIN 460 is we have been asked to form

a group of 4 people and select an industry to start the job of a security analyst. We have decided

to do our analysis on Pharmaceutical Industry and for stock analysis we have chosen the New

York Stock Exchange. The following report will be covered the U.S. economy analysis, the

Pharmaceutical Industry analysis, four different companies of the same industrys stock analysis

and the recommendation on investment. The reason behind choosing this industry and the stock

market is because of the size of the industry and the availability of information. Beside thisindustry has a lifecycle which will never face decline stage. The demand for the products of this

industry will always keep rising as this is a basic need for human beings which promises more

secured investment. US profit growth was maintained even whilst other top industries saw little

or no growth.Despite this, the pharmaceutical industry is the most profitable of all businesses in

the U.S. In the annual Fortune 500 survey, the pharmaceutical industry topped the list of the

most profitable industries, with a return of 17% on revenue. The leading companies in this

industry in comparison with profit are Pfizer, Novartis, Merck & Co., Bayer, GlaxoSmithKline,

Johnson and Johnson etc. Pharmaceutical companies commonly spend a large amount on

advertising, marketing and lobbying. In the US, drug companies spend $19 billion a year on

promotions. Advertising is common in healthcare journals as well as through more mainstream

media routes. In some countries, notably the US, they are allowed to advertise directly to the

general public. These opportunities will never let the sale of these industries go down.

Methodology

To understand the purpose of the report first we need to form a systematic method of the whole

analysis. The approach will moved on with five stages. They are following:


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1. Pharmaceutical Industry analysis: This part will be covered the analysis ofworldwide Pharmaceutical business, Industry life cycle, economic structure of the

market, the competitive strategies and government regulations on the business.

2. U.S. Economy analysis: To know how the stock will perform a better understandingwill be the economy of which the stocks are based on. In this analysis, we will collect

data to show how the U.S. economy is performing in terms of GDP growth, Inflation

rate, and stock prices of U.S. 500 common stocks and will conclude with the U.S.

position of the business cycle.

3. Stock analysis: Four firms in Pharmaceutical Industry have been chosen to analyze thestock performances. These firms are GlaxoSmithKline, Johnson & Johnson, Novartis

and Pfizer. Each stock analysis will cover the stock price trends of previous two years,

income statement and balance sheet analysis, P/E ratio, dividend growth rates, future

plans and prospects of the firm and a recommendation part on the performance of the

firm in future. The price analysis of the stock will be also included in this section to

suggest weather the stock price is undervalued or overvalued with the help of technical

analysis.

4. Recommendation: Based on the complete analysis, it will be suggested whether toinvest or not in the Pharmaceutical Industry and if to invest, which stocks will provide

higher returns.

The analysis will be done within these four steps and afterward we will complete the report with

a conclusion paragraph.

ECONOMIC ANALYSIS

Money Supply

The U.S. money supply comprises currencydollar bills and coins issued by the Federal

Reserve System and the U.S. Treasuryand various kinds of deposits held by the public at

commercial banks and other depository institutions such as thrifts and credit unions. The money

supply is important because money is used in virtually all economic transactions; it has a

powerful effect on economic activity. An increase in the supply of money works both through
http://www.google.com/search?hl=en&q=pfizer&sa=X&ei=hiMgTvGlDYLPrQf5utiLAg&ved=0CBEQtAYoAAhttp://www.google.com/search?hl=en&q=pfizer&sa=X&ei=hiMgTvGlDYLPrQf5utiLAg&ved=0CBEQtAYoAA


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lowering interest rates, which spurs investments, and through putting more money in the hands

of consumers, making them feel wealthier, and thus stimulating spending. Business firms

respond to increased sales by ordering more raw materials and increasing production. The spread

of business activity increases the demand for labor and raises the demand for capital goods. In a

buoyant economy, stock market prices rise and firms issue equity and debt. If the money supply

continues to expand, prices begin to rise, especially if output growth reaches capacity limits. As

the public begins to expect inflation, lenders insist on higher interest rates to offset an expected

decline in purchasing power over the life of their loans.

Gross Domestic Product (GDP)

GDP at purchaser's prices is the sum of gross value added by all resident producers in the

economy plus any product taxes and minus any subsidies not included in the value of the

products. It is calculated without making deductions for depreciation of fabricated assets or for

depletion and degradation of natural resources.

Economic growth driven by consumer confidence means the economy is getting on strong

footing. Now, more than ever, businesses need to understand consumer spending trends, and

understand how the recession has changed shopping habits.


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INDUSTRY ANALYSIS

Pharmaceutical Industry:

The pharmaceutical industry develops, produces, and markets drugs licensed for use

as medications. Pharmaceutical companies are allowed to deal in generic or brand medications

and medical devices. They are subject to a variety of laws and regulations regarding

the patenting, testing and ensuring safety and efficacy and marketing of drugs. In the United

States, new pharmaceutical products must be approved by the Food and Drug

Administration (FDA) as being both safe and effective. There are 46 listed pharmaceutical

companies in NYSE EURONEXT.

In this pharmaceutical industry, there are five forces for industry analysis.

Barrier to entry: High (Pharmaceuticals). Cost of R&D and patent limitations. Industry Competition: High, Advantages gained by the first mover advantage (patents). Supplier: Supplier power is low.
http://en.wikipedia.org/wiki/Drughttp://en.wikipedia.org/wiki/Licensehttp://en.wikipedia.org/wiki/Generic_drughttp://en.wikipedia.org/wiki/Brandhttp://en.wikipedia.org/wiki/Legal_drug_tradehttp://en.wikipedia.org/wiki/Patenthttp://en.wikipedia.org/wiki/Legal_drug_tradehttp://en.wikipedia.org/wiki/Legal_drug_tradehttp://en.wikipedia.org/wiki/Patenthttp://en.wikipedia.org/wiki/Legal_drug_tradehttp://en.wikipedia.org/wiki/Brandhttp://en.wikipedia.org/wiki/Generic_drughttp://en.wikipedia.org/wiki/Licensehttp://en.wikipedia.org/wiki/Drug


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Figure: Porters Five Forces Model for Industry Analysis

Buyer: Buyer power is low. Substitute: Low (with patents), medium (after patent expiry).

Figure: Recent Stock Price Performance of Health Care Sector.

In general, the main competitors for the pharmaceutical industry are Pfizer, GlaxoSmithKline,

Merck, Bristol-Myers Squibb, Abbott Laboratories, and Johnson & Johnson. However, with the

recent spur in mergers and acquisition (M&A) activities in various industries, the pharmaceutical

industry had a significant merger between two France competitors Sanofi-Synthelabo and

Aventis creating Sanofi-Aventis, one of the top three pharmaceutical companies with Pfizer

and GlaxoSmithKline.


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Chapter 1Companys Name: JOHNSON & JOHNSON

BY: MR. NAFIZ AL RAZI

ID: 0820046


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Companys Name:JOHNSON & JOHNSON (J&J).

Back Ground:Johnson & Johnson has been a part of people's lives for 125 years and a valuable

part of their investments for more than 65 years. Founded in 1886, they listed shares on the New

York Stock Exchange for public investors in 1944. The Company and its subsidiaries are

engaged in the research and development, manufacture and sale of a range of products in the

health care field. It has more than 250 operating companies conducting business worldwide. The

Company's operating companies are organized into three business segments: Consumer,

Pharmaceutical and Medical Devices and Diagnostics.

Company Profile: Johnson & Johnson is a holding company. During their history, they have

built the most comprehensive base of health care businesses in the world, generating

approximately 70 percent of their revenues from No. 1 or No. 2 global leadership positions in

their respective markets. Their consistent performance has enabled them to deliver an

exceptional track record of growth that few, if any, companies can claim: 27 consecutive years of

adjusted earnings increases; and 49 consecutive years of dividend increases. Over the last 10

years, Johnson & Johnson stock generated a 4.0 percent total return for investors compared to a

1.4 percent total return for the S&P 500. Their net income in 2010 was $13,334,000,000.

Stock Exchange Membership: NYSE.

No. of Outstanding Shares: 2,735,213,719.

Name of the CEO: William C Weldon.

Top Competitors: Abbott Laboratories, Novartis AG, and Covidien plc.

Recent Market Position:


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Analysis of Financial Statements:

INCOME STATEMENT

BALANCE SHEET STATEMENT

Item Description The Company

Sales to customers Aggregate revenue recognized during the period. J&Js sale to customer

declined from 2009 to

2010.

Operating

earnings

The net result for the period of deducting operating

expenses from operating revenue.

J&Js operating earnings

declined from increased

from 2009 to 2010.

Earnings before

provision for taxes

on income

Sum of operating profit and non-operating income before

income from equity method investments, income taxes,

extraordinary items, cumulative effects of changesaccounting principles, and non-controlling interest.

J&Js earnings before

provision for taxes on

income increased from2009 to 2010.

Net Earnings The portion of profit or loss for the period, net of income

taxes, which is attributable to the close relative.

J&Js earnings before

provision for taxes on

income increased from

2009 to 2010.


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Total Assets Sum of the carrying amounts as of the balance sheet date of all

assets that are recognized. Assets are probable future economic

benefits obtained or controlled by an entity as a result of past

transactions or events.

Johnson & Johnson's

total assets increased

from 2009 to 2010.

Total Liabilities Sum of the carrying amounts as of the balance sheet date of all

liabilities that are recognized. Liabilities are probable future

sacrifices of economic benefits arising from present obligations

of an entity to transfer assets or provide services to other entities

in the future.

Johnson & Johnson's

total liabilities

increased from 2009 to

2010.

Shareholders

Equity

Total of all Stockholders' Equity items, net of receivables from

officers, directors owners, and affiliates of the entity which are

attributable to the parent. The amount of the economic entity's

stockholders' equity attributable to the parent excludes the

amount of stockholders' equity which is allocable to that

ownership interest in subsidiary equity which is not attributable

to the close relative.

Johnson & Johnson's

shareholders equity

increased from 2009 to

2010.

FINANCIAL STRENGTH RATIO


Current ratio A liquidity ratio calculated as current assets divided by current

liabilities.

Johnson & Johnson's

current ratio improved

from 2009 to 2010.

Quick ratio A liquidity ratio calculated as (cash plus short-term marketable

investments plus receivables) divided by current liabilities.

Johnson & Johnson's

quick ratio improved

from 2009 to 2010.

Cash ratio A liquidity ratio calculated as (cash plus short-term marketable

investments) divided by current liabilities.

Johnson & Johnson's

cash ratio improved

from 2009 to 2010.


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MANAGEMENT EFFECTIVENESS RATIO


Gross profit

margin

Gross profit margin indicates the percentage of revenue

available to cover operating and other expenditures.

Johnson & Johnson's gross

profit margin deteriorated

from 2009 to 2010.

Operating

profit margin

A profitability ratio calculated as operating income divided

by revenue.

Johnson & Johnson's

operating profit margin

improved from 2009 to 2010.

Net profit

margin

An indicator of profitability, calculated as net income

divided by revenue.

Johnson & Johnson's net profit

margin improved from 2009 to

2010.

ROE A profitability ratio calculated as net income divided by

shareholders' equity.

Johnson & Johnson's ROE

deteriorated from 2009 to

2010.

ROA A profitability ratio calculated as net income divided by

total assets.

Johnson & Johnson's ROA

slightly improved from 2009

to 2010.

Price Analysis:


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P/E ratio The P/E ratio tells analyst how much an investor in common

stock pays per dollar of current earnings.

Johnson & Johnson's

P/E ratio slightly

declined from 2009

to 2010.P/OP ratio Because P/E ratio is calculated using net income, the ratio can

be sensitive to nonrecurring earnings and capital structure,

analysts can use price to operating profit.

Johnson & Johnson's

P/OP ratio slightly

declined from 2009

to 2010.

P/S ratio A rationale for the P/S ratio is that sales, as the top line in an

income statement, are generally less subject to distortion or

manipulation than other fundamentals such as EPS or book

value. Sales are also more stable than earnings and never

negative.

Johnson & Johnson's

P/S ratio slightly

declined from 2009

to 2010.

P/BV ratio The P/BV ratio is interpreted as an indicator of market judgment

about the relationship between a company's required rate of

return and its actual rate of return.

Johnson & Johnson's

P/BV ratio declined

from 2009 to 2010.

Johnson & Johnson (JNJ - Analyst Report) posted first-quarter 2011 earnings of $1.35 per share

and 4.7% above the year-ago earnings of $1.29. Johnson & Johnsons revenues for the reported

quarter increased 3.5% year-over-year to $16.2 billion. Revenues exceeded (beat) the Zacks

Consensus Estimate of $15.8 billion. Including one-time items, the company reported earnings of

$1.25, 22.8% below the year-ago earnings of $1.62.
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Future outlook and recommendations:

I currently have a neutral recommendation on Johnson & Johnson. This is supported by the

Zacks #3 Rank (short-term Hold rating). Even though Johnson & Johnson has been facing

challenges in the form of OTC product recalls, pricing austerity in the EU and genericcompetition, I believe that the companys diversified business model, lack of cyclicality and

strong financial position will help it in tough situations.

Other catalysts could be regulatory approval for a couple of important pipeline candidates.

Johnson & Johnson is currently seeking FDA approval for abiraterone acetate plus prednisone

for the treatment of metastatic, advanced prostate cancer in patients who have received prior

chemotherapy containing a taxane.

So, I can easily recommend buying the stocks of Johnson & Johnson for short-term.


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Chapter 2

Companys Name: PFIZER INC.

BY: ABU NASER CHOWDHURY

ID: 0710234


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Pfizer Inc. (PFE)

Company profile:

Pfizer Incorporated is a global pharmaceutical company, ranking number one in sales in the

world. The company is based in New York City. Pfizer's shares were made a component of the

Dow Jones Industrial Average on April 8, 2004. Within recent years, Pfizer has faced some

major happening for which their stock price has been moved downward and also some positive

news to put an upward pressure on the stock value. Pfizer pleaded guilty in 2009 to the largest

health care fraud in U.S. history and received the largest criminal penalty ever levied for illegal

marketing of four of its drugs. Called a repeat offender, this was Pfizer's fourth such settlement

with the U.S. Department of Justice in the previous ten years. On January 26, 2009, Pfizer agreed

to buy pharmaceutical giantWyethfor US$68 billion, a deal financed with cash, shares and

loans. The deal was completed on October 15, 2009.

Pfizer exists in a monopolistically competitive situation. They are involved in many markets

because of their great variety of products, and the majority of those markets are monopolistically

competitive. This means that there is a market where many firms produce similar goods, but

each maintains some independent control of its own price. Although Pfizer faces a

monopolistically competitive environment, they still hold a great deal of market power. Market

power refers to the ability to alter the market price of a product.

Recent relative information is following:

Company nature biopharmaceutical company

Popular products Lipitor, Lyrica, Viagra, Advil etc.

Index Membership:Dow Jones Composite

NYSE.

Number of shares of common stock outstanding 7,995,220,402

Market position on sale First
http://en.wikipedia.org/wiki/Wyethhttp://en.wikipedia.org/wiki/Wyethhttp://en.wikipedia.org/wiki/Wyethhttp://en.wikipedia.org/wiki/Wyeth


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Income statement, balance sheet and cash flow analysis:

Though their Total revenue shows a higher return but the net income faced a small decline but

still this net income is the highest in the industry.

Analysis of two years income statement of Pfizer inc. is given bellow:

Description Dec 31, 2010

(Thousands)

Dec 31, 2009

(Thousands)

Total Revenue 67,809,000 50,009,000

Operating Income or Loss 9,422,000 10,827,000

Net Income Applicable To Common Shares 8,257,000 8,635,000

Following are the two comparisons between important total figures of the two years balance

sheet. Here, a notable change is in the total asset section. The amount of total asset has been

decreased significantly from 2009 to 2010. Also they have successfully reduced the total

liabilities of the firm.


(Thousands)

Dec 31, 2009

(Thousands)

Total current asset 60,468,000 61,670,000

Total Assets 195,014,000 212,949,000

Total Current Liabilities 28,609,000 37,225,000

Total Liabilities 107,201,000 122,935,000

Total shareholder equity 87,813,000 90,014,000


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These are the significant particles in cash flow of last two years. It is notable that financial

activities faced major decline in cash flow from last year to this year.


(Thousands)

Dec 31, 2009

(Thousands)

Total cash flow from operating activities 11,454,000 16,587,000

Total Cash Flows From Investing Activities (492,000) (31,272,000)

Total Cash Flows From Financing Activities (11,174,000) 14,481,000

Ratio analysis:

Current ratio: A liquidity ratio calculated as current assets divided by current liabilities. Pfizer

Inc.'s current ratio improved from 2008 to 2009 and from 2009 to 2010.

Description 2010 2009 2008 2007 2006

Current ratio 2.11 1.66 1.59 2.15 2.20

Quick ratio: A liquidity ratio calculated as (cash plus short-term marketable investments plus

receivables) divided by current liabilities. Pfizer Inc.'s quick ratio deteriorated from 2008 to 2009

but then improved from 2009 to 2010 exceeding 2008 level.


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Description 2010 2009 2008 2007 2006

Quick ratio 1.51 1.12 1.24 1.65 1.76

Cash Ratio: A liquidity ratio calculated as (cash plus short-term marketable investments) divided

by current liabilities. Pfizer Inc.'s cash ratio deteriorated from 2008 to 2009 but then improved

from 2009 to 2010 exceeding 2008 level.

Description 2010 2009 2008 2007 2006

Cash ratio 0.98 0.70 0.88 1.17 1.30

ROE: A profitability ratio calculated as net income divided by shareholders' equity. Pfizer Inc.'s

ROE deteriorated from 2008 to 2009 and from 2009 to 2010.


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Description 2010 2009 2008 2007 2006

Return on equity 9.40 9.59 14.08 12.53 27.10

Stock price analysis:

Following chart shows last two years stock price analysis with regards to their trading volume.

Notable change happened after May 2010, stock price have fallen significantly and the possible

reason were the Fraud Issue happened on the year 2009. After that the stock price keeps moving

upward with minor fluctuations.

Recommendation:

From aforementioned analysis we can say that, though the stock have suffered minor fluctuation

these days but by judging the Industry life and opportunities of the firm it can be conclude that

the stocks of Pfizer are still undervalued. At this point, any rational investor should take the

position on to hold or to buy the stocks. NASDAQ has recently recommended the stock is in a

position of strong buy. The market expectation on the price is also to rise.


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Chapter 3

Companys Name: NOVARTIS AG.

BY: MIZANUR RAHMAN

ID: 0820092


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Company Name: NOVARTIS AG.

Back Ground: Novartis AG (Novartis), incorporated on February 29, 1996, provides healthcare

solutions. Throughout the years, Novartis and its predecessor companies have discovered and

developed many innovative products for patients and consumers worldwide. The Companys

portfolio includes medicines, preventive vaccines and diagnostic tools, generic pharmaceuticals

and consumer health products. The Company operates in four divisions: pharmaceuticals,

vaccines and diagnostics, sandoz, and consumer health. On August 25, 2010, Novartis completed

the acquisition of a further 52% interest in Alcon, Inc. (Alcon). On June 1, 2010, the Company

completed the acquisition of Oriel Therapeutics Inc. On February 3, 2010, the Company

completed the acquisition of Corthera Inc. On April 8, 2011, the Company completed the merger

of Alcon, Inc.

Industry: Health Care

Jurisdiction of incorporation: Switzerland

Number of shares of common stock outstanding: 2,289,445,178

Recent Market Price:


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1. Analysis of Financial Statement:

NOVARTIS Financial Overview

Income StatementNovartis

Dec 312009

Dec 312010 Change (2009 - 2010)

Revenues 45103 51,561 6,453

Gross Profit 32924 37,073 4,149

Operating Income 9982 11,526 1,544Income beforetaxes 9922 11,702 1780

ITEM DESCRIPTION THE

COMPANY

Revenues Aggregate revenue recognized during the period

(derived from goods sold, services rendered,

insurance premiums, or other activities that constitute

an entity's earning process). For financial services

companies, also includes investment and interest

income, and sales and trading gains.

Novartis AG's

revenues

increased from

2009 to 2010.

Operating

income

The net result for the period of deducting operating

expenses from operating revenues.

Novartis AG's

operating income

increased from

2009 to 2010.

Net income The consolidated profit or loss for the period, net of

income taxes, including the portion attributable to the

noncontrolling interest.

Novartis AG's net

income increased

from 2009 to

2010.

Balance Sheet,

Novartis

Dec 31

2009

Dec 31

2010 Change (2009 - 2010)


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ITEM DESCRIPTION THE COMPANY

Total Assets Sum of the carrying amounts as of the balance sheet

date of all assets that are recognized. Assets are

probable future economic benefits obtained or

controlled by an entity as a result of past transactions

or events.

Novartis AG's total

assets increased

from 2009 to 2010.

Shareholders

equity

Total of Stockholders' Equity (deficit) items, net of

receivables from officers, directors owners, and

affiliates of the entity including portions attributable

to both the parent and noncontrolling interests

(previously referred to as minority interest), if any.

The entity including portions attributable to the

parent and noncontrolling interests is sometimes

referred to as the economic entity.

Novartis AG's total

equity increased

from 2009 to 2010.

Total liabilities Sum of the carrying amounts as of the balance sheet

date of all liabilities that are recognized. Liabilities

are probable future sacrifices of economic benefits

arising from present obligations of an entity to

transfer assets or provide services to other entities in

the future.

Novartis AG's total

liabilities increased

from 2009 to 2010.

KEY RATIOS

Novartis AG, liquidity Analysis

Dec 31 2009 Dec 31 2010

Current

ratio 1.73 1.08

Quick

ratio 1.4 0.80

Cash ratio 0.89 0.33

Shareholders Equity 57,462 69,769 12,307

Total Liabilities 38,043 53,549 15,503

Total Assets 95,505 1,23,318 27,813


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RATIOS DESCRIPTION THE COMPANY

Current ratio A liquidity ratio calculated as current assets divided

by current liabilities.

Novartis AG's current

ratio deteriorated

significantly from 2009

to 2010.

Quick ratio A liquidity ratio calculated as (cash plus short-term

marketable investments plus receivables) divided by

current liabilities.

Novartis AG's quick

ratio deteriorated


to 2010.

Cash ratio A liquidity ratio calculated as (cash plus short-term

marketable investments) divided by current

liabilities.

Novartis AG's cash

ratio deteriorated


to 2010.

KEY RATIOS

Novartis AG, Profitability Analysis

Dec 31 2009 Dec 31 2010

Return on Sales (%)

Gross profit margin 73.00 71.9

Operating profit

margin 22.13 22.35

Net profit margin 18.62 18.99

Return on Investment

Return on equity (ROE) 14.64 15.5

Return on assets (ROA) 8.8 7.94

ITEMS DESCRIPTION THE COMPANY

Gross profit margin Gross profit margin indicates the

percentage of revenue available to cover

operating and other expenditures.

Novartis AG's gross profit

margin deteriorated from 2009

to 2010.

Operating profit

margin

A profitability ratio calculated as

operating income divided by revenue.

Novartis AG's operating profit

margin improved from 2009 to

2010.

Net profit margin An indicator of profitability, calculated as

net income divided by revenue.

Novartis AG's net profit margin

improved from 2009 to 2010.


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ROE A profitability ratio calculated as net

income divided by shareholders' equity.

Novartis AG's ROE improved

from 2009 to 2010 not.

ROA A profitability ratio calculated as net

income divided by total assets.

Novartis AG's ROA

deteriorated from 2009 to 2010.

2. Analysis of Price:Price Analysis

Novartis AG, Valuation Ratios

Dec 31 2009 Dec 31 2010

Price to earnings (P/E) 14.72 13.16

Price to operating profit (P/OP) 11.18 12.39

Price to sales (P/S) 2.74 2.75

Price to book value (P/BV) 2.15 2.05

RATIOS DESCRIPTION THE COMPANY

P/E ratio The P/E ratio tells analyst how much an

investor in common stock pays per

dollar of current earnings.

Novartis AG's P/E ratio slightly

declined from 2009 to 2010.

P/OP ratio Because P/E ratio is calculated using net

income, the ratio can be sensitive to

nonrecurring earnings and capital

structure, analysts can may use price to

operating profit.

Novartis AG's P/OP ratio slightly


P/BV ratio The P/BV ratio is interpreted as an

indicator of market judgment about the

relationship between a company's

required rate of return and its actual rateof return.

Novartis AG's P/BV ratio slightly



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Last 1 Year Price Chart of Novartis:

3. Future Outlook and Recommendation:Currently, I have a Neutral recommendation on Novartis. The company carries a Hold rating in

the short run. Though pleased with Novartis wide range of products and its efforts to diversify

further, as is evident by the acquisition of eye-care company Alcon, I prefer to remain on the

sidelines due to the imminent patent cliff faced by the company.

I expect relaxing to be an important compound for Novartis going forward. Regulatory filings

are planned for 2013 and the U.S. FDA's fast-track designation has already been granted. More

importantly, this acquisition will also boost Novartis's biotech capabilities. It is also become an

important revenue earner for Novartis in the future. This latest indication recommendation for

Diovan can be seen as a last-ditch attempt to maximize revenues from the drug ahead of itspatent expiry.


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Chapter 4

Companys Name: GlaxoSmithKline (GSK)

BY: MOSTAFA REDWANUL AREFIN

ID: 0730192


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COMPANY ANALYSIS

Companys Name: GlaxoSmithKline

GSK is a global organization with offices in over 100 countries and major research centers in the

UK, USA, Belgium and China. GlaxoSmithKline plc (GSK) is global healthcare group, which is

engaged in the creation and discovery, development, manufacture and marketing of

pharmaceutical products, including vaccines, over-the-counter (OTC) medicines and health-

related consumer products. GSK shares are listed on the London and New York Stock

Exchanges and their corporate head office is in Brent ford, UK. It was listed in NYSE in 17 Jan

1944.

No. of Shares Outstanding: 2,598,132,010

Top Competitors: Novartis Ag (NVS), Pfizer Inc. (PFE), Sanofi-Aventis (SNY).

It can be said that GSK should try improving their quarterly revenue growth, which is not

satisfactory even compared with the industry. They are maintaining a satisfactory P/E ratio and

they should try to improve on their EPS. Overall, condition in compare with the competitor and

industry can be concluded as satisfactory.


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Income Statement, Balance Sheet and Cash Flow Analysis

INCOME STATEMENTDescription Dec 31, 2010

(Millions)Dec 31, 2009(Millions)

Total Revenue 43, 700 45,866

Operating Income 5,823 13,622

Net Income Applicable To Common Shares 2,515 8,943

Their Total revenue decreases slightly compared to the previous year, but there is a significant

reduction in their operating income in comparison with 2009.

BALANCE SHEETDescription Dec 31, 2010

(Millions)

Dec 31, 2009

(Millions)

Total current asset 28,373

Total Assets 69,216

Total Current Liabilities 19,569

Total Liabilities 53,059

Total shareholder equity 16,157


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CASH FLOWDescription Dec 31, 2010

(Millions)

Dec 31, 2009

(Millions)

Total cash flow from operating activities 9,461 11,589

Total Cash Flows From Investing Activities -3,068 -6,661

Total Cash Flows From Financing Activities -7,382 -3,224

These are the important data to analyze the cash flow of GSK for the years 2010 and 2009; here

we can see a significant decrease in the overall cash flow. Cash flow from operations might

decrease due to investment in some other areas. In the investment section we see a decrease in

the amount which means the investment has been reduced and finally by looking at the financial

activities it can be said the company has taken more money from its investors in 2010.

Current Ratio: GlaxoSmithKline PLC's current ratio deteriorated from 2009 to 2010.

Quick Ratio: GlaxoSmithKline PLC's quick ratio deteriorated from 2009 to 2010.

Cash Ratio: GlaxoSmithKline PLC's cash ratio deteriorated from 2009 to 2010.

PROFITABILITY Dec 31, 2010 Dec 31, 2009

Profit Margin 6.59%

Operating Margin 32.04%


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Management Effectiveness Dec 31, 2010 Dec 31, 2009

Return on Asset (ROA) 12.7%

Return on Equity (ROE) 19.16%

Stock Price Analysis


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From all the above chart and tables, it can be concluded that the price of the stock might go up in

the future, as measure of relative price change and consistency is very high. From the 52 week

high and low it is seen the price is very close to its highest range, also the previous day's closing

price for GSK was close to its 50-day moving average. The analysts are suggesting a hold or

buy, therefore investors should hold on their shares.


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Recommendation / Conclusion

The pharmaceutical industry has been remaining the most profitable of all businesses in the U.S

for years. The stock price of any good firm has hardly seen downturn. It is believed that the

industry is still in its growth stage because with the increasing number of population, the demand

of the pharmaceutical product will keep increasing. The U.S economy is also recovering after a

long recession started with the 2008 housing market crash. There GDP is growing gradually and

government money supply shows that they are trying to stimulate the economy. Economic

condition and industry analysis showing this is the best time to invest if anyone looking into

investment in pharmaceutical industry. Among the stock have been analyzed, though Johnson &

Johnson has been facing challenges in the form of OTC product recalls, pricing austerity in the

EU and generic competition, it is believed that the companys diversified business model, lack ofcyclicality and strong financial position will help it in tough situations. This is the reason for

which this stock has been recommended to buy for short-term. Stocks of Pfizer inc. has always

been a subject of controversy. For their previous legal settlements with the U.S government,

many times their stock price has been suffered seriously. But after the last acquisition wyeth the

stock price is rising. Beside they keep on providing high dividend to the investors. So the best

recommendation for this stock is rite now to buy or to hold for long time dividend earning. After

the recent acquisition of eye-care company Alcon, stock price are just rising and they have good

prospect for future. It is recommended highly to buy for short term. The stock of

GlaxoSmithKline has always been a subject of price consistency. The volatility of price change

is very low. This stock would be the best for to hold on or to buy for long time. Based on this

information, one can design the portfolio in the best way possible to maximize the profit and

minimize the risk.


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REFERENCES OF CHAPTER - 01

http://www.nyse.com/ http://www.stock-analysis-on.net/ http://www.nyse.com/about/listed/lc_all_industry_5.html?ListedComp=All&supersector=19&se

ctor=122&subsector=1120128534179&start=41&startlist=1&item=3&next=clicked&firsttime=do

ne&default=2

http://www.sbtdc.org/pdf/industry_analysis.pdf


http://www.nyse.com/


http://www.nyse.com/ http://www.nyse.com/about/listed/nvs.html http://in.reuters.com/finance/stocks/companyProfile?symbol=NVS.N http://www.stock-analysis-on.net/NYSE/Company/Novartis-AG http://www.novartis.com/about-novartis/company-history/index.shtml


http://www.nyse.com/ http://investing.businessweek.com/businessweek/research/stocks/financials/financials.asp

?ticker=GSK:US&dataset=balanceSheet&period=A&currency=native

http://www.tradingeconomics.com/united-states/inflation-cpi http://www.stock-analysis-on.net/NYSE/Company/GlaxoSmithKline-PLC
http://www.nyse.com/http://www.nyse.com/http://www.stock-analysis-on.net/http://www.stock-analysis-on.net/http://www.nyse.com/about/listed/lc_all_industry_5.html?ListedComp=All&supersector=19&sector=122&subsector=1120128534179&start=41&startlist=1&item=3&next=clicked&firsttime=done&default=2http://www.nyse.com/about/listed/lc_all_industry_5.html?ListedComp=All&supersector=19&sector=122&subsector=1120128534179&start=41&startlist=1&item=3&next=clicked&firsttime=done&default=2http://www.nyse.com/about/listed/lc_all_industry_5.html?ListedComp=All&supersector=19&sector=122&subsector=1120128534179&start=41&startlist=1&item=3&next=clicked&firsttime=done&default=2http://www.nyse.com/about/listed/lc_all_industry_5.html?ListedComp=All&supersector=19&sector=122&subsector=1120128534179&start=41&startlist=1&item=3&next=clicked&firsttime=done&default=2http://www.sbtdc.org/pdf/industry_analysis.pdfhttp://www.sbtdc.org/pdf/industry_analysis.pdfhttp://www.nyse.com/http://www.nyse.com/http://www.nyse.com/http://www.nyse.com/http://in.reuters.com/finance/stocks/companyProfile?symbol=NVS.Nhttp://in.reuters.com/finance/stocks/companyProfile?symbol=NVS.Nhttp://www.stock-analysis-on.net/NYSE/Company/Novartis-AGhttp://www.stock-analysis-on.net/NYSE/Company/Novartis-AGhttp://www.nyse.com/http://www.nyse.com/http://investing.businessweek.com/businessweek/research/stocks/financials/financials.asp?ticker=GSK:US&dataset=balanceSheet&period=A&currency=nativehttp://investing.businessweek.com/businessweek/research/stocks/financials/financials.asp?ticker=GSK:US&dataset=balanceSheet&period=A&currency=nativehttp://investing.businessweek.com/businessweek/research/stocks/financials/financials.asp?ticker=GSK:US&dataset=balanceSheet&period=A&currency=nativehttp://www.tradingeconomics.com/united-states/inflation-cpihttp://www.tradingeconomics.com/united-states/inflation-cpihttp://www.stock-analysis-on.net/NYSE/Company/GlaxoSmithKline-PLChttp://www.stock-analysis-on.net/NYSE/Company/GlaxoSmithKline-PLChttp://www.stock-analysis-on.net/NYSE/Company/GlaxoSmithKline-PLChttp://www.tradingeconomics.com/united-states/inflation-cpihttp://investing.businessweek.com/businessweek/research/stocks/financials/financials.asp?ticker=GSK:US&dataset=balanceSheet&period=A&currency=nativehttp://investing.businessweek.com/businessweek/research/stocks/financials/financials.asp?ticker=GSK:US&dataset=balanceSheet&period=A&currency=nativehttp://www.nyse.com/http://www.stock-analysis-on.net/NYSE/Company/Novartis-AGhttp://in.reuters.com/finance/stocks/companyProfile?symbol=NVS.Nhttp://www.nyse.com/http://www.nyse.com/http://www.sbtdc.org/pdf/industry_analysis.pdfhttp://www.nyse.com/about/listed/lc_all_industry_5.html?ListedComp=All&supersector=19&sector=122&subsector=1120128534179&start=41&startlist=1&item=3&next=clicked&firsttime=done&default=2http://www.nyse.com/about/listed/lc_all_industry_5.html?ListedComp=All&supersector=19&sector=122&subsector=1120128534179&start=41&startlist=1&item=3&next=clicked&firsttime=done&default=2http://www.nyse.com/about/listed/lc_all_industry_5.html?ListedComp=All&supersector=19&sector=122&subsector=1120128534179&start=41&startlist=1&item=3&next=clicked&firsttime=done&default=2http://www.stock-analysis-on.net/http://www.nyse.com/


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APPENDIX

1. Porters Five Forces Model for Industry Analysis. (Pg- 04)2. Recent Stock Price Performance of Health Care Sector. (Pg- 05)3. Recent Market Position of JNJ. (Pg- 07)4. Share Price Performance of JNJ on 3 Years. (Pg- 13)5. Common Stock of Pfizer. (Pg- 22)6. Last Year Price Chart of Novartis. (Pg- 26)7. Stock Price Analysis of GlaxoSmithKline. (Pg- 31)

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