E2-42.Compare Income Statements and Balance Sheets of Competitors Following are selected income statement and balance sheet data from two pharmaceutical companies, Pfizer and Dr. Reddy' s, for their respective 2018 fiscal years.

Income Statement ($ millions) Pfizer Dr. Reddy's Sales . .. .. ... ..... .. . .. .. .. ..... $53,647 $2,181 Cost of goods sold ................ 11,248 1,009 Gross profit .......... . .. .. ..... .. 42,399 1,172 Total expenses ................... 31,211 1,021 Net income ...... . .. .. .. ......... $11,188 $ 151 Balance Sheet($ millions) Pfizer Dr. Reddy's Current assets ................... $ 49,926 $1,684 Long-term assets ................. 109,496 1,781 Total assets ..................... $159,422 3,465 Current liabilities .................. $ 31 ,858 $1,070 Long-term liabilities ... ... . . . .. . .. .. 63,806 453 Total liabilities ...................• 95,664 1,523 Stockholders' equity ............... 63,758 1,942 Total liabilities and equity .. .. .. ..... $159,422 $3,465

a. Express each income statement amount as a percentage of sales. Comment on any differences observed between the two companies, especially as they relate to their respective business models. (Hint:

Pfizer's gross profit as a percentage of sales is considerably higher than Dr. Reddy's. What aspect of Pfizer's business do we believe is driving its profitability?)

b. Express each balance sheet amount as a percentage of total assets. Comment on any differences observed between the two companies. Pfizer has chosen to structure itself with a lower proportion of equity (and a higher proportion of debt) than Dr. Reddy's. How does this capital structure decision affect our evaluation of the relative riskiness of these two companies?