Pfizer Equity Analysis & Valuation

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accurately compute this ratio, the footnotes of the income statement must carefully be examined to determine actual expenses as well as discount rates used. Percentage Change in Ratios 2000 2001 2002 2003 Net Sales / Cash From Sales -0.95% 2.09% 8.48% -9.24% Net Sales /Accounts Receivable 5.65% 0.94% 2.90% -7.98% Net Sale / Inventory 3.47% -3.26% 14.16% -35.96% Asset Turnover 1.14% -16.00% -5.79% -44.59% CFFO/OI 50.82% -29.44% -8.61% 565.84% CFFO/NOA -37.36% 31.76% 7.59% -58.65% Total Accruals / Change in Sales 198.42% -499.64% -115.49% 195.86% Pension Expense / SG&A 45.86% 0.36% 21.84% 8.83% Potential Red Flags As explained earlier Pfizer maintains transparent records in its financial disclosure. Although there have been some potential discrepancies in the raw data, the causes of these have been well explained by mergers, acquisitions, and supplemental data in the footnotes. For example, the acquisitions of Warner-Lambert and Pharmacia caused fluctuations in inventory levels, sales, and accruals, which affected many of the 23
diagnostic ratios. Although these changes might raise concerns of revenue and expense manipulation, Pfizer’s quality of disclosure and reporting justified all causes of variation. Because Pfizer is the world’s leading pharmaceutical company with 14 drugs that are the high sellers in their respective categories, this lowers the level of concern because the company continues to improve and dominate the industry. Accounting Distortions After reviewing five years of financial statements for Pfizer, there appears to be no symptoms of accounting distortions. The financial statements were in accord with the supplemental data disclosed in the footnotes. While Pfizer had a moderate degree of accounting flexibility within GAAP regulations, it did not use this to manipulate its financial position. All methods of accounting used were well explained in the footnotes. As there were no distortions in the financial statements, there is no need to correct for accounting misrepresentation. 24
Page 1 and 2: Pfizer Equity Analysis and Valuatio
Page 3 and 4: Pfizer, Inc. Mo Money Rusty Klein J
Page 5 and 6: Pfizer’s Industry Standing Pfizer
Page 7 and 8: market and side effects become appa
Page 9 and 10: As research and development costs c
Page 11 and 12: Classification of Industry Pfizer o
Page 13 and 14: With the threat of substitute produ
Page 15 and 16: acquired and liabilities assumed as
Page 17 and 18: Compensation of employees with the
Page 19 and 20: Pfizer has adopted a revenue recogn
Page 21 and 22: Net Sales /Accounts Receivable 5.15
Page 23: The net sales to cash from sales ra
Page 27 and 28: e used, which says that the increas
Page 29 and 30: probably not reach the level it was
Page 31 and 32: Accounts Recievable Turnover 9.00 8
Page 33 and 34: Gross Profit Margin 100% 90% 80% 70
Page 35 and 36: Return on Assets 30% 25% 20% 15% 10
Page 37 and 38: Debt Service Margin 14.00 12.00 10.
Page 39 and 40: margin. Pfizer’s growth profit ma
Page 41 and 42: estimated at 4.38%. These percentag
Page 43 and 44: different discount rates. Once each
Page 45 and 46: This model uses beginning equity pe
Page 47 and 48: substituted into the formula the mo
Page 49 and 50: Conclusions After analyzing the res
Page 51 and 52: Moore, M. Chapter 7 - Prospective A
Page 53 and 54: Total Accruals/Change in Sales 2003
Page 55 and 56: Pfizer 20% 34% 36% 7% 27% Abbot 30%
Page 57 and 58: Appendix D: Forecasted Financial St
Page 59 and 60: Balance Sheet Actuals(Millions) For
Page 61 and 62: Statement of Cash Flows Actuals(Mil
Page 63 and 64: Appendix E: Cost of Debt Estimation
Page 65 and 66: Three Year: SUMMARY OUTPUT (2002-20
Page 67 and 68: Discounted Free Cash Flows: Pfizer
Page 69 and 70: Discounted Abnormal Earnings Growth
Page 71 and 72: Appendix H: Method of Comparables:
Page 73: P/S PFIZER 4.1 ABBOTT LABS 3.63 BRI

Pfizer Equity Analysis & Valuation

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