Chapter 3 Activity - Financial Analysis Investment analysts investigate a company's sales, net profit, debt, and assets to decide whether investing in it is a wise choice. One way to analyze this data is to graph it and look for trends over time. Another way is to find algebraically the rate at which the data changes over time. The following table gives the net incomes in millions of dollars for some of the leading U.S. businesses in the pharmaceutical industry for the years 2004 and 2005. In this activity, you will analyze the performances of these companies and, based on this information alone, make an investment recommendation. Pharmaceutical Industry Net Income (In Millions of Dollars) Company 2004 2005 Pfizer $114 $81 Johnson & Johnson $85 $104 Schering-Plough $27 - $95 Source: The 2006 annual report for each of the companies listed. Edited for simplification. 1. Scan the table. Did any of the companies have a loss during the years shown? If so, which company and when? What does this mean? 4. Find the slope of the line for each company. 5. a) Which of the lines, if any, have positive slopes? What does that mean in this context? b) Which of the lines have negative slopes? What does that mean in this context? 6. Of these pharmaceutical companies, which one(s) would you recommend as an investment choice? Why? 7. Do you think it is wise to make a decision after looking at only two years of net profits? What other factors do you think should be taken into consideration when making an investment choice? 2. Write the data for each company as two ordered pairs of the form (year, net income). (year, net income) (year, net income) Company Pfizer Johnson & Johnson Schering-Plough 3. Assuming that the trends in net income are linear, use graph paper to graph the line represented by the ordered pairs for each company. Describe the trends shown by each graph. Chapter 3 Activity - Financial Analysis Investment analysts investigate a company's sales, net profit, debt, and assets to decide whether investing in it is a wise choice. One way to analyze this data is to graph it and look for trends over time. Another way is to find algebraically the rate at which the data changes over time. The following table gives the net incomes in millions of dollars for some of the leading U.S. businesses in the pharmaceutical industry for the years 2004 and 2005. In this activity, you will analyze the performances of these companies and, based on this information alone, make an investment recommendation. Pharmaceutical Industry Net Income (In Millions of Dollars) Company 2004 2005 Pfizer $114 $81 Johnson & Johnson $85 $104 Schering-Plough $27 - $95 Source: The 2006 annual report for each of the companies listed. Edited for simplification. 1. Scan the table. Did any of the companies have a loss during the years shown? If so, which company and when? What does this mean? 4. Find the slope of the line for each company. 5. a) Which of the lines, if any, have positive slopes? What does that mean in this context? b) Which of the lines have negative slopes? What does that mean in this context? 6. Of these pharmaceutical companies, which one(s) would you recommend as an investment choice? Why? 7. Do you think it is wise to make a decision after looking at only two years of net profits? What other factors do you think should be taken into consideration when making an investment choice? 2. Write the data for each company as two ordered pairs of the form (year, net income). (year, net income) (year, net income) Company Pfizer Johnson & Johnson Schering-Plough 3. Assuming that the trends in net income are linear, use graph paper to graph the line represented by the ordered pairs for each company. Describe the trends shown by each graph