In this assignment, you will compare two drug companies - Merck, a U.S. company, and Novartis, a Swiss company. The annual reports for these companies are posted above. Download the two PDF files and save them to your computer. As you review these two annual reports, you will see some differences in presentation between the U.S. company and the Swiss company, because Merck uses U.S. generally accepted accounting principles (GAAP) and Novartis uses International Financial Reporting Standards (IFRS). The companies
present the same information, just in different formats.
You do not need to read every word in these two annual reports, but you should scan through them to see the different things reported. Then, answer the following questions and compute the following ratio and trend analysis for the two companies.
Prepare your narrative report in Microsoft Word. You may attach a Microsoft Excel spreadsheet with your calculations if you wish, or you
may copy and paste relevant sections of your Excel spreadsheet into your Word document. Number each item and provide your answers for each item. When narrative explanation is required, use complete sentences in your paper. You may copy and paste these questions into your Word document.
1. Find the balance sheet for each company. (Merck financial statements are on pages 83-86 of the PDF file; Novartis financial statements are on pages 190-193 of the PDF file) Enter the following numbers for each company:
Total Assets = Total Liabilities + Total Equity
2. Find the income statement for each company. List the following items for each company from the income statement.
Net Income
Basic Earnings Per Share (EPS)
Diluted Earnings Per Share
3. For each company, find the statement of equity and locate the Retained Earnings column on that statement. Scroll down to the most
current year and locate the amounts to fill in the following formula:
Beginning Retained Earnings + Net Income - Dividends = Ending Retained Earnings
Do either of the two companies have additional amounts in that column? If so, which one and what are the additional items listed?
4. Create a table showing the ratio results for 2011 and 2012 for both companies for the following ratios. Use the formulas listed in the www.principlesofaccounting.com Chapter 16 Detailed Example illustrating Emerson Corporation.
Current Ratio
Quick Ratio
Debt to Total Assets
Debt to Total Equity
Net Profit on Sales
Return on Assets
Return on Equity
Compare the results of the two companies and discuss what these results indicate to you as the analyst.
5. Prepare a common size trend analysis for the balance sheet in the financial reports for each company from 2011 to 2012.
Discuss what these trends might indicate to you as the analyst.
6. After using the two sets of financial statements to prepare the items above, discuss any differences you see between the
presentations of the two sets of reports. For example, what are the differences in the balance sheet presentation? The income
statement? The statement of equity? The statement of cash flows?