The following financial statements from Eli Lilly and Company and Pfizer INC.

were downloaded from the SEC’s EDGAR database:

194 CHAPTER 5 Critical Thinking Consolidated Statements of Cash Flows ELI LILLY AND COMPANY AND SUBSIDIARIES

(Dollars in millions)

Year Ended December 31 1997 1996 1995

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Cash Flows From Operating Activities Net income (loss)........................... $(385.1) $1,523.5 $2,290.9 Adjustments To Reconcile Net Income (Loss) to Cash Flows From Operating Activities Depreciation and amortization............. 509.8 543.5 553.7 Change in deferred taxes.................. (293.0) 207.3 144.0 Gain on sale of DowElanco, net of tax..... (303.5) -- --

Asset impairment, net of tax.............. 2,429.6 -- --

Net gain on disposition of discontinued operations............................ -- -- (921.5)

Other noncash income--net................. (37.8) (97.8) (9.8)

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1,920.0 2,176.5 2,057.3 Required

a. Contrast Lilly’s CFOA with Pfizer’s CFOA.

b. Draw a simple graph showing these trends in CFOA. Evaluate these trends.
Which company exhibits more variability in its CFOA trends? Discuss these trends.

c. How are these two company’s cash flow management strategies different?
Similar?

d. What other data would be helpful in evaluating cash flows for these two companies?

e. Calculate the following ratios for each year:
1. Quality of income 2. Cash interest coverage

f. Evaluate each company’s performance,using only the information in the cash flow statement.In what areas do the cash flow ratios indicate positive or negative performances?
g. What additional information would be useful in evaluating each company’s performance?