Liquidity Ratios Attempt to Measure a Company's Ability

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Coverage Ratio (PBIT/Finance Cost) 309.594 933.4387 2895.514

This ratio is used to determine how easily a company can pay interest on outstanding debt. Pfizer has higher value of Interest coverage ratio which means the company is not burdened by debt expenses. This also indicates that company is doing good to generate enough cash flow to pay its interest expenses.

Price to Earnings Ratio:

Ratio 2015 2014 2013

Price to Earnings Ratio 146.1566 17.08215 6.286248

The price-earnings ratio indicates the amount an investor can expect to invest in a company in order to receive Rs 1 of that company’s earnings. Pfizer has very healthy P/E ratio in 2015 as compared to 2014 and 2013. This means that investors would anticipate higher growth in the future.

Price to Book Ratio:

Ratio 2015 2014 2013

Price to Book Ratio 5.171466 5.730441 1.867074

A higher P/B ratio implies that investors expect management to create more value from a given set of assets, all else equal (and/or that the market value of the firm’s assets is significantly higher than their accounting value). P/B ratios do not, however, directly provide any information on the ability of the firm to generate profits or cash for shareholders. This ratio also gives some idea of whether an investor is paying too much for what would be left if the company went bankrupt immediately. In this case, the P/B ratio is almost same from last two years. However, the increase in P/B n 2014 is attributable to the rise in stock prices which in turn is attributable to the expansion plan of the company.

Dividend yield:

Ratio 2015 2014 2013

Dividend Yield 0.56% 28.48% 3.07%

The dividend yield is a financial ratio that measures the amount of cash dividends distributed to common shareholders relative to the market value per share. There is a surge in the dividend yield in 2014 which is basically due to the increase in dividend per share by company. The company does not have any consistent policy regarding declaring dividend.

Q1 Answer

Ratios Considered

A. Cost and profitability analysis ratios: We have considered operating Profit ratio and Net profit ratio of Pfizer to understand how much company keeps in earnings out of every rupee in sales. Also Return on equity is considered to measure how much profit it generates with the money invested by shareholders.

B. Efficiency Analysis ratios: In order to measure Pfizer ability in using investment in fixed assets to generate revenues, Fixed-Asset turnover ratio is considered. Also, Net- working capital turnover ratio is considered to measure how effectively Pfizer is using its working capital to generate sales.

C. Liquidity Analysis ratios: In order to analyse short term financial health and liquidity of company we have considered Current ratio, Quick ratio, Liquidity ratio and cash flow yield. We have also considered debtors turnover ratio and creditors turnover ratio to understand how the company manages funds between supplier and customers.

D. Financing/Capital structure Analysis ratio: In order to analyse if the company has optimal debt to equity relationship and cost of funds to the company, we have used debt-to-equity ratio and debt to asset ratio. These ratios are also used to analyse whether the company obtains the leverage advantage of debt.

E. Market price based ratios: Since Pfizer is a listed company; the stock prices are available in the market and hence Investors can use Price to earnings ratio, Price to Book ratio and dividend yield ratio to make effective investment decisions.

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