3A-W'08-EX#3 PRACTICE-SOLUTIONS

3A-W'08-EX#3 - ECON 3A-W08-EXAM#3(FINAL-SOLUTIONS TO PRACTICE PROBLEMS P1 FINANCIAL ANALYSIS USING F/S OF PFIZER 1 Ratio computations See attached

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ECON 3A-W’08-EXAM#3(FINAL)-SOLUTIONS TO PRACTICE PROBLEMS P 1 FINANCIAL ANALYSIS USING F/S OF PFIZER 1. Ratio computations –– See attached Excel worksheets FORMATTING IS IMPORTANT (PRECISION, EXPRESSION AS PERCENTAGES, ETC). FOLLOW WHAT WAS DEMONSTRATED IN CLASS. 2. Is Pfizer able to meet its current obligations? Cite relevant ratios. Yes. Pfizer’s liquidity ratios are all strong and improving or at least relatively consistent. The dollar amount of working capital increased and the current ratio was steady. The cash debt coverage decreased, but is well above the .40 “healthly” ratio. The cash to cash operating cycle seems long, but has improved. Would you walk to the mailbox with confidence on interest payment dates if you were a holder of Pfizer’s long-term debt? Cite relevant ratios. Yes. There is a strong equity cushion in both years of over 50% (complement of debt to equity ratio), cash debt coverage is consistent and is over the .20 healthy mark. Times interest earned decreased, but is very strong—well over the danger mark of 2.00. Also, Pfizer generates strong free cash flows. Explain the decrease in Pfizer’s stock price in terms of its profitability. What may be the reason Pfizer’s stock price did not drop even more? Gross profit slipped significantly (over 2% of sales) and profit margin decreased substantially (almost 6%). Asset turnover remained fairly steady. The decrease in the profit margin ratio led to a big drop in ROA, and consequently in ROCE. These profitability measures were reflected in a lower EPS in 2006. Stock prices are greatly
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This note was uploaded on 03/05/2009 for the course ECON 3A taught by Professor Loster during the Fall '07 term at UCSB.

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3A-W'08-EX#3 - ECON 3A-W08-EXAM#3(FINAL-SOLUTIONS TO PRACTICE PROBLEMS P1 FINANCIAL ANALYSIS USING F/S OF PFIZER 1 Ratio computations See attached

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