Write Up on American Home Products Corporation
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AMERICAN HOME PRODUCTS CORPORATION:
Company Overview
Background Information:
American Home Products Corporation (AHP), is a pharmaceutical company. The company was based in Madison, New Jersey, USA. They were known for manufacturing the over-the-counter (OTC) drugs Robitussin and the analgesic Advil (ibuprofen), as well as the prescription drugs Premarin and Effexor, which both boast over US$3 billion in sales annually.
American Home Product Corporation (AHP), a highly growing American company, has four business lines: prescription drugs, packaged drugs, food products, house wares and household products. For a quite long time, AHP has applied a tight financial control and maintained an aggressive capital structure policy. Its mission is to make money for its stockholders and to maximize profits by minimizing costs. It has been able to finance internally its growth while paying a very high portion of its earning to its shareholders (60%)
Currently, AHP seems to have no business risk but may face a certain risk in the long run. Based on the ratios shown on the attached sheet, AHP should not worry about business risk since its working capital is very healthy and have cash excess. The high ROA, high profit margin, low current-to-asset ratio and collection days show that AHP can generate cash quickly, thus it can maintain current high growth rate. However, it’s decreasing annual sales growth shows that it faces future risk of losing market shares in all its business lines if it does not foresee competition and continue to focus on increasing stockholders’ value. AHP’s current financial performance is very good since it has high ROE, high quick ratio, low debt-to-equity ratio and low debt-to-asset ratio. However, the pro forma of different debt ratios show that if AHP increases debt ratio, it will face a financial risk of increased debt-to-equity and debt-to-asset ratios. In other words, it will face solvency problems in long terms. AHP also face
On
AMERICAN HOME PRODUCTS CORPORATION:
Company Overview
Background Information:
American Home Products Corporation (AHP), is a pharmaceutical company. The company was based in Madison, New Jersey, USA. They were known for manufacturing the over-the-counter (OTC) drugs Robitussin and the analgesic Advil (ibuprofen), as well as the prescription drugs Premarin and Effexor, which both boast over US$3 billion in sales annually.
American Home Product Corporation (AHP), a highly growing American company, has four business lines: prescription drugs, packaged drugs, food products, house wares and household products. For a quite long time, AHP has applied a tight financial control and maintained an aggressive capital structure policy. Its mission is to make money for its stockholders and to maximize profits by minimizing costs. It has been able to finance internally its growth while paying a very high portion of its earning to its shareholders (60%)
Currently, AHP seems to have no business risk but may face a certain risk in the long run. Based on the ratios shown on the attached sheet, AHP should not worry about business risk since its working capital is very healthy and have cash excess. The high ROA, high profit margin, low current-to-asset ratio and collection days show that AHP can generate cash quickly, thus it can maintain current high growth rate. However, it’s decreasing annual sales growth shows that it faces future risk of losing market shares in all its business lines if it does not foresee competition and continue to focus on increasing stockholders’ value. AHP’s current financial performance is very good since it has high ROE, high quick ratio, low debt-to-equity ratio and low debt-to-asset ratio. However, the pro forma of different debt ratios show that if AHP increases debt ratio, it will face a financial risk of increased debt-to-equity and debt-to-asset ratios. In other words, it will face solvency problems in long terms. AHP also face