Analysis of Abbot Laboratories (ABT)

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Abbot is a known globally diversified company dealing in healthcare services. The company has a key purpose of helping people live a healthy life possible. The company offers a broad portfolio of products believed to be market leading. The products tend to align with the current favorable long-term trends in healthcare both in developed and under-developed nations across the globe. By building its marketing on the strong foundation of successful 125 years of service, Abbot laboratories are in a good position to offer top-tier growth, expanding its margins in the market as well as increasing returns to its shareholders. This paper mainly gives the analysis of Abbot Laboratories by looking at the company’s existing business model, current ratio analysis, and new business model.

The Existing Business Model of Abbot Laboratories

The mission of Abbot Laboratories is to fulfill the human potential promise, in all places, aspects and life stages by helping people in achieving their best health at every stage of life. This mission is the main driving force behind business model of Abbot Laboratories. The company has four main business models/segments that assist in generating revenues as far as the diversified healthcare business is concerned.

The established Pharmaceutical Products

These include the branded generic products (pharmaceuticals). The products are gastroenterology, products for women health, metabolic and cardiovascular products. These products are manufactured and distributed to the global market. This segment sums up to about 18% of the total sales annually. The company operates across the 88 nations in emerging markets, whereby more than 1,500 pharmaceutical products mainly consumer-oriented ones are distributed (Dainas & Marks, 2016).

Nutritional Products Model

The company’s nutritional products are made up of both infants and adults brands. They include the infant formula, enteral feeding products as well as other pediatric nutritional products. The products are distributed across the globe. The segment is known to be the largest since it gives about 34% of the total sales. The segment also takes up a significant proportion as far as the global market share is concerned. The Abbot Laboratories represents more half of the global adult nutrition sales.

Some of the key brands in this segment are Similac for infants, Glucerna for victims of diabetes, Nepro for dialysis victims and Pediasure for nutrition supplements. The key competitors of Abbot Laboratories in this space are Johnson & Johnson and Bristol-Myers Squibb Company.

Vascular Products

There are quite a good number of devices that are used for heart and vascular system i.e. stents, vascular scaffolds, the coronary balloons, guide wires for coronary among others. These devices are sold by the company across the globe.

Diagnostic Products

This segment has largely grown offer the past decade due to high demand. The products include diagnostic systems Add Title Here, up to 12 Words, on One to Two Lines and tests which includes immunoassay as well as clinical chemistry systems. Others are cartridges used in blood analysis, point-of-care diagnostic systems, both DNA and RNA instruments for extraction and processing, instruments for genomic base tests among others.

Apart of the named existing business models, Abbot Laboratories have also been able of producing other products such as blood glucose and flash glucose which are used in monitoring diabetes management systems. They also distribute medical devices for eye analysis. The company’s revenue dreams are derived from the four models (Dainas & Marks, 2016).

Ration Analysis of Abbot Laboratories

Rations are very important to investors and to the company since it allows for direct and timely comparison of financial standings of the company. The following charts show the current ratios of Abbot Laboratories;

Liquidity

It compares the company’s current assets against its liabilities thus showing the ability of the company to meet their short and long-term obligations

Annual Income Statement (values in 000's)

Period Ending:

Trend

12/31/2017

12/31/2016

12/31/2015

12/31/2014

Liquidity Ratios

Current Ratio

402%

154%

130%

202%

Quick Ratio

365%

126%

104%

174%

Cash Ratio

282%

67%

43%

85%

In the past few years, Abbott Laboratories has seen quite significant increases in their ratios, meaning that the company’s financial standing is improving from one year to the next.

The Debt Management Ratio

This ratio measures how much the company’s finance does come from debt sources. The information from this ratio gives the investors data concerning the company’s ability to take on new debt as well as being able to meet its obligations despite its current debt status. The recent statistics show that Abbot Laboratory’s debts have been decreasing since 2016. However, the company’s equity has increased altogether (Collins, 2017).

Asset management ratio

This ratio shows the company’s ability in managing its assets to generalize sales. Essentially, the ratio attempts to measure the inventory and credit management policies success. Abbot Laboratories has witnessed an increase in the net fixed asset turnover as well as on equity turnover. However, they have experienced a decrease in their total asset turnover.

December 31, 2017

December 31, 2016

Net fixed asset turnover

3.66

3.56

Total Asset turnover

0.40

0.49

Equity turnover

1.02

0.96

The Profitability Ratio

This ratio mainly attempts to measure the company’s effectiveness in terms of liquidity and asset in regard to debt management on actual operations. The current standings of Abbot show that the company has seen both increase and decrease in profitability ratio. However recently in 2016-2017, Abbot Profitability has decreased as shown below.

Year

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Ratio

57.29

57.06

58.30

53.21

53.29

53.23

54.47

57.13

56.73

-

Market Value ratio

This ratio measures the company’s stock pricing against its book value and earnings for each and every share. The ratio helps in giving the account the price/earnings (P/E) ratio. Currently, the Abbot Laboratories is at 54.4. This ratio did increase massively in the year 2016 towards 2017 and it has maintained a steady increase since that time. Therefore, with such standings, the investors should feel safe with Abbot Laboratories.

Du Pont Ratio Analysis

This value has seen a sharp decrease since the year 2016 when the value was at 10.46 to its current state of 3.01. During this duration, the Abbot Laboratories net profits witnessed a steady increase right from 2014 to 2016. However, during 2016 and 2017, the profits did plunge from 4.42 billion to only 1.4 billion. Apart from all that, the statistics show that turnover has kept rising steadily (Dainas & Marks, 2016).

Altman Zone

The Z-score of Abbot Laboratories is currently at 2.43. This value has put the company in Grey Zone since this value should ideally be above 2.99 so that company can be in the Safe Zone. According to previous statistics, the lowest value of Z-Score that Abbot Laboratories has achieved is 1.63 while the highest that they have attained is 5.65.

The New Business Model of Abbot Laboratories

The emerging markets currently represent one of the greatest opportunities in the healthcare industry. This market is made up of 20% of Abbot Laboratories service offered in the healthcare market. The new business model of Abbot Laboratories is aimed at capturing more opportunities in places such as India. The company is rapidly establishing branded generics that are based on a leadership position and emerging markets. The key new business models are;

ü The management of Abbot Laboratories is focusing on transforming the company by using divestitures and acquisitions so that they can increase the company’s revenue growth and profitability as far as intermediate and long-term goals are concerned.

ü Abbot Laboratories is currently selling its developed markets generic pharmaceuticals in the industry. This is done by focusing its products on the emerging markets within the industry. This gives them chance to have a continuous growth as well as outshine its opponents.

ü There is steady substantial growth within Abbot Laboratories, especially on the nutritional products and diagnostics market. This is expected to offset softness in the Abbot Laboratories other businesses.

ü The company has also a strategic layout concerning it will continue rewarding its shareholders with the yearly dividends increases. The also plans to give buybacks as the company initiates take effect for its customers (Dainas & Marks, 2016).

Abbot Laboratories can be described as diversified healthcare products organization which its main focus now is the nutritional products, generic drugs, medical devices as well as diagnostics devices. With the new business model of the company, it positions itself for greater revenue in future as well as huge profit growth based on both intermediate and long-term goals. The current models of business predict a situation where the Abbot Laboratories expect that the emerging markets, their products will occupy more than 50% of the market share by 2020. Currently, Abbot Laboratories is yielding about 2.1% with a long history of increasing dividends. The company is striving to ensure that no stock is considered as “safe Stock” without any risk. The company’s shares are believed to be relatively safe when compared to many high profile stocks. Therefore, such stock should be strongly considered as a building block of any new portfolio for the investors who are considering long-term investment (Collins, 2017).

Conclusion

From the illustrations above, it can be deduced that Abbot Laboratories stands a better chance to keep on being one of the leading providers of healthcare services. The ratio analysis shows that the company is capable surviving in the market despite its current debts. On the other hand, the analysis of both new models and the existing business models shows that Abbot Laboratories has a strong market base which is grounded on its long-term existence in the market and quality products and services. This makes the company keep its customers and also be able of capturing new clients.

References

Collins, J. M. (2017). A market performance comparison of US firms active in domestic developed and developing countries. Journal of International business studies, 21(2), 271-287.

Dainas, C., & Marks, D. (2016): Abbott Laboratories’ EAP demonstrates cost-effectiveness through two studies and builds the business case for program expansion. Behavioral Health Management, 20(4), 34-41.

January 19, 2024
Category:

Business

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Subject area:

Company

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1593

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