Abbott Laboratories Financial Analysis

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Abbott Laboratories is a publicly-traded company in the S&P 500, with ticker “ABT”, and is engaged in the discovery, development, manufacture, and sale of health care products to end-users such as wholesalers, retailers,’ hospitals, healthcare facilities, laboratories, physicians’ offices and government agencies across the globe (United States Securities and Exchange Commission, 2013, p.10). Multiple areas of challenging issues confront Abbott Laboratories in its future development including, but not limited to: claims and legal proceedings, investigation and clean-up costs at a number of locations in the United States and Puerto Rico, and management of recent mergers in successful partnerships with IDEV Technologies and OptiMedica Corporations in August 2013. By extrapolating past performance indicators in the financial analysis of Abbott Laboratories, it will become apparent whether the firm is suitable for investment over time.

To determine the financial fitness of Abbott Laboratories, it is necessary to first examine its Common-Size Consolidated Income Statement. Higher increasing gross profit and decreasing operating expenses have shown to strengthen the firm’s development from 2010 to 2012. Gross Profit reached 62% in 2012, which is a gradual increase from 2011 and 2010, with 60% and 58% documented respectively (Stock Analysis on Net, 2014). Cost of products sold also demonstrates a healthy decrease from 42% in 2010 to 38% in 2012, with research and development expenses remaining constant at 11% of revenue, decreasing SG&A (Selling, general and administrative) of almost 3% from 33% to 30% in 2011 and 2012, respectively. Hence, such ratios demonstrate lower overall total operating expenses in 2012 as compared to 2011, yet still higher than that of 2010. Positive progressions in lowering cost and higher gross profits led the company to increase net income to 15% of earnings from continuing operations, higher than ratios presented in 2010 and 2011, which are (Stock Analysis on Net, 2014). Such financial ratios indicate increasing stability in the development of the firm, as well as signal steady profitability and growth.

Meanwhile, Abbott Laboratories’ Common-Size Consolidated Income Statement also displays an increase in current assets and long term liabilities of Abbott Laboratories, with a decrease in current liabilities. The current assets’ ratio has increased to 47% in 2012, the highest ratio as compared to previous years. Such growth in assets is propelled by higher liquidity in 2012, with an increase in cash flow to 23% in 2012, higher than ratios of 13% in 2011 and 9% in 2010. Concurrently, a decrease in intangible assets decreased total non-current assets and increased total assets to 67,234,944 in 2012 from 60,276,893 in 2011 and 60,573,852 in 2010 (Stock Analysis on Net, 2014). Total current liabilities have decreased to 20% in 2012, as opposed to 26% and 29% in 2011 and 2010, respectively. However, due to acquisitions of OptiMedica, an ophthalmic device maker, and IDEV Technologies, a medical device maker, totaling $710 million dollars in acquisition, long term liability ratios have increased to 41% in 2012 from 34% in 2011 and 33% in 2010 (S&P Capital IQ McGraw Hill Financial, 2014, p. 2).

By conducting a Ratio Analysis on Abbott Laboratories, performance can be measured in efficiency, liquidity, and profitability. Multiple variables show favorable growth indicators in the arena of profitability ratios. The tax rate ratio, for example, decreased dramatically in 2012 to 4.79%, from 9% and 19% in 2011 and 2012, respectively (Morningstar, 2014). Such a tax advantage would give more leverage to Abbott Laboratories in earning more revenue and paying back its investors. Net margin percentage has also risen to 15% in 2012, an increase of 3% from 2011. Return on assets, equity, and invested capital has also been increasing steadily, with 9%, 23%, and 12% respectively in 2012. Return on revenue for Abbott Laboratories registered at 15%, which outperforms the majority of its sub-industry peers in the GICS category. According to S&P Capital IQ (2014), towards the beginning of 2013, Abbott Laboratories revealed that the firm had significant cash flow generation capability upward of $4 billion, which outperforms its peers in the industry (p. 2). As such, they announced raising quarterly dividends 57% to $0.22 a share, from $0.14 a share, payable on February 15th, 2014 to shareholders that are on record prior to or on January 15th, 2014 (S&P Capital IQ McGraw Hill Financial, 2014, p. 2). While the debt utilization ratio for Abbott Laboratories improved from 2010 to 2011, it deteriorated slightly from 2011 to 2012 that recorded similarly as with its debt-to-capital ratio (Stock Analysis on Net, 2014). However, due to the liquidity leverage, Abbott Laboratories is able to maintain stable growth and traction for capital in the future.

However, the financial viability of Abbott Laboratories is very much contingent upon national and international trends, international financing options, and overall demand with industry growth in general. According to S&P Capital IQ (2014), the fundamental outlook for the health care equipment industry remains neutral for the next 12 months and, though historically recession-resistant, it will continue to grow slowly and with more irregularity (p. 4). Since the spin-off of its research operations, AbbVie, Abbott Laboratories is now able to compete more effectively in the established branded generics pharmaceuticals industry, where it successfully reins the position of a market leader in pediatric nutritionals in the U.S. and adult nutritionals worldwide (S&P Capital IQ, 2014, p. 1). Furthermore, since the acquisitions in 2009 to 2013, Abbott Laboratories launched several new products and were able to initiate new clinical trials as well, while maintaining lower operating costs. Such developments testify to the management’s capability to further expand and grow the company in a sustainable and profitable manner. As such, it can be expected that Abbott Laboratories will continue to grow in sales with decreasing costs, generating more cash flow and profits on a per-dollar basis for their investors in 2014.

References

Morningstar (2014). Growth, Profitability, and Financial Ratios for Abbott Laboratories (ABT). Retrieved from http://financials.morningstar.com/ratios/r.html?t=ABT®ion=usa&culture=en-US&ownerCountry=USA

S&P CAPITAL IQ McGraw Hill Financial (2014). Stock Report: Abbott Laboratories. Retrieved from https://research.ameritrade.com/grid/wwws/common/reports/report.asp?id=10072&documentTag=00282410&vtag=4KL6GRSDCUFTMOEMUNTB3AI919

Stock Analysis on Net (n.d.). Abbott Laboratories (ABT) | Common-Size Income Statement. Retrieved February 8, 2014, from http://www.stock-analysis-on.net/NYSE/Company/Abbott-Laboratories/Common-Size/Income-Statement

United States Securities and Exchange Commission (2013). SEC FILING | Abbott Form 10-Q (1-2189). Retrieved from http://services.corporate-ir.net/SEC.Enhanced/SecCapsule.aspx?c=94004&fid=9091100