COMPARATIVE ANALYSIS CASE The Bristol-Myers Squibb Company (hereafter BMS) and Merck & Co. The Balance Sheets and Statements of Cash Flows of BMS and Merck are attached. The companies' complete annual reports, including the notes to the financial statements, are available online. Instructions Use the companies' financial information to answer the following questions. (Write your answer with question) a) What method of computing net cash provided by operating activities does BMS use? What method does Merck use? Explain. What were the amounts of cash provided by operating activities reported by BMS and Merck in 2020? b) What was the most significant item reported by BMS and Merck in 2020 in their investing activities sections? What is the most significant item reported by BMS and Merck in 2020 in their financing activities sections? c) What were these two companies' trends in net cash provided by operating activities over the period of 2018-2020? You may use the percentage change in support of your answer. d) Where is "depreciation and amortization" reported by BMS and Merck in their statements of cash flows? What is the amount and why does it appear in that section of the statement of cash flows? e) Based on the information contained in BMS and Merck's financial statements, compute the following 2020 ratios for each company. These ratios require the use of statement of cash flow data. (These ratios are available in Chapter 5 of the textbook.) Write the formula first and then show the computation (Detailed and elaborate computations are needed) a. Current cash debt coverage. b. Cash debt coverage. C. Free cash flow f) What conclusions concerning the management of cash can be drawn from the ratios computedin e)? PART 2: Also answer the following general questions not related to above case: ASC 230: Statement of Cash Flows 1. How is the information provided in the statement of cash flows different from the information reported in the income statement? 2. Why do you think most companies use indirect method of preparing statement of cash flows? 3. How do each of the three sections of the statement of cash flows relate to the Balance Sheet? 4. Net income is determined on accrual basis. However, net income is the first item on the statement of cash flows. Explain this obvious contradiction. Consolidated Balance Sheet Merck & Co., Inc. and Subsidiaries December 31 (3 in millions except per share amounts) Assets Current Assets MERCK Cash and cash equivalents Short-term investments Accounts receivable (net of allowance for doubtful accounts of 585 in 2020 and $86 in 2019) Inventories (excludes inventories of $2,197 in 2020 and $1,480 in 2019 classified in Other assets see Note 7) Other current assets Total current assets Investments Property, Plant and Equipment (at cost) Land Buildings Machinery, equipment and office furnishings Construction in progress Less: accumulated depreciation Goodwill Other Intangibles, Net Other Assets Liabilities and Equity Current Liabilities, Loans payable and cumint portion of long-term debt Trade accounts payable Accrued and other curent liabilities Income taxes payable Dividends payable Total current fabilities Long-Term Debt Deferred Income Taxes Other Noncurent Liabilities Merck & Co., Inc. Stockholders' Equity Common stock, $0.50 par value Authorized 6,500,000,000 shares Issued-3,577,103.522 shares in 2020 and 2019 Other paid-in capital Retained carings Accumulated other comprehensive loss Less treasury stock, at cost 1,046,877,695 shares in 2020 and 1,038,087,496 shares in 2019 Total Merck & Co., Inc stockholders' equity Noncontrolling leterests Total equity The accompanying notes are an integral part of this consolidated financial statement 2 2020 2019 8,062 S 9.676 774 7,851 6,778 6,310 5,978 5,541 4277 27,764 27,483 785 1,469 350 343 12.645 11.989 16,649 15,394 7324 5,013 36,968 32.739 18,982 17,686 17,986 15.053 20,238 19,425 14,604 14,196 10,211 6778 $ 91.588 $84.397 6,431 5 3,610 4,594 3,738 13,053 12.549 1,575 736 1.674 1.587 27.327 22.220 25.360 22,736 1,015 1,476 12,492 11,970 1,788 1.788 39.588 39.660 47362 46,602 (6634) (6.193) 82.104 SLX57 56,787 55,950 25317 25.907 87 94 25.404 26,001 91.5885 34397 Charge for the acquisition of Veloso Inc Charge for the acquisition of Peloton Therpeutics, Inc Charge for future payments related to collaboration license options Defened income taxes Share-based compensation Odel Net changes in ansets and liabilities Accounts receivable Consolidated Statement of Cash Flows Merck & Co., Inc. and Subsidiaries Years Ended December 31 (S in millions) Cash Flows from Operating Activities Net income Adjustments to reconcile net income to net cash provided by operating activitie Amortization Depreciation Intangible asset impairment charges MERCK 2020 2019 2018 7,082 $ 9,777 $ 6,193 1,899 1973 3,103 1,726 1,679 1,416 1,718 1,040 296 2.660 993 650 (668) (556) (509) 475 417 348 (49) 184 978 (1.002) 294 (418) Inventones Trade accounts payable Accrued and other current liabilities Income taxes payable Noncurrent liabilities Other Net Cash Provided by Operating Activities Cash Flows from Investing Activities Capital expendies Purchase of Seagen Inc common stock Purchases of securities and other investments (855) (508) (911) 724 399 230 (1,138) 376 (341) 560 (2.350) 827 (453) (237) (266) (2.426) (32) (674) 10,253 13,440 10,922 (4,684) 0,473) (2,615) (1.000) Acquisition of VelosBio Inc, net of cash acquired Proceeds from sales of securities and other vestments t Acquisition of ArQule, het of cash acquired Acquisition of Antellig Corporation, bet of cash acquired (95) (3,302) (7994) 2.912 5622 15252 (2,696) (2.545) Acquisition of Peleton Therapeutics, Inc., net of cash acquired (20) Other acquisitions, nt of cash acquired Other Nel Cash (Used in) Provided by Investing Activities (1.040) (1.365) (294) (431) 130 37 102 (9.443) Cash Flows from Financing Activities Net change in short-ten borrowings Payments on deb Proceeds from issuance of debt Purchases of treasury stock Dividends paid to stockholders Proceeds from exercise of stock options Other (2629) 4314 2,549 0710) 5,124 (1.957) (4287) 4.419 4958 (1.281) (4,780) (9,091) (6,215) (405) (5.372) 39 361 391 Net Cash Used in Financing Activities (436) Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash (1332) (8.863) 025) 13.160) 253 Net (Decrease) Increase in Cash, Cash Equivalents and Restricted Cash 19 (205) Cash, Cash Equivalens and Restricted Cash at Beginning of Year (includes 3258 of restricted cash at January 1, 2020 included in Other Assets see Note 6) (3.769) 1.967 13071 Assets see Note 6) Cash, Cash Equivalents and Restricted Cash at End of Year (includes $103 of restricted cash at December 31, 2020 included in Other 3,334 7967 6,096 S RIGS S 9934 5 7967 The accompanying notes are an egral part of this consolidated financial statement CONSOLIDATED BALANCE SHEETS Dollars in Millions, Except Share and Per Share Duta ASSETS Current Assets: Cash and cash equivalents Marketable debt securities Receivables Inventories Other current assets Total Current Assets Property, plant and equipment Goodwill Other intangible assets Deferred income taxes Marketable debt securities Other non-current assets Total Assets LIABILITIES Current Liabilities: Short-term debt obligations Accounts payable Other current liabilities Total Current Liabilities Deferred income taxes Long-term debt Other non-current liabilities Total Liabilities Commitments and contingencies EQUITY BMS Bristol-Myers Squibb Company Shareholders' Equity Preferred stock, $2 convertible series, par value $1 per share: Authorized 10 million shares; issued and outstanding 3,484 in 2020 and 3,568 in 2019, liquidation value of $50 per share Common stock, par value of $0.10 per share: Authorized 4.5 billion shares; 2.9 billion issued in 2020 and 2019 2020 2000 Annual Report December 31, 2019 S 14,546 S 12,346 1,285 3,047 8,501 7,685 2,074 4,293 3,786 1,983 30,192 29,354 5,886 6,252 20,547 22,488 53,243 63.969 1,161 510 433 767 7,019 6,604 S 118,481 S 129,944 S 2,340 S 3,346 2,713 2,445 14,027 12.513 19,080 18,304 5,407 6,454 48,336 43,387 7.776 10,101 80,599 78,246 292 292 Capital in excess of par value of stock 44,325 43.709 Retained earnings Accumulated other comprehensive loss Less cost of treasury stock-679 million common shares in 2020 and 672 million common shares in 2019 (1,839) (1.520) 21,281 34,474 (26,237) (25,357) Total Bristol-Myers Squibb Company Shareholders' Equity 37,822 51,598 Noncontrolling interest 60 100 Total Equity 37882 51,698 Total Liabilities and Equity S 118,481 $ 129,944 The accompanying notes are an integral part of these consolidated financial statements Bristol Myers Squibb CONSOLIDATED STATEMENTS OF CASH FLOWS Dollars in Milliom Cash Flows From Operating Activities: Net (loss)/earnings BMS Adjustments to reconcile net (loss)/earnings to net cash provided by operating activities: Year Ended December 31, 2029 2019 2018 S (8,995) S 3,460 S 4,947 Depreciation and amortization, net 10,380 1,746 637 Deferred income taxes Stock-based compensation Impairment charges 983 (924) 45 779 441 221 1,203 199 126 Pension settlements and amortization 43 1,688 186 Divestiture gains and royalties (699) (1,855) (992) IPRD charge-Myokardia acquisition 11,438 Asset acquisition charges 1,099 63 1,211 Equity investment (gains)/losses (1.228) (275) 513 Contingent consideration fair value adjustments (1.757) 523 Other adjustments (177) (26) (45) Changes in operating assets and liabilities: Receivables (646) 752 (429) Inventories Accounts payable Income taxes payable Other Net Cash Provided by Operating Activities Cash Flows From Jovesting Activities: 2,672 463 (216) 188 229 (59) (2.305) 907 203 1,074 819 718 14,052 8.210 7,066 Sale and maturities of marketable debt securities Purchase of marketable debt securities 6.280 3,809 2.379 (4,172) (3,961) (2.305) Capital expenditures (753) (836) Divestiture and other proceeds (951) 870 15,852 1,249 Acquisition and other payments, net of cash acquired (13,084) Net Cash Used in Investing Activities (10,859) (24,777) (9.913) (2.372) Cash Flows From Financing Activities: (2.000) Short-term debt obligations, net Issuance of long-term debt Repayment of long-term debt Repurchase of common stock Dividends Other (267) L 131 (543) 6,945 26,778 (2,750) (9.256) (5) (1.546) (7.300) (320) (4,075) (2,679) (2,613) 542 (53) Net Cash (Used in)/Provided by Financing Activities (1.151) 7,621 Effect of Exchange Rates on Cash, Cash Equivalents and Restricted Cash Increase in Cash, Cash Equivalents and Restricted Cash (54) (3,535) 111 (9) (41) 2,153 5,909 Cash, Cash Equivalents and Restricted Cash at Beginning of Year Cash, Cash Equivalents and Restricted Cash at End of Year 1,490 12,820 6911 5,421 S 14,973 S 12,820 $ The accompanying notes are an integral part of these consolidated financial statements 6,911