| Use this Excel spreadsheet to compute ratios; show your computations for all ratios on this tab, and also include your commentary. |
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| The 2014 financial statements used to calculate these ratios are available in the Investor Relations section of the Celgene and Corporation and Gilead Sciences, Incorporated websites. |
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Celgene Corporation |
Gilead Sciences, Inc. |
Interpretation and comparison between the two companies’ ratios (reading Chapter 13 will help you prepare the commentary). |
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Earnings per share is Net Income minus Preferred Dividends over the Ave. number of shares of common stock outstanding which measure the amount of Net Income earned for each share of the company’s common stock. Gilead shows a better EPS compare to Celgene for based on their 2015 Income Statement. Growth in EPS is very important to a business as this shows how much profit the company is making for its shareholders. A year-over-year improvement in EPS will attract more investors. |
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| Earnings per Share of Common Stock (basic – common) |
As given in the income statement |
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$ 2.02 |
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$ 12.37 |
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Current Ration measures the ability for a company to pay their current liabilities using their current assets. Having a high current ratio could be a sign of problems within the company in managing their capital but is also more favorable than a lower current ratio. For investors, a low current ratio shows that the company is having problems meeting their short-term obligations. Celgene has over 2% current ratio compare to Gilead which means Celgene can pay off their current liabilities faster than of Gilead. |
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| Current Ratio |
Current assets |
$9401 |
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4.77 |
$24763 |
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2.50 |
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Current liabilities |
$1969 |
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$9891 |
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Gross Margin is basically to measure how profitable the the business is and to compare the gross margin of a business to their net sales. This is to show how profitable the company is selling their inventory. A higher Gross profit margin indicates the business can make a reasonable profit on their sales by keeping their overhead costs in check. A lower margin could indicate the company is not using a full price of their product and just trying to get rid off their inventory. Investors tend to pay more for a company with a higher gross profit. Celgene shows that they are a healthier company compare to Gilead as their percentage is about 7-8% below of Celgene. |
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| Gross (Profit) Margin Percentage |
Gross margin |
$8741 |
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95.4% |
$28145 |
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87.5% |
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Net sales |
$9161 |
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$32151 |
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Rate of Return On Sales is another margin that is commonly used to measure a company’s profitabilty. This is used to analyze the company’s performance against the previous year. Which is also used to compare 2 companies’ performance against one another. One thing that analysts do is to look at each of the companies’ trends and use that data to see how it compares in their industry. A good trend or showing an increase YOY translates to the company becoming more efficient as they progress, while a decrease ratio could be a sign that the company is in trouble. Gilead shows a much higher ROS than Celgene but that does not mean Celgene is not making their sale revenue. This can sometimes be an offset by having an increase in their sales revenue. |
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| Rate of Return (Net Profit Margin) on Sales |
Net income |
$1602 |
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17.5% |
$18106 |
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56.3% |
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Net sales |
$9161 |
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$32151 |
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Inventory Turnover shows how well the companies are managing their inventory and how often or frequent they replenish their stocks on hand. A higher inventory turnover is preferred as this means the company has an effective way in managing inventory. However, having a high inventory turnover does not always mean the company is performing better than the other. This could also indicate that the company is not managing their inventory well which may result to a decrease in sales revenue. Gilead has a higher rate than Celgene which reflects back to their high ROS percentage. Gilead will attract more investors and stockholders for this matter. |
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| Inventory Turnover |
Cost of goods sold |
$420 |
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1.0 |
$4006 |
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2.4 |
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Average inventory |
$418 |
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times |
$1671 |
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times |
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Days’ In Inventory is the average number of days it takes for a company to convert their inventory on hand into sales which indicates how well the company is performing financially. DIO is basically a good indicator of inventory quality and efficient buying practices. This is an important ratio to measure or look at because gross profit is earned each time an inventory is turned over to sale. Gilead shows a much quicker days in replenishing their inventory. Whereas Celgene takes about a year for them to replenish their stock. Although we cannot really just say that Celgene is not performing as high as Gilead because of the difference in their DIO. This could also be due to just having more inventory to start with. But since they are in the same industry, we can argue that Gilead is performing better than Celgene. |
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| Days’ inventory outstanding (DIO) |
365 |
365 |
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363 |
365 |
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2 |
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Inventory turnover |
1.0 |
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days |
1.0 |
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days |
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Accounts Receivable Turnover is used to measure the activity on how the company is using their assets efficiently and effectively. It is turning accounts receivables into cash. This is also shows how soon the company is able to collect credit sales from their customers. Celgene is showing that they are able to collect quicker from their customers or turn their accounts receivable to cash making them a more favorable company for this category. |
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| Accounts Receivable Turnover |
Net sales (assume all sales are credit sales) |
$9161 |
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7.1 |
$32151 |
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6.1 |
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Average net accounts receivable |
$1294 |
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$5245 |
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| Days’ Sales Outstanding (DSO) |
365 |
365 |
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51.5 |
365 |
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6.1 |
Days’ Sales Outstanding measures the number of days for a company will take to collect cash from their credit sales. This is for the company’s collections department. How efficient they are in collecting payments from their credit sales. Obviously, the sooner a company can collect cash from their customers, the sooner they can turn that collection to business operations. Here we see Celgene has less days compare to Gilead in collecting payments from their customers. This goes in favor of Celgene as investors and creditors will prefer Celogene over Gilead. |
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Accounts receivable turnover |
7.1 |
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days |
7.1 |
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days |
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| Asset turnover |
Net sales |
$9161 |
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0.41 |
$32151 |
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0.74 |
Asset Turnover is to see the ability of a company in generating sales from their assets and how efficient they are in using their assets to produce sale. Essentially, higher asset turnover means the company is producing more with their assets and lower ratios means the opposite and could also have an issue with their production. Gilead show being more efficient than Celgene. This will give investors and creditors an idea of how Celgene may be having some prodution issue and is not using their assets effectively. |
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Average total assets |
$22197 |
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$43252 |
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| Rate of Return on Total Assets (ROA) |
Rate of return on sales times asset turnover |
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7.2% |
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74.3% |
Rate of Return on Total Assets (ROA) is another profitability ratio that quantifies the company’s Net Income from their assets. And since all assets are either subsidized by an equity or a debt, some investors try to neglect the costs of obtaining the assets in the return calculation by adding back interest expense in the equation. Again, Gilead is showing a more effective way in managing their ROA as they are over 40% compare to Celgene’s 7%. Investors and creditors will see Gilead to be more favorable being they are more efficient in subsidizing their assets. |
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| Debt Ratio |
Total Liabilities |
$21134 |
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78.1% |
$9891 |
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19.1% |
Debt Ratio is the percentage of the company’s total assets that are being financed by debt which also helps investors or creditors to assess whether the company has a sustainable income. It measures the level of debt a company has over its assets. Obviously, if the debt ratio is too high then the company will have a tough time in paying off their debt to continue their business. Based on the information we gathered between Celgene and Gilead, we can say that Celgene is in trouble and in a verge of possibly giving up their business operation. This shows Celgene to be in a financial risk as they may not have sufficient income to pay off their debts and interest. |
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Total Assets |
$27053 |
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$51839 |
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| Times-Interest-Earned Ratio |
Income from operations |
$2255 |
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7.3 |
22193 |
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32.3 |
Times Interest Earned Ratio is to measure the ability of a company in paying off their interest expense using their available earnings. This pretty much summarizes if the company is making enough income to be able to pay off their interest expense. Again, if we look at the statistics between Celgene and Gilead, we will find Gilead to be favorable as they show how they are able to meet their debt obligation with their TIE. |
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Interest expense |
$311 |
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688 |
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| Dividend Yield |
Dividend per share of common stock (Yahoo Finance 12/24/2015) |
$0.00 |
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0.0% |
$0.47 |
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0.6% |
Dividends are basically payments made to their shareholders as a portion of a company’s net income, and they are commonly made on a quarterly basis. The dividend per share represents how much cash a company pays in dividends for each share of issued common stock. It is an important measure for investors, as it provides them understanding as to how much of an income they might generate by investing in a given company. For Celgene having a 0% dividend per share will deter potential investors in purchasing stocks from the company. Gilead 0.6% indicates they are able to pay their shareholders on a regular basis. |
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| (Please follow the Course Project instructions to calculate the current dividend yield.) |
Market price per share of common stock (Yahoo Finance 12/24/2015) |
$118.22 |
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$73.64 |
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| Rate of Return on Common Stockholders’ Equity (ROE) |
Net income – Preferred dividends |
$1602 |
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25.7% |
$18106 |
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103.7% |
Rate of Return On Equity (ROE) is to see how a company is profitable with their stockholders’ investments. Higher value is generally what a company prefers to have as this shows favorable to investors and creditors. Investors normally compare a company’s ROE to another company and look at their trend year-over-year. Although having a high ROE is good, investors do not just rely on this value as sometimes they can be influenced by upper management to buy into their approach. For this category Gilead again showing a stronger ROE compare to Celgene. Gliead is showing more efficient than Celgene in managing their finances. |
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Average common stockholders’ equity |
$6222 |
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$17466 |
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| Free cash flow |
Net cash provided by operating activities minus cash payments earmarked for investments in plant assets |
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$78065 |
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78065 |
Free Cash Flow is basically to see how much cash a business have. Free cash flow is based on the company’s cash from the business’ operations which is the Net Income. Gilead’s free cash flow is 3-4 times higher than Celgene which shows a good indication of which company is performing better. Although analysts or investors should look at everything and not just based on the numbers. The company’s ability to generate cash should also be considered. But having a much larger amount of cash flow can easily determine who to invest your money to. |
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| Price-Earnings Ratio (Multiple) |
Market price per share of common stock as of 12/31/2014 |
$114.49 |
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57 |
94.26000000000001 |
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8 |
Market Prospect Ratio or Price Earnings Ratio calculates the market value of stocks comparable to its earnings by using the market price by the earnings per share. This is how to assess what a stock’s fair market value should be in predicting the company’s future earnings. So every time the company’s earnings per share goes up, so does their market value per share. Higher P/E typically shows a positive future performance which could make an investor pay more for the company’s shares. Here Celgene is showing a much higher ratio than of Gilead. Investors are willing to pay more for every dollar of Celgene’s earnings. This is a good sign for Celgene as some of the categories could deter investors from investing with their company. |
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| (Please see the Course Project instructions for the dates to use for this ratio.) |
Earnings per share |
$2.02 |
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12.37 |
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