FINANCIAL ANALYSIS OF MERCK & CO. 2010-2014 Merck & Co. Inc, also known as Merck Sharp & Dohme outside of the US, is an American leader in innovative health solutions through prescription medicines and vaccines in the health care industry. Established in 1891 in the US, the company is one of the oldest pharmaceuticals in the world as it was subsidiary to the German company Merck, created by Friedrich Jacob Merck in 1668. Approximately 30% of the total capital of the company is publicly traded on the New York Stock Exchange with a number of shares of common stock outstanding at 2,838,192,933; while the founding family owns the remaining 70% being the majority shareholders. The company operates in three segments: Pharmaceutical, Animal Health…show more content… The average inventory processing period improved from 2012 to 2014. The working capital turnover decreased from 2012 to 2013, but improved the following year. If we take a deeper look at the data, we can see how for the cash cycle and operating cycle have fluctuated throughout the years. The operating cycle has been improving since 2012, as has the cash cycle. This is mainly due to fluctuations in the receivables and payables period, which is in line with consumer spending statistics and high bargaining power with their…show more content… However, Merck is undervalued due to the fact that their EV/EBITDA which is 7.09, is lower than the industry EV/EBITDA of 13.50. Selected Financial Data (USD $ in millions)
Enterprise Value (EV) 175,211
Earnings before interest, tax, depreciation and amortization (EBITDA) 24,706
Ratio EV/EBITDA 7.09
Ratio EV/EBITDA Heath care industry 13.50
Figure 8 – EBITDA & EV/EBITDA
Merck has effectively generated its capital through stock financing. As presented in Figure 9, Merck had steady growth from 2010 to 2012 on its earnings per share (EPS) than had a decrease in 2013 and a relevant increase in 2014. The P/E ratio increased from 2012 to 2013, then decreased significantly from 2013 to 2014 Figure 9 – Price to Earnings