Answer1.

Amgen is a worlds largest biopharmaceutical company that manufactures products that are in or
extracted from biological sources. It was founded in Thousand Oaks California in 1980.
Presently around 20,000 employees are working under it. They discover, develop, manufacture,
and deliver human therapeutics in the areas of oncology, hematology, inflammation, bone health,
nephrology, cardiovascular, and general medicine worldwide. They are considered among the
early innovators of biotechnology and remain the largest independent biotech firm in the world.
They currently have 12 drugs in their pipeline and 11 drugs in Phase III of clinical trials,
meaning they could potentially enter the pipeline with FDA approval. Their largest selling
product lines include Neulasta, Neupogen and Enbrel. Neulasta/Neupogen is extensively used to
prevent infections in patient undergoing cancer chemotherapy. These medications are used daily
in both a pediatric and adult settings.
Amgen markets its products to healthcare providers, including physicians, outpatient
clinics, dialysis centers, hospitals, urgent cares and pharmacies. They also have dealings with
consumers and pharmaceutical wholesale distributors like Cardinal Health to distribute their
products to hospitals an clinics. They have clinical specialists and sales representatives that
demonstrate the efficacy, safety, and clinical benefits of their products. Amgen also has joint
ventures with Pfizer Inc., Glaxo Group Limited, AstraZeneca Plc, Takeda Pharmaceutical
Company Limited, UCB; and Bayer HealthCare Pharmaceuticals Inc.
Amgens CEO is Robert A. Bradway, who became their fourth chief executive in May of
2012. They have made five corporate acquisitions since his time at the helm. The market cap of
Amgen is 93 Billion. Currently its stocks are trading at about $116.03 with their 52 week high
being $128.96 and low being $95.05. Their current price to earnings ratio is 18.84 and their
traveling 12 month earnings per share, which is calculated by subtracting the previous year's
results from the same quarter as the most recent quarter reported and adding the difference to the
latest fiscal year end results, is 6.16. Amgen is one of the fastest growing pharmaceutical
companies and it has got its places in Fortunes 100 Best Companies to Work For and 154 on
their Fortune 500 list.
Answer b.
From the analysis of Balance sheet, it is concluded that Current assets, got raised by 13% in 2012
while dipped by almost 125 in 2013. Cash and cash Equivalents and Short term Investment
showed a great variability in past three years. Intangible assets improved by 234% in 2013 while
other assets raised by almost 357% in the same year. Short term debt showed the sky rocket
increase of 2870% in year 2012 while the total current liabilities reduced marginally by 3% in
2013. Total liabilities increased by 10% and 25% in year 2012 and 2013 respectively. Common
stock increased by 5.6% in 2012 and 1.9% in 2013 while retained earnings reduced by 27% in
year 2013. The overall balance sheet got improved in two consecutive years 2012 and 2013.
Sales improved by almost equal growth rate of 9% in both the years 2012 and 2013 while
total revenue growth marginally reduced to 8% from 11% in 2013. Total operating expenses
improved by 9.6% in year 2013 against increase of 3.7% in 2012. Operating income showed a
good growth rate of 29% in 2012 while it settled at only 5% in 2013. With the high increase of
72.5% in interest expenses in 2012, it came down by 3% in 2013. Provision for taxes also
declined by 72% in year 2013 against growth of 42% in 2012. Instead of reduction in growth rate
of operating income, the net income maintained its growth rate of around 17% in both the years
2012 and 2013. Earnings per share showed a good growth rate of 38% in 2012 while it grew by
only 20.3% in 2013.
Purchasing of property, plant and impairments increased significantly by 2866% in 2012
but reduced by 89% in 2013. Inventories and account payable reduced by 160% and 220% in
year 2012 and 2013 respectively. Overall cash flow from operating activities improved by 7% in
2013 against 15% in 2012. Cash paid for acquisition improved in both the years by almost 250%.
Net cash flow from investing activities got significant increase of 1171% in 2012 but reduced by
15% in 2013. Repayment of debt got reduced by 95% in 2012 but significantly increased by
2640% in 2013. The overall cash provided by (used in) financing activities increased by 550% in
2013. Thus, cash and cash equivalents reduced in both the year 2012 and 2013 by 200% and
115% respectively.
Ans c
Selected Ratio and trend Analysis
Ratio Analysis


2013 2012 2011
Liquidity of short-
term assets
-Current ratio
3.4437 3.8102 4.7954
-Cash ratio
0.4788 0.3976 1.2072
-Quick ratio
3.0638 3.4752 4.3637

Long-term debt-
paying ability
-Debt ratio
0.4480 0.4426 0.4367
-Debt-equity ratio
1.3406 1.2610 1.1217
-Times interest earned
5.7407 5.2963 7.0689

Profitability
-Net income/sales (profit margin)
0.2721 0.2517 0.2364
Operating Ratio

-Net income/assets (ROA)
0.0768 0.0800 0.0754
-Net income/shareholder equity
(ROE) 0.2300 0.2280 0.1935

Asset utilization/
management
efficiency
-Total asset turnover
0.2824 0.3180 0.3188
Inventory turnover measures
6.1862 6.2919 6.2729
-Accounts receivable turnover
6.7453 6.6080 5.2814

Market measures
-Price/earnings ratio
18.2 15.68 14.61
-Earnings per common share
6.75 5.61 4.07
-Dividend payout
0.2786 0.2572 0.1361
Table1.
Table 1 shows the different ratios under five major categories from year 2011 to 2013. The
Analysis is as follows:
Liquidation ratio

Liquidity Ratio (LR) measures the short term solvency of the business. LR measures the ability
of the business enterprise to meet its short term obligation as and when they are due. The
liquidity ratios are also called the short- term solvency ratios.
The most common ratios which measure the extent of liquidity or the lack of it are:
a) Current ratio
b) Cash Ratio
c) Quick ratio/ Acid test ratio
Current ratio was 4.79 in 2011 but marginally reduced to 3.81 and 3.44 in 2012 and 2013
respectively. However, Current ration greater than 1 indicates that Amgen enjoys a greater
Liquidity & Lower risk for short term lenders. The higher the ratio is the greater the margin of
safety for the short term creditors. It is expected that the Current ratio of Amgen will be hovered
around 3 which is a healthy figure and therefore, no such short term obligation mismatched will
be faced by the company.
Cash ratio was around 1.2 in 2011 but it significantly reduced to 0.4 and 0.48 in 2012 and 2013.
The cash ratio in recent two years is less than 1 but it should not be a concern of the business
although it is preferred by the business and creditors. Short term liabilities can be met either by
cash or marketable securities. Cash can be better utilized in contingencies or can be used in
business for very short term operational requirements. It is good for the business to use its large
portion of cash for that purpose rather than to meet the creditors obligation. So the cash ratio of
Amgen is in good position however it has to ensure not it may go down to near zero in future.
Quick Ratio was 4.36 in 2011 but got reduced to 3.47 and 3.06 in year 2012 and 2013
respectively. It is marginal reduction and overall the liquidity position of Amgen is maintained.
Quick ratio is considered a better measure of liquidity than Current Ratio because it excludes
inventories. So this ratio gives us confidence that Stock has enough cash to meet short term
commitments but it should be used cautiously because all debtors may not be liquidated or cash
may be required urgently required for other purposes.
Profitability Ratios
Every business must earn sufficient profits to sustain the operations of the business and to fund
expansion and growth and reward its shareholders. Profitability ratios are used to analysis the
earning capacity of the business which is the outcome of utilization of resources employed in the
business. There is a close relationship between the profit and the efficiency with which the
resources employed in the business are utilized.
Some important Profitability ratios are
a) Profit Margin
b) Operating ratio
c) Return on Asset (RoA)
d) Return on Equity (RoE)
Net Profit Margin was around 23% in 2011 and got improved to 25% and 27% in year 2012
and 2013 respectively. That is a good sign of business operation.
Operating Ratio has been hovered around 70% in all the three years. Although it looks high but
should be compared with Industry average to better judge the performance.
Return on Assets (ROA) is on an average 7.5% in all the three years. This ratio is better than
the industry average thus Amgen is performing better than its competitors in the pharmaceutical
industry.
Return on Equity (RoE) was around 19% in 2011 and it marginally increased to 23% in next
two years. As other profitability ratios are healthy & growing, this is a credible assumption in
absence of balance sheets
Long Term Debt paying ability
Long term debt paying ability of firm is mainly measured by three ratios
a) Debt ratio
b) Debt Equity ratio
c) Times interest earned
Debt ratio is measured by Debt/Total Assets. For all the three years it is maintained at 44% and
expected to be at the same level which is good for Amgen.
Debt to Equity Ratio shows Amgens degree of leverage, or its reliance on external debt for
financing. In 2011, it was 1.12 but it increased to 1.26 and 1.34 in year 2012 and 2013
respectively. With the increase of debt equity ratio, the risk of insolvency also increases.
Although it is still under the control but Amgen should take care of in future.
Times interest earned also known as Interest coverage ratio. In year 2011, it was around 7 but
slipped to around 5.5 in next two years but still it shows a strong capability of Amgen in meeting
interest paying obligation.
Asset utilization or Management Efficiency
Following ratios have been used to measure the degree of asset utilization or management
efficiency-
a) Total asset turnover ratio
b) Inventory turnover ratio
c) Account receivable turnover ratio
Total asset turnover ratio was almost equal to 32% in both the years 2011 and 2012 but
marginally decreased to 28% in 2013. This ratio is low, so assets are needed to be more
efficiently utilized.
Inventory turnover ratio has been around 6 in all the three years. It is in good figure are
expected to be maintained in future.
Account receivable turnover ratio was around 5 in 2011 and then marginally increased to 6 in
next two years. It shows a good collection ability of company for credit sales and expected to
maintain in near future.

Market Measures
Following three ratios have been used to get the insight of stock performance in capital market
a) P/E ratio
b) Earnings per share
c) Dividend payout ratio
All these three ratios show a good performance of Amgen stock in capital market. Shareholders
have also been getting good return on their investments. Year wise increase in these ratios
reflects a strong position of Amgen in its industry and expected to have same performance in
near future also.
Ans d
Analysis of Companys stock price and EPS for last three years in compare to three major
industry players- Novartis, Johnson & Johnson and Teva Pharmaceuticals


The above graph shows the movement of stock price of Amgen along with its competitors stock
prices in last three years 2011 to 2013.
0
20
40
60
80
100
120
140
1/3/2011 1/3/2012 1/3/2013
Closing price of Amgen
Closing price of Novartis
Closing price of Johnson &
Johnson
Closing price of Teva Pharm.
Graph1
As we can see that the stock price of Amgen is on rising trend along with Novartis and Johnson
& Johnson. The stock price movement of Teva Pharmaceuticals decreased in last two years but
afterwards, it got stabilized in year 2013. The average monthly return on Novartis stock is
highest at 1.71% followed by Amgen stock at 1.67%. While the average monthly return on Teva
Pharmaceuticals is -0.37% over past three year. The variability in monthly returns on Novartis
stock is also highest at 6.1% followed by Amgen at 5.12%.
Thus, the Amgen stock has performed very well against its competitors in the last three years and
it shows an upward trend in near future.
Year Amgen Novartis Johnson & Johnson Teva Pharm
2011 6.75 3.78 4.78 3.1
2012 5.61 3.79 3.49 2.25
2013 4.07 3.7 4.81 1.49
Table 2
The Earning per share of Amgen remains highest against its competitors in all three years.
However, it has been decreasing but there are similar situations of its competitors. It may be due
to overall change in industrys sentiment.
Ans e
Evaluation of firms Beta in respect of S&P 500, Nasdaq 100 and Dow 30 for all the three
years 2011, 2012 and 2013.
Beta of stock is calculated by using the formula-
Corr. Coefficient between stock return and market return *

The following table shows the Beta of Amgen in respect to different Market Index-
Std. deviation of stock return
Std. deviation of Market return
Beta of Amgen in respect of S & P 500 Nasdaq 100 Dow 30
2011 0.59 0.55 -0.03
2012 0.85 0.65 0.11
2013 1.14 0.99 1.05
Table 3
Ans f.
Assessment of firms capital structure over last three years
Following table shows the major changes in Balance sheet items in year 2012 and 2013.

2013 2012
Long term Debt 23.25 12.60
Other Liabilities 114.37 9.80
Total Liabilities 24.95 18.08
Common Stock 1.89 5.62
Retained Earnings -26.76 16.86
Total Stockholder Equity 15.93 0.16
Table 4
In the capital structure of Amgen, there are only two major sources of finance Equity and Debt.
There are no preference shares or issuance of bond or debentures.
From above table, it is observed that, long term debt increased by 12.6% in 2012 and
subsequently increased by 23% in 2013. While the growth rate of common stock reduced to
1.9% in 2013 against growth rate of 5.6% in 2012. Retained earnings increased by almost 17% in
2012 but got declined by 27% in 2013. Overall total stockholder equity showed a significant
increase of 16% in 2013. Thus increase in long term debt is almost in parallel to increase in
stockholders equity thus with the increase in size of capital structure, no major changes occurred.
However other liabilities had increased by 114% in 2013 but there was no significant effect on
the capital structure of firm.

Ans g.
Calculation of WACC in 2013
Debt Equity ratio in 2013 = 1.34
Interest expenses in 2013 = 1022 million
Total long term debt = 29623 million
Cost of Debt, Kd = 1022/29613 = 3.45%
Risk free rate of return, Rf = 1.71%
Beta of Amgen, = 0.41
Annual return on S&P 500, = 19.6%
Cost of Equity, Ke = Rf + (Rm Rf)
= 1.71 + 0.41 (19.6 1.71)
= 9.04%
Hence, WACC = We*Ke + Wd*Kd
= 0.43*9.04 + 0.57*3.45
= 5.85%
Hence the WACC of the firm for the year 2013 is 5.85%
Ans h.
Assessment of the firms cash flow and determination of the firms free cash flow over the
last three years.
Following table shows the changes in major components of Cash flow for three years.

2013 2012
Cash flows from Operating activities

Net Income 16.94 17.97
Depreciation and Amortization 18.20 2.64
Property, Plant and Equipment impairments -89.33 2866.67
Trade receivable, net -110.92 -162.48
Inventories -95.33 -60.84
Account payable -214.29 -269.47
Net cash provided by operating activities 6.95 14.91
Cash flows from Investing activities

Purchase of property, plant and equipment 0.58 21.52
Cash paid for acquisition, net of cash acquired 294.73 240.94
Purchase of marketable securities -16.30 23.88
Net cash used in investing activities -15.23 1170.99
Cash flows from financing activities

Repayment of debt 2640.65 -95.08
Dividend paid 26.57 123.60
Net cash provided by (used in) financing activities 550.60 -162.17
Table4.
Growth in net income was almost same in all three years. Depreciation increased by 18% in 2013
against increase of 2.6% in 2012. Property, Plant and Equipment significantly increased by
2866% in 2012 but it reduced by 89% in 2013. Account receivable, Inventories and Account
payable are reduced significantly in all three years thus growth in cash flow available for
operating activities reduced by 15% to 7% from 2012 to 2013. Purchase of property, plant and
equipment increased by 21.5% in 2012 but remained constant in 2013. cash paid for acquisition
increased by more than 200% in both the years 2012 and 2013. Investment in marketable
securities got reduced by 16% in 2013 against increase of 24% in 2012. Overall net cash used in
investing activities increased heavily by 1171% in 2012 but marginally reduced in 2013.
Repayment of debt is majorly made in 2013 by an increase of 2640% in 2013 although growth in
dividend payment reduced to 26.6% in 2013 against 123.6% in 2012. Overall net cash provided
by financing activities increased by 550% in 2013 against decrease of 162% in 2012.



Free cash flow to the firm for years 2013, 2012 and 2011.

in million $
Particulars 2014 2015 2016
Revenue 18676 17265 15582
EBIT 5867 5577 4312
Tax 184 664 467
EBIAT 5,683 4,913 3,845
Less: Property, Plant and Equipment -693 -689 -567
Add: Depreciation 1286 1088 1060
working capital 19,420 23,018 21,839
less: change in working capital -3,598 1,179 5,280
Free Cash Flow (FCF) 9,874 4,133 -942
Table5.
Answer i
After analyzing the financial statements of Amgen for last three years, we can conclude that
Amgen is one of the strongest and fast growing pharmaceutical companies having a diversified
portfolio of drugs in couple of some specialized and most advanced drugs used in dreaded
disease like Cancer. In the US economy, it has a valuable place and gets ample of opportunity of
nourish and growth. Favorable economical and political condition has supported and boosted the
Amgen for expansion and made it focused more on research and development. With the good
credibility and performance, it is easier to raise fund. There are also some major players in
Pharmaceutical industry but recent growth and performance of Amgen is witnessed by the whole
Industry. It has beaten the market and outperformed its competitors. With the strong financial
base and balanced capital structure, it will continue to rise and will expand its diversity of
portfolio. The large market base, high P/E ratio, high earning growth, high dividend yield and
lower beta make the stock of Amgen one of the most preferred stocks for investment.
Management is strong enough to employ the asset efficiently to provide a strong base to face any
adverse situation in future.
References:
Financial Stetements (2013, 2012 & 2011), Information retrieved from:
http://investors.amgen.com/phoenix.zhtml?c=61656&p=irol-reportsannual
Daily closing stock Price of Teva Pharmaceuticals ( 2013, 2012 & 2011). Information retrieved
from:
https://in.finance.yahoo.com/q/hp?s=TEVA&a=00&b=1&c=2010&d=11&e=31&f=2013&g=m
Daily closing stock Price of Amgen Inc ( 2013, 2012 & 2011). Information retrieved from:
http://finance.yahoo.com/q/hp?s=AMGN&a=00&b=1&c=2010&d=11&e=31&f=2013&g=m
Daily closing stock Price of Johnson & Johnson Pharmaceuticals ( 2013, 2012 & 2011).
Information retrieved from:
https://in.finance.yahoo.com/q/hp?s=JNJ&a=00&b=1&c=2010&d=11&e=31&f=2013&g=m
Daily closing stock Price of Novartis ( 2013, 2012 & 2011). Information retrieved from:
https://in.finance.yahoo.com/q/hp?s=NVS&a=00&b=1&c=2010&d=11&e=31&f=2013&g=m
EPS of Teva Pharmaceuticals (2013, 2012 and 2011). Information retrieved from
http://www.statista.com/statistics/272547/earnings-per-share-of-teva-pharmaceutical-since-2006/
EPS of Johnson & Johnson (2013, 2012 and 2011). Information retrieved from
http://www.nasdaq.com/symbol/jnj/revenue-eps
EPS of Novartis (2013, 2012 & 2011). Information retrieved from:
http://www.google.com/finance?q=NYSE:NVS&fstype=ii
EPS of Amgen (2013, 2012 & 2011). Information retrieved from:
http://www.nasdaq.com/symbol/amgn/financials?query=balance-sheet
Historical daily Price of S&P 500 ( 2013, 2012 & 2011). Information retrieved from:
https://finance.yahoo.com/q/hp?s=%5EGSPC&a=00&b=1&c=2011&d=11&e=31&f=2013&g=d
Historical daily price of Dow Jones 30 (2013, 2012 & 2011). Information retrieved from:
http://measuringworth.com/DJA/result.php
Historical daily price of Nasdaq (2013, 2012 & 2011). Information retrieved from:
https://in.finance.yahoo.com/q/hp?s=%5ENDX
Historical daily price of Amgen (2013, 2012 & 2011). Information retrieved from:
https://in.finance.yahoo.com/q/hp?s=AMGN&a=00&b=1&c=2011&d=11&e=31&f=2013&g=d
Risk free rate (2014). Information retrieved from http://www.bankrate.com/rates/interest-rates/5-
year-treasury-bill.aspx
Five year average market return. (2014). Information retrieved from:
http://quicktake.morningstar.com/index/IndexCharts.aspx?Symbol=SPX