Analysis of Ford Motor Company’s Essay

Ford Motor Company (FMC) manufactures and sells vehicles worldwide. The company has two business segments that include automotive segment and financial services. Ford carries out operations in North and South America, Europe, Asia and Africa. Hence, the company has to ensure that its operations are working effectively to meet its organizational objectives. The company also has to ensure that its operations management strategies are adequate to provide maximum benefits to the company. Domestic car manufacturers are facing intense competition from foreign vehicle manufacturers such as Toyota, Honda, Nissan, Mercedes Benz, BMW and Audi just to name a few. There is thus the need to manage operations so as to improve efficiency, reduce costs and in the process achieve competitive advantage. Heizer and Render (2011), noted that operations management is a transformation process that occurs in companies producing goods and also in service organizations. Transformation process involves daily activities that focus on creating value for the organization. Operation processes are determined in terms of effectiveness (whether the process is able to attain company objectives) and efficiency (is the process using resources adequately). According to Davis and Heineke (2005), different types of transformation could be physical as in manufacturing, location as in transportation, storage as in warehousing, health care which is physiological, and informational which is telecommunication. Ford has numerous activities involving several areas that can lead to cost saving and translate into increased profitability for the company. By effectively implementing and executing operations management strategies, the company is able to deliver value to customers and generate more revenues and profits. Ford employs a wide range of operations strategies and one of these is product strategies. Product strategies employed by Ford includes having many vehicle platforms, brands, and models. As a result of their product strategy, the company is able to produce vehicles that are tailored to different customer requirements. The company’s manufacturing processes and product development carried out in one target region is different fro m another region (Kassab, 2011). Another strategy used by Ford is product pricing whereby its products are priced relatively low thus ensuring that as many people as possible can afford its products. Through this strategy the company is able to attract and retain customers which in turn lead to  increased sales. Ford has a wide range of product offering and is thus able to attract large number of customers. The wide range of products offered by the company allows it to maintain a balanced revenue stream Its product strategy is also an effective method in increasing market share as its numerous brands and models is able to attract a large number of diverse customers. Ford has shifted its product strategy towards new vehicle segments and this has proved to be profitable for the company (Automotives, 2011). Ford uses numerous production or manufacturing strategies that aims at promoting efficiency and effectiveness. Ford focuses on reducing time and material waste in production, increasing quality and reducing cycle times. All these strategies contribute to cost reduction by the company. In order for an organization to sustain growth in such a competitive market, it must be able to eliminate processes that waste resources, improve on product quality and achieve customer satisfaction. These factors enhance the company’s competitive advantage and its ability to remain in business. Ford previously utilized a total quality management (TQM) production strategy, however the company is currently shifting towards a six sigma approach. TQM was introduced in the company in the 1980’s to improve product quality resulting from intense competition from foreign manufacturers. TQM emphasizes on processes driven by quality and aim at achieving customer satisfaction. Implementing total quality management meant that processes within the company had to be adhered to strictly and continuously improved in order to meet customer satisfaction. TQM philosophy looks at developing a corporate culture that is customer focused, empowers employees and seeks continuous improvement. By focusing on the customer, Ford was able to provide value customers with product value and quality that ensured customer satisfaction. This in turn translated into revenue for the company due to repeat sales and first time customers. Essential components of effectively implementing TQM include a commitment from all stakeholders and a change in work culture. Managers at Ford demonstrate such commitment to quality by clearly initiating strategies and policies that aim at promoting quality enhancing activities. Ford’s workers at all levels are informed on steps that should be followed in order to achieve improved quality (Dahlgaard & Dahlgaard-Park, 2006). Total quality management reduces wastage in the production process and eliminates defects. The reductions in defects and  wastages assist in lowering production costs which can subsequently l ead to an increase in contribution margin. Lower costs can also facilitate the company’s lower pricing strategy to attract customers and gain competitive advantage. By implementing total quality management Ford was able to reduce amount of waste from production process and also improve on efficiency thus improving performance (Dahlgaard & Dahlgaard-Park, 2006). Ford has shifted towards a Six Sigma approach which aims to sustain company’s ability to manufacture quality products. The Society of Manufacturing Engineers magazine in 2011 noted that Ford’s reputation as a company that offers quality products was being tarnished as a result of a number of setbacks including recalls affecting several models and delays in introducing new ones to market. Customer surveys showed that customer satisfaction and quality of Ford cars had reduced and was behind competition thus the need for the company to shift to a new approach in order to improve on quality concerns. Six Sigma is more structured and profit oriented compared to total quality management. Ford shifted to this new approach in an attempt to improve on its processes and increase cost savings. The company also aims at establishing a consistent approach that can be used to solve quality related problems by improving organizational learning. Smith, (2003) in his article, â€Å"Six Sigma at Ford Revisited† noted that Ford saved $1.0 billion from elimination of waste 5 years after implementing Six Sigma and that internal customer satisfaction survey showed that customer satisfaction increased by 5%. This provides ample evidence that the company’s strategy has been effective in lowering costs and that customer satisfaction regarding the company’s products was heading in the right direction. One of the strategies being utilized in Ford’s production process is a â€Å"Global Product Development System† whereby the company has established a single template for designing, engineering and manufacturing its vehicles worldwide. One of Ford’s global product development systems is aimed at enabling the company to develop vehicles faster, improve its competitive ability and provide profitable growth. The system aligns the company’s technology and global product plans and car programs on characteristics that differentiate Ford vehicles in the market. The global product strategy establishes a standard that all Ford vehicles should conform to which leads to consistency in Ford products and also improves on brand recognition since products will have attributes that  differentiate Ford products from its competitors (Kassab, 2011). Since Ford manufacturing points are located across different regions, the global product strategy enables various production regions to produce products that have similar attributes. According to Kassab (2011), every time production centers are reinventing production processes the company losses time that could be utilized in developing new vehicles. Therefore one Ford global product development system is used in the production process to reduce time wastage and ensure consistency in production. Another strategy used in the Ford production process i s JIT in an effort to improve on the time it takes to produce a product. Ford decided to adopt this strategy due to inadequacies in material handling and inbound logistics. Using a just in time system enables the company to connect with suppliers and also assists in reducing production lead times and enhances the company’s capability to manage inventory, cost of transportation and storage costs. Just in time system involves delivering required production component when they are needed in the production process. In relation to logistics, Ford has established different solutions to ensure that supply and distribution is achieved. Ford has numerous â€Å"Order Dispatch Centers† where products are transported to and from the company (Penske, 2013). Order centers assist the company in centralizing its logistics network and reducing inventory levels. The company has uniform procedures, carrier requirements and technologies that streamlines supply, improve on performance and accountability (Penske, 2013). Ford utilizes logistics management technologies maintains and tracks information on delivery status and schedules applicable to routing. Through these technologies, the company is able to monitor its supply chain and ensure that all operations aspects of production are functioning appropriately. Ford also has in place capacity strategies where the company practices efficien t use of facilities and expansion facilities projects when required. By increasing capacity the company is able to increase output and generate more revenue. The company also has in places processes and systems to ensure efficient use of facilities. These processes involve being highly automated and strategically placing production points to ensure maximum achievement of efficiency. Ford has work design strategies whereby the company practices job enrichment and institutes motivation systems. Ford has a competency center that assists employees in planning their career,  enrolling in training and development programs, and assisting employees on how to balance professional and personal lifestyles (Hines et al, 2004). The company aims at developing an individual who in turn improves on overall organizational capability. By developing its employees, Ford is able to maintain high levels of motivation and morale which eventually leads to improved productivity. The American Psychological Association (2003) in an article â€Å"Occupational Stress and Employee Control† noted that Ford Motor Company has shifted virtually all of its manufacturing operations to a team-based approach in which employees have far greater control over their work. Instead of simply follow directions from supervisors, employees can talk directly to suppliers about parts quality, research better ways to run equipment, and take independent action to eliminate product defects. A pilot program, which began at Ford’s Romeo, Michigan engine plant in the early 1990s, raised productivity and quality along with job satisfaction so successfully that Ford expanded the approach, giving virtually all employees targets and allowing them to find ways to reach them. Ford encourages a self-management environment to boost and maintain employee morale. Employees are involved in problem solving groups and have a say on operational matters related to their jobs. Employees also participate in decision making processes within the organization. As a result of increased employee motivation, employees perform their job activities well which subsequently leads to increased productivity. By maintaining high motivation levels the company is able to retain high performing employees which benefit the organization in the long term. As a multinational company, a comprehensive location strategy is critical to a successful operations management execution. Ford has presence in North and South America, Europe, Asia and Africa where the company is involved in the production and sale of Ford vehicles. These markets are strategically targeted in an attempt to increase company growth. By having a global presence the company is able to penetrate into new markets and increase market share in the global arena. Ford is a well-known brand globally and its name recognition has assisted the company to penetrate new markets. An international presence assists the company in terms of product development, differentiation and distribution as vehicles are developed to meet customer requirements in specific regions and reduce distribution costs to various geographic regions. Operations management at  Ford Motor is influenced by factors such as competition. Competition plays a part in determining how a company does business. Ford therefore has to plan its operations to ensure it is able to gain competitive advantage and maximize revenues. Ford faces domestic and international competition from General Motors, Chrysler, Toyota, Honda and Nissan. In today’s environment, a car company does not have a great future unless they have a plan for increasing their sales globally. If an auto company is not a global automaker, it is not doing the job that it should. Ford therefore has to position itself to ensure that its operations are efficient, effective and are able to differentiate company products on a global scale. Another factor influencing operations management is customer requirements since this impact whether a company is profitable or not. Ford should ensure that its operations meet customer requirements in terms of quality, design, prices and spe ed of distribution. Success factors The first success factor in determining Ford’s successful achievement of its business objectives regarding its operations management strategies is financial. Operations management strategies employed in the company aim at ensuring efficient use of resources and reducing cost in the process. The main tools utilized by Ford to achieve success include Six Sigma, just in time inventory management, location and distribution strategies. Ford has successfully utilized the strategies to achieve its cost reduction strategy and this is evidenced by $1.0 billion cost saving after implementing Six Sigma. A just in time system contributes to the success by reducing costs incurred in transporting and storing raw materials and work in process inventory. The company’s distribution strategies include the use of order centers that improve on efficiency by reducing cost incurred in transporting final products to dealerships. Ford Media (2011) stated that the company’s sales increas ed by 19% in 2010 to $1.935 million compared to the previous year which is the largest increase of any full-line automaker. This achievement is indicative of the success of the operations management strategies implemented by the company. Another success factor in relation to operations management strategies in the organization is the social condition that exists within the company. Ford has different motivation methods that ensure that employees are highly motivated in their professional duties.  This is achieved by training and developing employees and also by ensuring that employees have control over their job activities. The American Psychological Association (2003) noted that increased employee control in job activities is an effective strategy in reducing occupational stress. Ford Motor position and market share in the industry provides measurable evidence on whether the company strategies have been successful. The company recorded mixed fortunes in its target market. Whereas the company increased market share in 2011 to 16.5% compared to 16,4% in 2010 and 15.3% in 2009, market share in Europe decreased to 8.3% compared to 8.4% in 2010 and 9.1% in 2009 (Sustainability Report, 2011/2012). This shows that the co mpany’s strategies were successful in its domestic market but unsuccessful in the European market. Despite these unflattering results, the company still maintains a strong international presence in the Americas, Europe, Asia and Africa. For 2012, Ford’s total U.S. market share was down 1.2 percentage points to 15.3%, while Ford’s U.S. retail share of the retail industry declined seven tenths of a percentage point. The declines largely came from the discontinuation of the Crown Victoria and Ranger, capacity constraints, and reduced availability associated with our Fusion and Escape changeovers. In Europe, market share declined 0.4 percentage points to 7.9% (Sustainability Report, 2012/2013). Quality is important to Ford in improving customer satisfaction and overall company performance. According to the 2012/2013 Sustainability Report, the results are mixed. In the U.S. first time buyers increased 0.5 percentage points to 10.6% in 2012 while customer loyalty decreased 0.9 percentage points to 47.7% in 2012. In Europe, first time buyers decreased 2.0 percentage points to 7% in 2012 while customer loyalty increased 1.0 percentage points to 52% in 2012. Ford has decentralized its operations to ensure that the company manufactures products that meet customer requirements by producing high quality vehicles. Ford Motor Company’s mission is one team, one plan and one goal. The mission is for the company to work together as a lean global enterprise measured by customer, employees, investor, supplier, dealer and union satisfaction. The company’s mission statement influenced its operations management strategies since the company’s one team and implemented strategies aim at achieving lean production where wastes are eliminated to reduce cost. The strategies also aim at improving customer satisfaction by providing quality products.  Ford strives to be a lean global enterprise by implementing strategies such as Six Sigma to achieve its objectives. The ultimate goal of all strategies implemented in the company is to increase profitable growth through increased customer and employee satisfaction and by reducing costs. References American Psychological Association. (2003). Occupational Stress and Employee Control. Retrieved On September 15, 2013 from http://www.Apa.Org/Research/Action/Control.Aspx Automotives Insight. (2011). New Product Strategy Pays Off For Ford. Retrieved On September 28, 2013 from http://www.Autosinsight.Com/File/96519/New-Product-Strategy-Pays-Off-For-Ford.Html Dahlgaard, J. J., & Dahlgaard-Park, S. M. (2006) Lean production, six sigma quality, TQM and company culture. The TQM Magazine, 18 (3), 263 – 281. Retrieved from EBSCO Host Database on September 21, 2013. Davis, M.M., & Heineke, J. (2005). Operations Management: Integrating Manufacturing and Services. (5th ed.). New York, NY: McGraw – Hill Irwin. Ford Media. (2011). Ford’s 2010 Sales Up 19 Percent – Largest Increase of Any Full Line Automaker: Foundation Set for Growth In 2011. Retrieved On September 28, 2013 from https://media.ford.com/content/fordmedia/fna/us/en/news/2011/01/04/ford_s-2010-sales-up-19-percent–largest-increase-of-any-full-li.html Heizer, J. & Render, B. (2001). Operations Management (10th ed.).Upper Saddle River, NJ: Prentice Hall. Hines, P., Holweg, M., & Rich, N. (2004). Learning to evolve: A review of contemporary lean thinking. International Journal of Operations & Production Management, 24 (10), 994 – 1011. Retrieved from EBSCO Host Database on September 29, 2013. Kassab, C.R. (2011). Speedy Delivery – Global Product Development System Defines Ford. Ford Magazine. Ford Motors. Retrieved On September 28, 2013 from http:// corporate.ford.com/innovation/innovation-detail/fs-global-vehicle-product-development Penske. (2013). Ford Motor Company. Six Sigma Initiatives streamline operations. Retrieved On October 5, 2013 from http://www.penskelogistics.com/casestudies/ford2.html Smith, K. (2003). Six Sigma At Ford Revisited. Quality Digest, 23 (6), 28-32. Retrieved from EBSCO Host Database on October 2, 2013. Society of Manufacturing Engineers.

Merck vs Pfizer

Evaluating Merck & Co. , Inc vs. Pfizer, Inc. Amy Lan Lan Liu Connor Buestad Raghul Subramanian Natalia Cosa ACCT 831 March 16, 2011 Table of Contents: Part 1: History, Background and Core Business †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦. 2 a. Merck & Co. , Inc. †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦.. 2 b. Pfizer, Inc. †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦ 2 c.Core Business †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦. 3 Value Chain †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦. 4 Porter’s Five Forces †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦. 6 SWOT Analysis †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦ †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦. 8 Part 2: Financial Analysis †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦.. 5 a. Profitability Analysis †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦.. 15 b. Liquidity Analysis †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦. 18 c. Solvency Analysis †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚ ¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦.. 19 Part 3: Valuation Analysis †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦.. .. 20 a.Residual Income †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦. 20 b. Cost of Equity †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã ¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦.. 21 c. Valuation †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦. 22 d. Sensitivity analysis †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦. 23Part 4: Recommendations †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦. †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦ 23 Appendix: †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â ‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦. 25 Appendix A: Profitability Analysis†¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦. 25 Appendix B: Liquidity Analysis †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦.. 25 Appendix C: Solvency Analysis †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦.. 6 Appendix D: Residual Income and Cost of Equity†¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦ 26 Appendix E: Sensitivity Analysis†¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦.. 27 References †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦. 28 Part 1: History, Background and Core Business a. Merck & Co. , Inc. : History and Background Information Merck is headquartered in Whitehouse Station, New Jersey. According to its website, the company was originally established in 1891 as a US subsidiary of the Merck KGaA German company. Merck became an independent company in 1917.In 1963 Merck launch the first measles vaccine, and, in 1967 launched a mumps vaccine. In 2009, Merck acquired Schering-Plough and now represent the world’s third-largest pharmaceutical company by market share. Today, the company has over 94,000 employees worldwide (2012). Merck is the third largest global healthcare company in the world. The company specializes in prescription medicines, vaccines, animal health, and consumer care products, that are marketed directly and through its joint ventures. The company operates four segments namely Pharmaceutical, Animal Health, Consumer Care, and Alliance segments (merck. om, 2012). Starting 2011, in order to drive future growth, Merck started focusing on reducing costs, making strategic investments in new product launches, and improving its research and development pipeline. Merck’s sales worldwide reached $48 billion in 2011, which was a 4% increase from 2010. With two dr ugs under review with the FDA, the company has 19 other drugs in the Phase III of development. b. Pfizer Inc. : History And Background Information Found by Charles Pfizer and Charles Erhart in 1849 Pfizer, Inc. is the largest pharmaceutical company in the world.Their main goal was to discover new drugs that would help improve the healthcare around the world. Both Pfizer and Erhart were born and raised in Germany before descending upon Brooklyn, New York, where Pfizer first opened its doors as a fine-chemicals business. The first product launched by Pfizer was used to intestinal worms, a disease that was prevalent in mid-19th century America (Pfizer. com, 2012). According to their website, in 1880, Pfizer shifted its focus to manufacturing citric acid which was the raw material for soft drink products such as Coca-Cola, Dr. Pepper, and Pepsi-Cola.In 1944, Pfizer succeeded in producing penicillin with was also called â€Å"the miracle drug. † By 1980, Pfizer was manufacturing a n anti-inflammatory drug called Feldene (piroxicam), which was the first product to generate revenue of one billion dollars from sales around the world. Today, Pfizer is known for its creation of drugs such as Lipitor used for cholesterol, Viagra used for erectile dysfunction, and Celebrex used as an anti-inflammatory (2012). The range of products sold by Pfizer has many applications in the health industry that serves in wellness prevention and treatment of a wide variety of diseases.Some of its promises drugs that are under review are potential cures for Alzheimer’s disease and cancer. c. Core Business: Merck and Pfizer share the same core business model of researching, developing, and marketing pharmaceutical products. As with any business, Merck and Pfizer are facing increasing competition and challenges, not the least of which is the expiration of patent protections on key products. There are three tools that are increasingly useful in analyzing the core business and econ omic characteristics of an industry. These include the value chain analysis, Porter’s Five Forces Model, and the SWOT analysis.The Value Chain The first tool, the value chain analysis, represents the chain of activities involved in the development, manufacturing, and distribution of products and/or services of a company. The value chain of pharmaceutical companies usually consists of research and development of drugs, drug approval by government regulators, manufacturing of drugs, creation of demand for drugs, and marketing to consumers. The analysis of each stage of the value chain can reveal the central focus and competencies of the firm, and can point to the activities that drive profit.According to Fortune 500, the leading pharmaceutical firms in 2011 were Pfizer, Johnson & Johnson, Merck, and Abbott Laboratories (CNN. com, 2011). The two companies we discuss in this paper, Merck and Pfizer, have similar value chains. Merck and Pfizer position themselves as companies that provide innovative and effective drugs and medical solutions globally. Due to the increasing threat of patent expiration and generic drug competition, both pharmaceutical companies focus extensively on research and development and new drug approval value chain activities.Both companies devote considerable internal resources on R&D, and continue to expand through acquisitions or by entering into agreements with other companies that focus on the discovery and development of new drugs. In 2009, Pfizer acquired Wyeth for $68 billion, an acquisition that is considered the largest pharmaceutical merger in nearly a decade (Hoover's Company Records, 2012). In addition, Pfizer acquired Excaliard Pharmaceuticals in November 2011, and in September 2011 it gained 70% ownership of the outstanding shares of Icagen, Inc.Merck is also constantly seeking out collaborations, licensing, and outsourcing agreements in the area of Research and Development (Datamonitor, 2011). In November 2009, it acquir ed Schering-Plough for $41 billion (Hoover's Company Records, 2012), and in May 2011 it acquired Inspire Pharmaceuticals. Pfizer and Merck focus heavily on the new drug approval process. In 2011, Merck had 2 drugs under review by government regulators and 19 drugs in last trial phase, and it also planned to file 5 major products for approval between 2012 and 2013.Pfizer had 19 drugs submitted for FDA for approval, and 5 already approved for 2011. Both Merck and Pfizer benefit from using sophisticated and efficient manufacturing and supply chains. Both companies create, move and sell tremendous amounts of product each year and therefore must rely on a dependable manufacturing system. Their manufacturing network consists of numerous manufacturing sites and distribution networks around the world. In addition to their internal manufacturing, pharmaceutical firms work with networks of external partners to produce lines of product, packaging, and active ingredients.To create demand for th eir products, both companies market extensively in multiple media outlets and encourage consumers to ask their doctors about different drugs. Merck markets its products in over 140 countries through direct sales forces and international distributors. Its customers are drug wholesalers, retailers, government agencies, and healthcare providers (Hoover's Company Records, 2012). Pfizer sells its products through wholesale distributors like McKesson and Cardinal health and it markets its products directly to doctors, hospital, nurses, employer groups, and patients.Porter’s Five Forces The pharmaceutical industry is a highly dynamic with new technologies emerging in the market quite often. Michael Porter’s Five Forces model can be used to study and verify the factors affecting the market performance of Merck & Co and Pfizer. This model focuses on the external forces that the companies must pay attention to in order to maintain their profitability. The five forces of the phar maceutical industry are analyzed below. 1. Threat from new entrants is predicted to be low in this industry due to the following reasons.The pharmaceutical industry is a high-tech industry and involves high capital costs. Economy of scale is required to keep the costs down and the established firms (Merck & Co and Pfizer) are well known for excelling in this area. The existing drugs are safe-guarded by patents at least for a particular period of time before the generic drugs hit the market. This gives companies like Merck and Pfizer a considerable leg up on competitors. However, these patents do eventually expire, thus opening the door to more competition from generic drug makers. Product differentiation is necessary in order to attract new customers.In the field of pharmaceuticals, it is very hard to bring a differentiated product to market. New drugs undergo extensive testing by the FDA before entering the market. The drugs by the established firms get easily passed when compared to new entrants whose credibility is still uncertain. 2. Rivalry among established firms is high in the industry among players like Johnson & Johnson, Merck & Co, Pfizer, Abbott Laboratories etc. The pharmaceutical industry is high revenue industry and there is a tough competition to obtain more market share. No company owns more than 6-10 % of the market share.In addition, high costs of R and marketing are incurred by all the firms involved in this competition. 3. Buyer power would be classified as low to moderate in this industry due to the following reasons. The concentration of buyers relative to overall industry size is low. The demand for chronic and lifesaving drugs is high due to the ageing baby-boom population. The buyers have little knowledge about the industry cost structure and hence the pharmaceutical companies use this advantage to price their products higher. The patents protect the drugs from lower priced competitor drugs, but many patents are expiring. . Supplier po wer is considered medium to low in the industry. The supplier switching costs incurred by pharmaceutical companies like Merck and Pfizer is low. The threat of forward integration by suppliers is low due to lack of knowledge and expertise. Differentiation of the supplier products is low because they have a wide range of applications, with the biotech firms being one of them. 5. Substitute products always present a challenge to companies operating in the pharmaceutical industry. This can be attributed to the following factors.Biotech firms like Amgen are beginning to market their own products, unlike the traditional method of selling them to pharmaceutical companies like Merck and Pfizer. This presents a new segment of competitors that can provide substitutes. Increasingly, patients can use medical alternatives such as surgery, homeopathic remedies, acupuncture and herbal medicines. The overall healthcare industry is very dynamic and always changing. New products and healing methods a re constantly being developed, some of which could serve as substitutes to existing treatments offered by Merck and Pfizer.SWOT Analysis Merck & Co. SWOT Merck is the third largest healthcare company in the world. Over the years, a large investment in R has enhanced the company’s top-line growth. However, new competitors and large cost of drug development could affect their revenue growth. | Strengths |Weaknesses | |Leading market position; third largest healthcare company in |Generic brand competition | |the world. High litigation cost | |Successful launches of new products | | |Merger with Schering-Plough strengthens their industry | | |position | | |Opportunities |Threats | |Cost savings from internal restructure |US regulatory setbacks | |Expansion in emerging markets |Healthcare reform of US | |Strong pipeline | | Strengths Leading Market Position; Third Largest Healthcare Company in the World Merck is a well-known and respected company worldwide. One of their great est strengths is their leading market position. Merck’s worldwide sale totaled $48 billion in 2011, an increase of 4% compared to 2010.The increase of revenue is mainly due to the company’s signature products such as Singulair, Januvia, Remicade, Zetia, Vytorin, Janumet, Isentress, Nasonex, Gardasil, and Temodar (Datamonitor, 2011). Successful Launches of New Products Merck has a proven success record for launching new products. Since 2006, it has successfully launched 10 new therapeutics, including Victrelis, a treatment for chronic hepatitis C (2011), Elonva, a corifollitropin alpha injection (2010), Janumet, a treatment for diabetes, Isentress, an HIV integrase inhibitor (2007), Gardasil, a drug that could prevent diseases caused by HPV, and Januvia, a cure for type 2 diabetes (2006) (Datamonitor, 2011). Merger with Schering-Plough Strengthens Their Industry Position The merger with Schering-Plough has certainly strengthened Merck’s industry position.Schering -Plough owned many popular pharmaceutical drugs such as allergy drugs Claritin and Clarinex, anti-cholesterol drug Vytorin, and a brain tumor drug Temodar. Schering Plough had 1. 4% market share in the U. S. , 17th in the top 20 pharmaceutical corporation by sales (Datamonitor, 2011). Weaknesses Generic Brand Competition Merck pharmaceutical products have traditionally accounted for most of their total sales. One weakness is the competition Merck faces with generic brands. Due to the current economy, we tend to estimate people will shift to more inexpensive and generic brand products. This can cause sizable losses for Merck’s total revenue. High Litigation CostsMerck continues to face litigation related to their Vioxx recall, a drug that is used to cure arthritis and acute pain. In 2004, Merck withdrew Vioxx off the market because it cased potential cardiac attacks among the patients who took it regularly for a period of 18 months or longer. During 2010, Merck was forced to s pend around $140 million in legal defense costs (Datamonitor, 2011). Opportunities Cost Savings from Internal Restructure Merck has emphasized the idea of decreases costs in order to drive greater efficiencies within the company. According to Datamonitor’s SWOT analysis, Merck hopes to reduce costs by $3. 5 billion annually beyond 2011 (2011). Expansion in Emerging MarketsMerck has strengthened its international market share by signing exclusive agreements with other established companies to co-promote and distribute a number of products. For example, Merck and Johnson & Johnson agreed to govern the rights to distribution of Remicade and Simponi. Remicade is a treatment for nasal allergy and Simponi is an asthma treatment for patients above the age of three. According to the agreement with Johnson & Johnson, Merck is allowed to market Simponi and Remicade in Asia, Canada, Africa, The Middle East, and Central and South America as of July 1, 2011. In addition, Merck exclusively markets these products in Turkey, Russia, and Europe.These two products brought in 70% of Merck’s revenue from 2010 (Datamonitor, 2011). Strong Pipeline Datamonitor expects that Merck’s 20 new products will add combined annual sales of more than $7 billion to its top-line by 2015 (2011). â€Å"While Merck retains its internal focus on pipeline productivity, half of its new launches were obtained in the company’s merger with Schering-Plough. Recently Merck has had considerable success with a number of new launches since moving into its core portfolio. It will look to replicate this success with the pipeline programs it has inherited from Schering-Plough as well as with those it has been developing prior to the merger. † Threats US Regulatory SetbacksUS regulatory setbacks include terminations of Merck’s treatments such as for Tredaptive for atherosclerosis, and Taranabant for obesity. The potential for further setbacks and termination can be a conc ern for Merck’s brand image during the drug development stage. There could also be threats for the clinical and regulatory failures with developing Saphiris (schizophrenia), boceprivir (hepatitis C) and TRA (Datamonitor, 2011). Healthcare Reform of US The recently enacted US Healthcare Reform could decrease Merck’s profit margins. According to Datamonitor, Merck incurred additional expenses from increases in Medicaid rebates, which increased from 15. 1% to 23. 1% for the branded prescription drugs.Being in the Medicare Part D coverage gap, Merck was required to pay a 50% discount utilization required by law in 2011. In addition, Merck expects to Also, beginning in 2011, Merck expects that it will pay an additional annual health care reform fee, which will be calculated as a percentage of the industry’s total sales of branded prescription drugs to specified government programs. The fee was $2. 5billion for 2011 (2011). Pfizer Inc. SWOT Pfizer is the world's large st research-based pharmaceutical company and still remains the strongest industry player in terms of sales and marketing capability. However, Pfizer relies on a large-scale M&A structure and lacks some key aspects of an organic sales growth model. Strengths |Weaknesses | |M&A to gain economies of scale |Difficulty in gaining market share due to already | |Strong advertising capabilities |established position in the market | |Acquisition of Wyeth in 2009 |Heavy reliance on Lipitor franchise | |Opportunities |Threats | |Acquisition of King in 2010 |Difficulties in achieving organic sales growth | |Enhancing established products in emerging markets |Development setbacks of Sutent and Chantix/Champix | |Decreasing cost structure | | Strengths M&A to Gain Economies of Scale Pfizer has used large-scale acquisitions to establish and maintain its position as the biopharmaceutical industry's leading player. Since 2000, Pfizer acquired four big pharmaceutical companies: Warner-Lambert, Pharma cia, Wyeth, and King Pharmaceuticals. Pfizer acquired Wyeth in 2009. Wyeth was known for manufacturing over-the-counter drugs such as Robitussin and Advil, around $3 billion in sales annually. The acquisition of Wyeth enhanced Pfizer’s position as the industry's largest prescription pharmaceutical manufacturer.According to an article from MarketWatch, Pfizer’s large economies of scale growth also enhanced the company's ability to implement restructuring programs designed to reduce costs and drive profitability, while maintaining a steady increase in R expenditure (2012). Strong Advertising Capabilities According to MarketWatch, Pfizer has a strong marketing and sales infrastructure that helps grow sales for new products as well as mature product that face strong competition from generic competition. According to MarketWatch, â€Å"The most visible illustration of Pfizer's sales and marketing capability is the significant revenue stream recorded by Pfizer attributable to third party products marketed under-license in selected geographic markets. In short, Pfizer remains a marketing partner of choice for many medium and smaller sized prescription pharmaceutical players† (2012). Acquisition of WyethThe acquisition of Wyeth gives Pfizer an immediate access to many well-known biologic and vaccine products such as Enbrel, an anti-inflammatory product and Prevnar, a vaccine. Pfizer’s financial statement 2011 stated the worldwide revenues from biopharmaceutical products in 2010 were $58. 5 billion. This was increase of 29% from 2009, primarily attributed to the addition of operational revenues from Wyeth products of approximately $13. 7 billion (Datamonitor, 2011). Weaknesses Difficulty in Gaining Market Share Given Pfizer’s current market share (world’s largest research-based pharmaceutical company), it will be difficult for the company to continue to grow at the historical rate of sales without further use of large-scale M&A .According to MarketWatch, â€Å"Pfizer's 15 established blockbuster products in 2010, only a few products, including the neuropathic pain therapy Lyrica (pregabalin), are forecast to deliver a positive sales growth contribution through to 2015 (2012). All other products, including Lipitor, will deliver net negative sales growth, primarily due to generic exposure. † Heavy reliance on Lipitor franchise According to the analysis of MarketWatch, â€Å"Pfizer's blockbuster portfolio is dominated by the Lipitor franchise, which generated global sales of $10. 7 billion in 2010 (2012). However, Lipitor revenue growth slowed substantially since mid-2006 due to the ‘indirect generic impact' of therapeutic substitution via loss of patent exclusivity for Merck & Co. ‘s rival statin Zocor.With the Lipitor patent expiration set to occur in mid-2011, exposure of this one product to generic competition will have a significant impact on the overall performance of the company. â €  Opportunities Acquisition of King in 2010 Pfizer acquired King Pharmaceuticals on Oct 12, 2010, the world's 39th largest pharmaceutical company that focuses on pain management. Its product includes Altace for heart attack prevention, and Sonata, a sleeping aid. According to MarketWatch, â€Å"the acquisition of King represents the latest stage in a diversification strategy implemented by Pfizer over the past two years, as it seeks to prepare for the loss of patent exclusivity on its best-selling prescription pharmaceutical product Lipitor (atorvastatin) in late 2011.King is a leading developer of analgesics and its integration will broaden Pfizer's pain offering to include opioid drugs with anti-abuse technologies (2012). Datamonitor currently forecasts that King's total revenues will increase at a CAGR of 11. 3% during 2010-15, from $1. 2 billion to $2 billion† (2011). Enhancing Established Products in Emerging Markets Pfizer established two independent business units, one focused on established products and the other focused in emerging markets. The goal is to bridge emerging markets with established products. Pfizer, like Merck, plans to expand to the emerging markets by collaborating with local players to source branded generic products. Decreasing Cost StructurePfizer’s aim to grow profit will be depending on its continued use of a decreasing cost structure. According to MarketWatch, Pfizer forecasted the acquisition of Wyeth will save $3 billion by the end of 2012 (2012). Pfizer’s reason for the large-scale M&A is to cut cost substantially (by not having to invest in R&D and the development of new drugs) to drive increased profitability (by leveraging what other companies have developed). Threats Difficulties in achieving organic sales growth Pfizer success relies heavily on large-scale M&A and lacks organic sales growth. Datamonitor believes that further large-scale M&A activity will be undertaken by Pfizer because of growing competition of generics (2011).Pfizer's own R operations will find it difficult to keep up with the historical M for its organic growth. Development setbacks of Sutent and Chantix/Champix Sutent, a treatment of advanced renal cell carcinoma, experienced development setbacks. Sutent’s revenue growth depends partially on approval in additional tumor types; the termination of clinical trials in both colon cancer and breast cancer indicates that the product's performance in the marketplace could suffer. In addition, Pfizer also experienced setbacks in Chantix/Champix, smoking cessation therapy. Revenue declined mainly due to the updated labeling to warn of neuropsychiatric symptoms.As DataMonitor pointed out, â€Å"further failures in clinical trials of Sutent and other products could significantly affect Pfizer's sales growth† (2011). Part 2: Financial Analysis a. Profitability Analysis (Appendix A) Using return on assets (ROA), return on common equity (ROCE), and earning s per share (EPS), one can properly illustrate the profitability of Merck and Pfizer. Merck’s ROA decreased significantly from 2009 to 2010, dropping from 16. 8% to 1. 29%. This decrease was attributed to a decline in net income and profit margin. After their acquisition of Schering-Plough, Merck was left with higher costs, such as an 88% increase in R expense and a 55% increase in Marketing and Administrative Expenses. Total costs increased by 265%, while sales increased by only 67%.Net income also decreased in 2010 due to an increase in Other Expenses attributable to the Schering-Plough merger, an exchange loss of $200 million due to two Venezuelan currency valuations, and a $950 million charge for the Vioxx Liability Reserve. The disaggregated ROA showed a decrease in profit margin as well, from 48. 9% in 2009 to 3. 06% in 2010. A year after the merger, Merck’s ROA bounced back to 6. 7%, which is closer to the industry average of 11% (CNN. com, 2011) by decreasing s ome expenses (R, Materials & Production) and an increase of $2 million in sales. Pfizer’s ROA shows a similar decreasing trend for 2010. Its ROA decreased from 9. 03% in 2009 to 4. % in 2010 due to deductions related to asset impairment charges that were $1. 3 billion higher in 2010 than in 2011, due to the Wyeth acquisition in 2009 and litigation related to their subsidiary Quigley Company, Inc. The ROA has increased in 2011 to 5. 83% because the costs and expenses decreased by $3 million. The disaggregated ROA shows both the decrease of asset turnover and profit margin from 2009 to 2010, and the increase in both for 2011, showing that the operation profitability is getting stronger. However, we believe that both firms’ profit margins are healthy when compared to the industry average of 16. 7% (yahoofinance. com, 2012)After comparing the Asset Turnover, Profit Margin, and ROA for both companies, we can conclude that both are starting to improve in regards to profitabi lity, after their acquisitions in 2009. However, Merck seemed to be using its assets more efficiently to generate sales than Pfizer in 2011. Merck also had a higher ROA. However, both companies are below the industry average ROA of 11% and below the ROAs of competitors (Johnson & Johnson ROA is 8. 5% and Abbott is 7. 8%) (CNN. com). Return on common equity helps to explain how well a company uses its investment dollars to generate profits. ROCE can be very important to shareholders as it informs common stock investors how effectively their capital is being reinvested.Merck’s ROCE decreased significantly in 2010 due to the acquisition of Schering-Plough, which led to a decrease in Net Income due to the cost of acquisition (increase in R, and increase in marketing, administration, materials and production expenses), and an increase in Shareholders’ Equity. Pfizer’s ROCE declined marginally in 2010 as well, due to the acquisition of Wyeth. However, both companies w ere back to normal operations in 2011 and had similar ROCEs, around 11%, which is considered the average percent for publicly traded companies in the US. This means that both companies have healthy ROCEs and are generating healthy returns to shareholders.The desegregated return on common shareholders’ equity reveals a decrease in the financial leverage of Pfizer from 2. 29 in 2010 to 2. 25 in 2011. Merck’s financial leverage is constant, 1. 92 in 2010 and 1. 93 in 2011. We conclude that both companies are not heavily leveraged by short and long term debt, which shows that they are less risky financially. The disaggregated ROCE also reveals low asset turnover ratios for both companies and this is not uncommon for companies with high profit margins in the pharmaceutical industry. Finally, Earnings per Share is also used to assess a company’s profitability. EPS allow us to compare the companies’ power to make a profit. This means that Merck’s Price Ea rnings Ratio performs better than that of Pfizer’s.Whereas Pfizer’s EPS has been constant for the last three years (around 1), Merck experienced a significant decrease in 2010 to 0. 36 for diluted. The notes of their financial statements list the following reasons for the decrease: R impairment charges, restructuring and merger with Wyeth (had to recognize a full year of amortization of intangible assets and inventory set-up), legal reserve deductions related to Vioxx, and the US healthcare legislation reform. Non GAAP results were evaluated as well, and we believe these results give a better understanding of the performance of the company as they exclude the non-recurring costs mentioned above. b.Liquidity Analysis (Appendix B) The following section analyzes the short term liquidity risk of Merck and Pfizer. The Current Ratios for both companies are healthy, above 1, which means that they both have substantial cash and near-cash assets available on their Balance Sheet to repay their obligations within the next year. The Quick Ratios for both companies is also healthy, above 0. 5, which means that both companies have liquid assets on hand to repay their short term obligations. The Operating Cash Flow ratio is similar for both companies, above 0. 4, which means that both companies generate enough cash flow from operations after funding working capital needs.According to the notes of the financial statement, Pfizer’s lower rate in 2010 was attributed to certain tax payments made in connection with the increased tax costs associated with the Wyeth acquisition and therefore, the decrease in net cash flow from operations. From analyzing the Revenue to Cash and Days Revenue Held in Cash ratios, it is noticeable that Pfizer has less cash on hand. Pfizer has less cash because they are more focused on M. Pfizer spent 3. 3. billion on acquisitions in 2011, while Merck spent just 3. 7 million. Merck has a healthy ratio for accounts receivable turnove r. Merck’s accounts payable turnover is almost double that of Pfizer.These findings show that Merck is paying their supplier twice as fast as Pfizer. Pfizer’s lower ratio might be due to the fact that its creditors allow more time to pay off its debt. The Accounts Receivable and Inventory Turnover ratios are also pretty high and pretty similar for both companies. This means that both firms are selling inventory and turning accounts receivable into cash relatively quickly. However, it looks like Merck is collecting money from customers faster and turns inventory over quicker than Pfizer. Overall, we believe that both firms have healthy short term liquidity. c. Solvency Analysis (Appendix C) The following section analyzes the long term solvency risk of Merck and Pfizer.The Liabilities to Asset Ratio reveals that both Merck and Pfizer finance their companies with approximately 50% debt and 50% equity. However, Merck’s ratio is a little lower, with around 45% debt a nd 55% equity financing. As can be noticed in the table, the Liabilities to Shareholders’ Equity, Long Term Debt to Long Term Capital, and Long Term Debt to Shareholders’ Equity ratios are healthy, which means that both companies will have no problems meeting long term obligations and are not heavily financed by debt. The Interest Coverage ratios for 2011 reveal that both companies are able pay interest on outstanding debt and can carry additional debt as well.Therefore, their credit risk is considered low. The Operating Cash Flow to Total Liabilities ratios are around 20% or higher, which means that both firms generate enough cash flow from operations to service debt. Both firms experienced a lower ratio in 2010 due to increased tax costs for the acquisition of Wyeth for Pfizer and due to increased costs associated with the Schering Plough merger and the Vioxx impairment charges for Merck. The liquidity and solvency analysis revel that both firms are not experiencing any financial distress. However, we consider Merck less risky that Pfizer because Merck relies less on debt and more on equity financing. Part 3: Valuation AnalysisAs outlined above, profitability, liquidity, and solvency all go a long way in providing analysts with viable information used to measure the performance of a firm. In addition to these measures, residual income, cost of equity, and valuation can also be used when analyzing companies such as Merck and Pfizer. a. Residual Income (Appendix D) We started our valuation analysis by calculating the residual income for both Merck and Pfizer. In order to achieve this, we used the companies’ 10K reports from 2009-2011 to project the forecast for 2012-2016, a five-year time frame. The method we used for this forecast was the same method used to project the residual income. Pfizer’s residual income for 2012 was $82,621million while Merck’s was $54,517million.Please note that all numbers in our calculations are i n millions. Our valuation was based on the assumption that both companies will grow by an average rate in the following years. We took into consideration three factors: the current growth rate, past growth rate and macroeconomic factors. Both Merck and Pfizer are in the maturity phase of their growth cycles and show steady growth figures. Residual income growth for Merck was negative for 2010, however we believe this was due to Merck’s merger with Schering-Plough Corporation. In 2007 and 2008, Merck showed a positive double-digit growth. In 2011, residual income growth was virtually flat, at 0. %, however we believe this is also due to the Plough acquisition. For Pfizer, residual income growth figures for the previous three years averaged approximately 3%. Based on these values for residual income, we choose to be conservative and assume a 1% long-run growth rate for residual income for years 2012 to 2016 for both Merck and Pfizer. We chose this modest growth number because b oth companies are still adjusting to recent large-scale M activity. On a macroeconomic level, both Merck and Pfizer’s growth may be stunted by an overall down economy, the health care policy restructuring in the United States and the expiration of long-standing patents. b. Cost of Equity (Appendix D)After determining the 5 year forecast for each company, we next calculated the cost of equity. The capital asset pricing model was used to calculate the cost of equity. We used the yield on a ten-year Treasury Bill as the risk free rate which was 1. 98% (US Department of Treasury, 2012). The betas we used to calculate these numbers were retrieved from a financial website index (yahoofinance. com, 2012). The beta for Pfizer was 0. 71 and for Merck it was 0. 8342. The return on market was set at 14. 50% for both companies (NYSE, 2012). Using the Camp Model, the cost of equity for Pfizer was determined to be 10. 869%, while for Merck it was 12. 424%. Therefore, stockholders of Merck require a larger return than stockholders of Pfizer.Given that Pfizer is the number one pharmaceutical company in the world, it is implied that investors require more return from Merck than from Pfizer. c. Valuation (Appendix D) Using the growth rate of 1%, we forecasted 2012’s residual income by multiplying the growth rate by 2011 residual income. We performed the same calculation for the next five years until 2016, and then discounted it to get the present value. From 2016 on, we assumed a perpetuity growth rate, which means we assumed this company would grow forever. Therefore, we needed to calculate the current value for the company as if it were to grow at a rate of 1%, forever. We first calculated next year’s residual income by multiplying 2016’s residual income by 1%, then dividing by 2.The reason we divided by 2 was to account for the fact that the firm might not grow at a rate of 1% forever. In fact, in some cases, there might be negative growth, as Mer ck experienced from 2009 to 2010. Therefore, to be conservative, we divided the residual income in half, and then we discounted the value by the discount factor to get the present value. After we calculated the present values, we added all the values together and divided by the current number of shares outstanding to obtain the value per share. For Pfizer, the value per share was $79. 39 and for Merck $114. 93. The value we calculated is three times the amount of what the stock is currently trading at.We believe this number is high, but not unreasonable. Around the year 2000, Pfizer was trading near $50 and Merck was trading near $100. We think the current low share value is due to the overall weak economy and we believe that the share price will grow in the future. Please note that all the values of the calculations are in millions except for value per share and current share value. d. Sensitivity Analysis (Appendix E) We performed a sensitivity analysis based on changing horizon g rowth factors and discount rates (cost of equity) to show the value per share. This gives investors the value per share for a different discount rate or growth factor. Part 4. RecommendationsAfter a thorough analysis of both Merck and Pfizer based on profitability, liquidity, and solvency evaluations, we found that both companies are preforming well financially. We found that both companies use assets and investments effectively to generate profit and their profitability growth seems to be steady. The analysis of short term and long term liquidity of both firms shows no risk in their ability to generate cash to meet working capital needs, and satisfy short term and long term debt. From the valuation analysis, we can predict that the future share values of both Pfizer and Merck seem to grow at a steady rate, assuming that both companies grow at a rate of 1% each year.From an investor’s point of view, we consider that the earning per share, the price/earnings ratio, and the lev erage are important factors to consider before making an investment. |Company |EPS |Price/Earnings Ratio |Leverage | |Pfizer |2. 14 |10. 47 |2. 25 | |Merck |3. 25 |11. 95 |1. 93 | After analyzing both companies, on the basis on earning per share, the price/earnings ratio, and the leverage, we have the following recommendations for potential investors. Comparing these values for both companies (table above), we found that Merck outperforms Pfizer marginally.We believe that investment in both companies is safe, however, investment in Merck will bring a higher earnings return than a similar investment in Pfizer in the future. In addition, the financial leverage shows that the financial risk investment in Merck is lower than Pfizer’s, which makes it an even better choice for investment. However, the investor should keep in mind that the pharmaceutical industry involves high risk due expiring patents and threats from generic drugs and their profitability can be highly impacted by these events. According to a recent article on Dailyfinance. com, we found that the patents for major drugs like Pfizer’s Lipitor and Protonix, and Merck’s Singulair, which make up a large portion of the companies’ revenues, are about to expire(2011).These patent expirations cause uncertainty in the future growth of the companies and might have a substantial impact on their stock prices. Appendix A |ROA |Pfizer |Merck & Co | | |2009 |2010 |2011 |2009 |2010 |2011 | |Asset Turnover |0. 46 |0. 32 |0. 35 |0. 34 |0. 42 |0. 45 | |Profit margin |19. 50% |14. 60% |16. 50% |48. 90% |3. 06% |14. 70% | |ROA |9. 03% |4. 80% |5. 38% |16. 80% |1. 29% |6. 70% | ROCE |Pfizer |Merck & Co | | |2009 |2010 |2011 |2009 |2010 |2011 | | |10. 28% |9. 21% |11. 53% |33. 47% |1. 73% |11. 74% | |EPS |Pfizer |Merck & Co | | |2009 |2010 |2011 |2009 |2010 |2011 | |GAAP |$1. 24 |$1. 09 |$1. 10 |$5. 65 |$0. 36 |$2. 01 | |Non GAAP | | | |3. 77 |3. 42 |3. 25 | Appendix B Pfizer | |Merck | | |20 11 |2010 | |2011 |2010 | |Current Ratio |2. 0566461 |2. 1306398 | |2. 0425362 |1. 8581932 | |Quick Ratio |1. 438099 |1. 4454533 | |1. 4301631 |1. 2496004 | |Opr. CF to Current Liab. |0. 7210802 |0. 399986 | |0. 7622653 |0. 6918995 | |Revenue to Cash |19. 051992 |38. 649568 | |3. 5508832 |4. 2189908 | |Days Revenues Held in Cash |19. 158102 |9. 438314 | |102. 79133 |86. 51358 | |Accounts Payable Turnover |1. 67 |2. 11 | |3. 77 |3. 89 | |Days Accounts Payable |218 |173 | |97 |94 | |Outstanding | | | | | | |Accounts Receivable Turnover|5 |4. 79 | |6. 16 |6. 59 | |Days Receivable Outstanding |73 |76 | |59 |55 | |Inventory Turnover |1. 88 |1. 53 | |2. 78 |2. 4 | |Days Inventory Held |194 |238 | |131 |138 | Appendix C | Pfizer | |Merck | | |2011 |2010 | |2011 |2010 | |Liabilities to Asset Ratio |0. 560 |0. 540 | |0. 458 |0. 463 | |Liabilities to Shareholders'|0. 583 |0. 555 | |0. 300 |0. 290 | |Equity Ratio | | | | | | |Long Term Debt to Long-Term |0. 297 |0. 303 | |0. 220 |0. 220 | |Capi tal Ratios | | | | | | |Long Term Debt to |0. 422 |0. 435 | |0. 284 |0. 84 | |Shareholders' Equity Ratio | | | | | | |Interest Coverage Ratio |8. 600 |6. 180 | |10. 900 |3. 480 | |Operating Cash Flow to Total|0. 190 |0. 099 | |0. 300 |0. 120 | |Liabilities Ratio | | | | | | Appendix D | | |10 year |Merck's Beta|Merck's Rm | | | | | |Treasury Bill | | | | | | | |1. 98% |0. 8342 |14. 50% | | | | |CAPM |12. 2% | | | | | |Merck |2012 |2011 |2010 | | | | |Beginning SE |54,517 |54,376 |59,058 | | | | |Comprehensive Loss |3,132 |3,216 |2,767 | | | | |Income Available to Com. |57,649 |57,592 |61,825 | | | | |Shareholders | | | | | | | |Required Income |-222 |-222 |-221 | | | | |Residual Income |57,427 |57,370 |61,604 | | | | |Changed in Residual Income | |0. 10% |-6. 7% | | | | | | | | | | | | | |2012 |2013 |2014 |2015 |2016 |CV | |Projected Residual Income |57,427 |58,001 |58,581 |59,167 |59,759 |30,178 | |Discount Factor |1. 12424 |1. 2639156 |1. 420944 |1. 5974826 |1. 795954 |0. 2051731 | |Present Value |51,081 |45,890 |41,227 |37,038 |33,274 |147,086 | | | | | | | | | |Total Value |355,596 | | | | | | |# of Share Outstanding 3,094 | | | | | | |Value per Share |114. 93 | | | | | | |Current Share Value (5/4/12) |38. 84 | | | | | | | | |10 year Treasury|Pfizer's |Pfizer's Rm | | | | | |Bill |Beta | | | | | | |1. 98% |0. 71 |14. 50% | | | | |CAPM: |10. 7% | | | | | |Pfizer |2012 |2011 |2010 | | | | |Beginning SE |$82,621 |$87,813 |90,014 | | | | |Comprehensive Loss |-4,129 |-3,440 |552 | | | | |Preferred Dividends |45 |52 |62 | | | | |Income Available to Com. |$86,705 |$91,201 |89,400 | | | | |Shareholders | | | | | | | |Required Income |3,142 |4,520 |4,510 | | | | |Residual Income |$89,847 |$86,681 |84,890 | | | | |Changed in Residual Income | |3. 65% |2. 1% | | | | | | | | | | | | | |2012 |2013 |2014 |2015 | |CV | | | | | | |2016 | | |Projected Residual Income |89,847 |90,745 |91,653 |92,569 |93,495 |47,215 | |Discount Factor |1. 10869 |1. 22919352 |1. 3627 |1. 5109 |1. 6751 |0. 1653 | |Present Value |81,039 |73,825 |67,254 |61,267 |55,813

Marriage at an Early Age Essay

Marriage is regarded as a moment of celebration and a milestone in adult life. The age at first marriage varies across the globe. Being married before the age of 18 has been a social norm in third world countries [refer to Appendix A]. The percentage of women being married before age 18 is estimated to be 20 to 50 percent in average in developing countries (Joyce, et al. , 2001). On the other hand, western countries are unlikely to experience the similar pattern of marriage. The marital union is normally delayed too long although this is the most apparent reason for the breakdown in sexual ethics (Orsi, 2001). Because of its wealth, western society chooses to marry later in life until they have built an adequate maturity in age, education and financial state. Nowadays, many international organizations have made an effort to reduce the number of early marriage worldwide (Yudkin and Robert, 1996). Many believe that the practice of early marriage can hinder self-development of young girls. However, in western countries, there are several efforts to promote young marriages (Orsi, 2001). They believe that early marriage should be looked as a platform to cultivate maturity together but not as an institution just for the grown-up individuals. As we are concern, early marriage is widely practice in developing countries hence a global issue has arisen as to whether early marriage does really hinder self development due to the consequences it brings to young girls. The practice is believed to bring several benefits to some extent. However, the adverse effects it brings can impede the self-development of young adolescences in many aspects including health consequences, character building and education as well as career opportunities. 2. 0Statistical Studies of Early Marriage This aspect highlights the prevalence of early marriage across the globe and the very reasons of early marriage especially in developing countries. This aspect is important to illustrate the situation regarding early marriage worldwide. 2. 1Prevalence of Young Marriage The practice of young marriage is most common in developing countries (United Nation Children’s Fund (UNICEF), 2001). According to Joyce (2001), an analysis of Demographic and Healthy Survey data shows that Latin America, Sub-Saharan Africa and Southeast Asian countries are having the most cases of early marriage. Of these countries that have high cases of young marriage, Niger is the leading country with 88 percent of the women married before age 18. Adapted From: Joyce, L. F. , et al. (2001). Future Options Foreclosed: Girls Who Marry Early. Reproductive Health and Rights. 139-143. Retrieved January 25, 2006, from the World Wide Web: http://www. path. org/files/RHR-Article-14. pdf. 2. 2Major Factors That Lead to Early Marriage The huge number of young marriage in developing countries is due to several reasons. Poverty is one of the major factors underpinning early marriage (Joyce, 2001). A young girl may be regarded as an economic burden for a family thus early marriage is looked as a strategy for economic survival. A current study of five very poor villages in Egypt shows that young girls are being married off to much older men from oil-rich Middle Eastern countries for family survival (UNICEF, 2001). Besides, early marriage is one way to ensure that a girl is protected from physical disturbance (UNICEF, 2001). Parents believe that their daughters are safer when they marry early as there is always a man to guard them. For instance, some families in Northern Uganda encourage the young girls to marry to militia members in order to secure protection (UNICEF, 2001). For third world countries, marriage shortly after puberty is common among those living traditional lifestyles (Joyce, 2001). The girls as early as 14 years old have to carry responsibilities as a wife. As it has become a social custom, the tradition is carried on from one generation to the next. 3. 0Opponents’ Views Against Early Marriage This aspect discusses some of the opponents’ views against early marriage. It mostly talks about the disadvantages of early marriage to the girls including the lack of education, health problems and psychosocial disadvantages. The arguments given agree that early marriage does hamper self-development. 3. 1 The Denial of Education The opponents believed that early marriage denies the right of young adolescents to the education they necessitate for self-development. In traditional societies, the investment in a girl’s education is thought to be wasted as the girl is going to marry and stay at home doing household chores (UNICEF, 2001). For instance, in Northern Nigeria, early marriage is the very reason girls are often withdrawing from school (UNICEF, 2001). Because of the early end of female education, they have limited opportunities to develop skills and acquire knowledge ‘that serve them well throughout their lives’ hence restricts their economic and career opportunities (Joyce, 2001). This is because withdrawal from school that results in illiterate and unskilled women will lead to no recognition in professional field. 3. 2 Health and Reproduction Problem The opponents also argued that early childbearing which always occurs in early marriage endanger the lives of both the mother and her baby (Joyce, 2001). The early pregnancy increases the risk of complications and dying during delivery. A report shows that the risk of death due to pregnancy-related cases is doubled among women aged 15 to 19 compared to adult women (Adhikari, 2006). They further stressed that these girls are also more susceptible to sexually-transmitted diseases (UNICEF, 2001). Hormonal fluctuations and permeability of vaginal tissues experienced by these girls can lead to infertility. Moreover, according to a study in Rwanda, 25 percent of women who were pregnant before 18 were infected with HIV although they only had sex with their husbands (UNICEF, 2001). 3. 3Psychosocial Disadvantages When early marriage takes place, the girls will confront with great emotional damage. Sociologists suggested that this is due to their confinement at home to do household chores hence their mobility is denied (UNICEF, 2001). Most of the girls are depressed with this situation that eventually affects their emotional well being. An Indian research conducted in Rajasthan and Madhya Pradesh found that the spouses of early marriage usually suffered from great psychosocial damage (UNICEF, 2001). Another concern raised by the opponents is that the young girl loses her social life outside family cycle and this has affected her chance of cultivating her own identity (UNICEF, 2001). The most important implication of this is that her self-esteem is silently hindered from being developed and this will make her vulnerable to sexual and physical violence. In Eastern Africa for instance, a young wife has no right to refuse sex to her husband even though her partner is suspected with HIV (UNICEF, 2001). 4. 0 Proponents’ Views on Early Marriage This part will enlighten several views that support early marriage in our society. This includes health benefits, social stability and character advantages. In this argument, early marriage is looked upon as a better practice than delayed marriage. 4. 1 Health Benefits The proponents believed that body functions are more effective and healthy at early stage in life. For women, the body is particularly geared towards reproduction during early adulthood (Orsi, 2001). Early marriage is beneficial because desire and energy from young couples also produce healthy offsprings. They also highlighted that later marriage has led to problematic births and birth defects. This can happen as the body is unlikely to negotiate any burden like pregnancy at a late age. Not surprisingly, later marriage which is always associated with cohabitation and premarital sex increase the risk of sexually-transmitted diseases (Orsi, 2001). The hazardous infections like HIV will spread widely if the practice of premarital sex has became a lifestyle. 4. 2 Early Marriage as a Solution to Cohabitation Another issue raised by the proponents is that the trend towards later marriage has led to a great social deterioration in the society in term of cohabitation. In the United States of America, cohabitation is more prevalent than other countries as the people choose to marry later in life (Henslin, 2005). A study found that cohabitation before marriage is the very reason for breaking up after they were married (Henslin, 2005). Besides that, the increasing case of cohabitation in the United States of America is clearly illustrated by the graph on the next page. Adapted From: Henslin, J. M. (2005). Cohabitation. Sociology- A Down to Earth Approach (2nd Ed. ). 468. Boston: Pearson, Allyn & Bacon. They further argued that married couples including young spouses gain more benefits in terms of physical health, general happiness and longevity than cohabitants. This is proven from a study which was cited as strong evidence that cohabiting couples experienced the rate of depression three times more than married couple (Popenoe and Dafoe, 2006). . 3 Self-development Improvement It is also believed that early marriage helps in cultivating maturity. Early marriage is looked upon as a platform for young people to grow in maturity together. Moreover, they share experiences at an early age before egoism is deposited in their heart. This is important to ensure a successful marriage is established (Orsi, 2001). They further emphasized that early marriage is a natural institution to grow emotionally by everyday give and take at an early age. This foundation is hard to build later in life. Also, through The London Telegraph, Emma Besbrode has reported that individuals that are unmarried by early age are more vulnerable to depression and loneliness (Orsi, 2001). This unbalance in emotional development will lead to a stressful life. 5. 0 How Does Early Marriage Hamper Self-development? In this area, both arguments from proponents and opponents are being evaluated in terms of health, character building and education. This is important to determine whether the practice of early marriage does impede self-development. 5. 1 Health Aspect Health is a very important aspect in self-development of an individual. Early marriage greatly affect the health of young adolescents especially girls. Although women who marry later in life are also vulnerable to problematic birth, (Orsi, 2001) the girls who are particularly still growing up have to struggle with the risks associated with early pregnancies (UNICEF, 2001). This is because the physical features of the girls are not fully developed and therefore both the girls and their babies have to compete to obtain the necessary nutrients for themselves. This means that early marriage endangers both mother and her baby. Besides those, sexual intercourse that takes place at a very young age can enhance the risk of sexually-transmitted diseases (STD) (UNICEF, 2001). It is also true that STD can also infect unmarried people as well especially among cohabitants, but a recent study conducted in Rwanda shows that the younger the age at sexual intercourse, the higher the risk of STD (UNICEF, 2001). This proves that early marriage set off a poor cycle of health. 5. 2 Character Building Aspect Each and every individual has his/her own character. The practice of early marriage limits character development as a girl who marries early experiences less socialization outside her family cycle (UNICEF, 2001). This reduces her opportunities for building her own identity which is vital for her successful self-development. On the other hand, some individuals believe that early marriage is a stage for maturity to be acquired and it is not just for matured individuals (Orsi, 2001). However, it is not the case as these girls are affected by great emotional disturbance and depression. Inter-American researchers have discovered that these emotional consequences are ‘unavoidable part of life’ for those who choose to marry early (UNICEF, 2001). Therefore, it is clearly shown that early marriage does hinder personal development. 5. 3 Education and Intellect The importance of well-developed education is vital for an individual to survive. Since early marriage is the major reason for young adolescents to quit from school (Adhikari, 2006), it can restrict career prospects of a girl by limiting her chances to acquire important skills and knowledge. Without those qualities, the girl’s future seems to foreclose to any opportunities for economic survival. In fact, unemployment rates are higher for those who have limited education (Baker and Dryden, 1993). This is clearly illustrated from the table below. Unemployment Rate by Educational Attainment for 15 to 24 year-olds, Canada, 1991 Educational AttainmentUnemployment Rate 0 to 8 years29. 5 Some secondary education20. 7 High school graduation15. 7 Some post-secondary12. 6 Post-secondary certificate11. 7 University degree 8. 1 Total16. 2 Source: Baker, M. and Dryden, J. (1993). Patterns in Employment and Unemployment or Young People. Families in Canadian Society (2nd Ed. ). 93-94. Canada: McGraw-Hill Ryerson Limited. For those reasons, early marriage is proven to bring more harm than benefits. This practice consequently hampers one’s personal development. 6. 0 Conclusion The practice of early marriage in our society today does hinder personal development of individuals in terms of health, character building and intellectual qualities. First, a girl is more vulnerable to diseases and complications when sex intercourse takes place between the spouses occur at an early age. Early pregnancies followed by childbearing can also bring harm to the girl by increasing the risks of dying and problems during delivery. Apart from this, character building which is important to determine one’s unique identity will be affected as well when a girl enters marriage at a young age. The loss of mobility and social life due to the early marriage will result in lack of self esteem and great emotional damage. In addition, limited education is obvious among those who marry early. In the long run, this lack of schooling will restrict economic and career prospect in the future because withdrawal from school means no qualifications and recognition. This will foreclose the future options of one’s self. Therefore, the practice of early marriage is proven to hinder personal development and should be reduced among young adolescents especially in developing countries with high incidence of young marriage. Effective steps should be executed by international organization to reduce the number of this practice worldwide. For instance, each country should rise up the legal age for marriage. Besides that, education should be promoted among young couples so that they acquire adequate level of education for their future. Although it is difficult to reduce the number, by helping the young spouses with their life, it more or less, reduces the burden they carry.

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Comparing The Dsdm And Rup Devices Information Technology Essay

Comparing The Dsdm And Rup Devices Information Technology Essay This report comprises the comparison between two modern systems development methodologies; Dynamic System Development Method (DSDM) and Rational Unified Process (RUP). In the beginning of this report, strengths and weaknesses have been provided for both methodologies plus the challenges related to the implementation. It also encompasses the evaluation framework based on the comparison and justification of method for Complete Solutions. This report also contains characteristics of DSDM and RUP methodologies that are widely used in Agile Software Development and the challenges associated with implementing agile processes in the software industry. This anecdotal evidence has been increased regarding the effectiveness of agile methodologies in certain environments but there have not been much collection and analysis of empirical evidence for agile projects. According to this report after performing comparison, it has been found that DSDM agile methodologies can provide good benefits for small scaled and medium scaled project development whereas RUP seems dominant for software and systems delivery with implementation. Modern societies have been using computer software for more than five decades. Software development used to be a problematic activity for the software developers. Development used to be carried out without any plan and the design of the system was determined from many short term decisions. Small systems used to get away from problems but as systems grew bigger, it became more difficult to add new features in undergoing development and problems were harder to fix. Same procedures for system development were carried out for many years until an alternative was introduced: Methodology. Methodologies impose a disciplined process upon software development with the aim of making software development more predictable and more efficient (Avison Fitzgerald, 2006). DSDM and RUP contain agile concepts such as iterative and incremental development, time boxing, prioritization and active user involvement. According to Avison Fitzgerald (2006), DSDM is a part of Rapid Development Methodology (RAD) whereas RUP is part of Obeject Oriented Methodology. DSDM and RUP have been successful by using them in iterative development life cycles. Both methodologies have become the most important challenger in the field of agile development. This report has revealed the comparison between both processes from a DSDM point of view. It has examined the strengths and weaknesses of the processes (DSDM RUP) plus the differences and the similarities. Both processes can be combined in a system development approach which could result in better product. DSDM and RUP Comparison RUP Definition: Jacobsen et al (1994) define RUP is an iterative approach for object oriented systems, and it strongly embraces use cases for modelling requirements and building the foundation for a system. In 2002 RUP was acquired by IBM. According to IBM (2011) RUP is a comprehensive process framework that provides industry-tested practices for software and systems delivery and implementation and for effective project mangement. DSDM Definition: According to DSDM Atern (2011), DSDM is the processes by which solutions are developed must be agile and deliver what the business needs when it needs it. DSDM offer agility and flexibility by using useful processes in project development with the combination of solution developers knowledge and with the usage of advanced supportive tools and techniques. System delivery can be achieved by presenting many prototypes and final product can be delivered on different timescales. Dynamic System Development Method and Rational Unified Process are the part of Agile Methodology for the project development. They both follow the common rules and procedures by utilizing iterative and incremental development. This common usability and functionality of DSDM and RUP can be seen through their similarities in system development. Similarities: DSDM and RUP Principles The success of DSDM Atern is based on its 8 principles for the system development which are also carried by RUP in development. Lifecycle As DSDM and RUP processes are part of Agile Methodology hence both use iterative and incremental lifecycle for software development. Process Model RUPs framework which defines the complete solution model for any small level project can be adopted by DSDM framework which consists of set of rules for developing a system. 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