Explore BrainMass

Abbott Laboratories: Financial Condition

I need help with writing summary and answering questions on financial condition of Abbott Laboratories, their financial history is attached.
- What is your summary of this company's financial condition?
- What major factors should the company be aware of as it evaluates possible investment projects in the future?
- Would you be interested in investing in this company? Why or why not? Are there additional factors that aren't a part of this case that you would investigate before making a decision, & if so, what factors?


Solution Preview

The financial health of Abbott can be analyzed using financial information like ratios, growth rate, total capital, weighted average cost of capital and other data.
Company's capital structure has been almost constant throughout the three year period from 2010 to 2012. There has been slight exception with the proportion of debt which increased in 2012. There is improvement in gross profit margin due to better margins in established pharmaceutical, diagnostics, diabetes and nutritional business. However it is still behind competitors. The net profit margin of Abbott is at par with industry average due to the tax advantage in 2012 when the effective tax rate was only 5%. The tax rate for industry was 23% in same year. The operational efficiency of Abbott is good which is due to the excellence in controlling costs. The liquidity position of Abbott has also improved in 2012 as the company started using cash for prepayment of debt, paying for restructuring expenses, and paying for acquisitions.
The debt position of Abbott is better than competitors and industry. This is because company has enough cash to service debt payment.
There is an increase in diluted average weighted shares. This trend could continue and add more shares to
The Dupont analysis of Abbott Measures Company's return on equity by revealing how much profit has been generated with the money put in by shareholders. The ROE for Abbott in 2012 was around 22%, in 2011 it was around 19% and was 21% in 2010. It shows that Abbott has been constantly improving the utilization of shareholders' money in generating earnings.
Weighted average cost of capital is another tool which is used to access financial position of a company. Abbott's WACC was 5.96% in 2012 which suggests that investors get a minimum of around 6% return.

Before making a decision to invest in any project, it is important to analyze the entire financial situation. Investment should be undertaken based on current goals and overall risk tolerance. Since the project would usually be over a long term, revenue and costs should be considered over relatively longer periods. This can be done by considering time value of money which changes due to inflation. There are six steps which can help Abbott plan for ...

Solution Summary

The solution provides detailed analysis of financial condition of Abbott laboratories, provides framework which should be used by the company to evaluate investment proposal and helps in making a decision whether to invest in the company or not.