Interpreting Financial Statements: Ratio Calculations
Pfizer, Inc. reported these subtotals in its 1997 annual report (dollars in millions):
|
1997 |
1996 |
1995 |
|
|
Total current liabilities |
$ 5,305 |
$ 5,640 |
$ 5,187 |
|
Total liabilities |
7,403 |
7,713 |
7,223 |
|
Total shareholders’ equity |
7,933 |
6,954 |
5,506 |
|
Total liabilities and equity |
$15,336 |
$14,667 |
$12,729 |
Required
a. Calculate the debt and equity composition ratios (vertical analysis) for Pfizer for each year. (Hint: you must calculate the amount of any long term liabilities.)
b. Which factors indicate that Pfizer is a very stable company, especially with respect to its management of debt and equity? Would a more stable company generally have high or low risk of default? Why?
c. What other information should be examined before concluding that Pfizer is a stable company with low default risk?