Executive Summary
Background of the Company
The Gilead Sciences Incorporation is a US-based company that specializes in the development of different therapeutic products such as antiviral drugs. Founded in the city of Foster, California, the Gilead Sciences Incorporation has expanded its market into regions such as Europe and Australia. The notable therapeutic products that the company retails include Macuge, AmBisome, Sovaldi, Cayston, and Tybost.
These drugs are vital in the treatment of ailments such as influenza, hepatitis, and HIV. The company has been in the market for nearly three decades from the year 1988. The annual revenue of the company was $24.474 billion by the end of the 2014 financial year. In the year 2015, the company had an operating income of $15.265 billion and a net income of $12.059 billion.
The total equity is currently at $15.834 billion (Gilead Sciences Incorporation, 2016). The company trades in products that attract global usage. This market is positioned to expand as the demand for cardiovascular and respiratory therapy is projected to increase.
Rationale for Choosing the Company
Gilead Sciences Incorporation has positioned itself as the global leader in the pharmaceutics and biotechnology industry through series of successful merger and acquisitions. The company has taken over firms such as Nexter, Triangle, Corus Pharma, Myogen, and YM Biosciences among others.
In the year 2015 alone, the company was able to acquire three firms such as the Phenex Pharmaceuticals, Epic Therapeutics, and Galapagos NV at a price tag of more than $1 billion (Gilead Sciences Incorporation, 2016). Through these acquisitions, the company has been able to expand its market and is currently one of the most profitable ventures within the global pharmaceutics and biotechnology industry.
In the 2015 Forbes rating, Gilead Sciences Incorporation was ranked at position three in the global market. Basically, “the strong performance of Gilead in the year 2015 has been linked to the FDA approval, and strong sales performance, of their potentially revolutionary drugs” (Gilead Sciences Incorporation, 2016, p. 18).
With a market capitalization of $113 billion, the company is not only positioned to experience further expansion but also profitability with the current plans to acquire five companies in the 2016. The financial performance of the company is also very promising as summarized in the graph below.
Table 1: Company Ratios
(Source: Gilead Sciences Incorporation, 2016)
The company reported a drop in profitability between the year 2010 and 2012. Thereafter, the ratios increased. Further, it can be noted that the net margin, return on assets and return on equity ratios were quite high. This indicates that the company is efficient in managing resources, expenses, and running of the business (Intintoli, Jategaonkar, & Kahle, 2014).
The current and quick ratios were high apart from the year 2012 and 2013. It shows that the company is efficient in managing working capital. This means that the company is in a position to pay for short-term obligations using liquid and current assets. Debt to equity ratio of the company was high and it fluctuated during the period. It shows that the company has high amount of debt in the capital structure. This can be attributed to the capital intensive nature of the business (Ramnath, 2012).
The operating efficiency of the company also fluctuated during the period. The day sales outstanding ranged between 49.38 and 77.77. These values are high and it shows that the company is not efficient in collecting receivables. The inventory ratios were also high. It shows that the company holds slow moving goods (Intintoli, Jategaonkar, & Kahle, 2014). Further, payable period was high during the five-year period. It shows that the company takes long before it pays creditors.
The asset turnover ratios were less than one during the period. It shows that the amount of sales generated per unit of equity is low. This can partly be attributed to the nature of assets that are held in the books of account. Finally, the price to earnings ratio fluctuated during the five-year period and the values were high. It shows that the shareholders should expect fair returns in the long-term (Ramnath, 2012). In summary, the company had high profitability, liquidity, and is favorable to potential investors.
Reasons for Interest in Investing in the Company
From the above financial performance over the five-year period, the findings indicated that Gilead Sciences Incorporation has a predictable future and might attract relatively high returns from any investment in its shares, especially in the long-term.
References
Gilead Sciences Incorporation. (2016). SEC filings: Form 10-K. Web.
Intintoli, V. J., Jategaonkar, S. P., & Kahle, K. M. (2014). The Effect of Demand for Shares on the Timing and Underpricing of Seasoned Equity Offers. Financial Management , 43(1), 61-86.
Ramnath, S. (2012). Investor and analyst reactions to earnings announcements of related firms: An empirical analysis. Journal of Accounting Research, 40(5), 1351-1376.