Credit Analysis of Alexion Pharmaceuticals Inc
It will determine the company’s effectiveness in utilizing its current resources. The information provided in this document will guide in the decision-making process to determine the credibility of the company for open check billing. Ratio Analysis: The net working capital for Alexion Pharmaceuticals Inc. improved from $1,755,300,000 in 2016 to $2,001,400,000 in 2017. The current ratio was found to be 3. This is low compared to the industry average of 7. The turnover rate of 4. 9 means the company collects 4. 9 times per year which translates to a collection every two and half months or 73 days. A collection of every 73 days is so late compared to the industry average of 46 days. The company’s asset turnover ratio is way less than the industry average of 0. The turnover ratio indicates the efficiency of the company in using short-term and long-term assets.
Recommendations: The company’s net working capital improved from the previous year indicating they acquired more current assets that are capable of covering current liabilities. The company’s quick ratio indicates its ability to liquidate enough assets to pay off their current liabilities. A 3. This means that the company is performing way much worse than its competitors. This can also be shown in the total asset turnover which is at 0. 3 indicating the profit made by the company are way to low compared to competitors. We recommend that this company should be accepted as a client for open account billing. The company’s ability to liquidate assets and rising net working capital is commendable. reduced from 91. 7% in 2016 to 87. 2% in 2017. This indicates the percentage of sales that goes toward the bottom profit line.
Even though the percentage reduced in 2017, it is still high which is an indicator of the efficiency of the sales in the contribution towards the net income of the company. Alexion Pharmaceuticals Inc. recorded a return on assets ratio of 4. 0% in 2017. In the year 2016, it was 3. The industry average in 2017 was 3. An improvement of $0. 2 was recorded. This indicates that for each share, the market pays $1. The Earnings per share ratio recorded an improvement indicating the market is becoming more willing to pay more for the shares of Alexion Pharmaceuticals Inc. The EPS is used to find the profit per earning ratio (P/E). Despite its gross profit margin, the company has a poor net profit margin. The company also performs poorly in generating profits through equity than through assets.
Investors are also undervaluing its value of shares. We will, therefore, avoid venturing into investing in the stock of Alexion Pharmaceuticals Inc. References Nissim, Doron, and Stephen H. The report will also analyze the company’s profits and their consistency and reliability. For positive results, the client will receive a recommendation to be added to the list of accounts of Robert Morse & Associates, LLP. Company Background Alexion Pharmaceuticals Inc. is a global pharmaceutical company focused on innovating, developing and commercializing therapies for patients suffering from rare diseases. It was founded in the year 1992. Industry Trends The pharmaceutical industry is experiencing a range of new challenges owing to the ever-evolving world of diseases. With new diseases, comes a new challenge. However, Alexion Pharmaceuticals Inc.
is ready and determined to face these challenges. The New Health Economy is another factor that is posing a great challenge. The net sales had 15. 2% rise from the previous year. The cost of sales increased by 75. The gross margin increased by 9. This shows a considerable increase in income from the year 2016 to 2017. Financial Analysis Liquidity & Activity Alexion Pharmaceuticals Inc. has both strength and weaknesses in its liquidity and activity. Its net working capital shows an improvement over the years indicating improved ability of covering current liabilities. Its quick ratio is also high indicating its ability to liquidate enough assets to cover current liabilities. The company’s account receivables indicates a rise from the previous year although it is at a critical low with an age of receivables of 73.
However, the net profit margins were slightly lower than the competitors, which can be attributed to the larger size of most of the company’s competitors. Even though its earning per share ratio improved, its market price to book ratio dropped indicating that investors are becoming more unwilling to invest in the company. Critical Issues One of the issues being faced by pharmaceutical companies, including Alexion Pharmaceutical Inc, is the rise in demand for better services. The market is demanding a higher quality of services with the focus now being on the quality of services. This has led to some companies recording low profits. as one of its clients. The company is in a growth phase, and if nurtured well, it stands a potential to be a big player in the market.
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