Health Products Case

Health Products:

Company A is Johnson & Johnson, which is a diversified manufacturer of prescription pharmaceuticals, health and beauty aids, over-the-counter drugs, and medical devices. Company B is Pfizer Inc., which develops, manufactures, and markets patented pharmaceuticals such as Liptor and Celebrex. The most significant strategic differences between the two firms lie in their product mix and their customer focus. J&J sells most of its products directly to the consumer while Pfizer sells exclusively to doctors and institutions.

Firm B has intangibles worth more than twice as much as firm A, which may reflect firm’s B’s higher investment in R&D. Firm B may also have higher intangibles due to their ownership of patents and its investments in licensing arrangements.

Firm B’s gross margin is more than 12% higher than company A’s, which reflects the higher input costs for company A’s medical diagnostics and devices product segment.

Company A has a far quicker inventory turnover than company B. Company B sells almost exclusively to institutions and pharmacies, which usually take longer to exhaust their supplies compared to company A, who markets its consumer products to retailers, which have a higher turnover orientations.

Many of company A’s and B’s products are branded consumer products that command a price premium. However, company B’s premium is higher, reflecting the benefits of patent protection on prescription pharmaceuticals, and the additional returns needed to support company B’s large R&D efforts.

Beer:

Company C is Anheuser-Busch Companies Inc., which is a producer and marketer of a number of mass-market beers such as Budweiser, Michelob, and Busch. Company D is the Boston Beer Company, which is the seller of the popular Sam Adams line of beers. Boston beer’s products are part of a microbrew.

Company D’s proportion of cash and cash equivalents, which is extremely higher than company C’s show their conservative approach to its financial management.

Company C shows a relatively high level of PP&E, which is consistent with its status as a major brewery. Company D has much lower net fixed assets since much of their operations are outsourced. Company C also has higher fixed assets due to its other holdings such as theme parks.

Company D has higher gross profit, consistent with the premium pricing of its specialty brews versus the mass-marketing approach that was taken by company C. However, company C’s net profit margin is almost three times greater than company D’s. This may reflect the economies of scale that company C can achieve through its large size.

Company D’s current assets to current liabilities ratio is three times greater than company C’s, whose current ratio is less than one. That is illustrating a careful financial approach.

The commitment to financially conservative policies is shown with company D’s relatively low level of debt.

Company C’s mass-market approach shows a significantly higher inventory turnover than company D’s turnover.

Company D’s asset turnover is much higher due to the outsourcing. Company C’s lower turnover is consistent with a firm that owns its manufacturing facilities as well as asset-intensive theme parks.

Computers:

Company E is Dell Inc., a worldwide manufacturer and direct marketer of built-to-order computers and related equipment. Company F is Apple Computer Inc., a manufacturer of a highly differentiated group of personal computers, software, and consumer electronics. This is motivated by the differentiation where company E seeks to sell a relatively high volume of lower-margin products, while company F attempts to sell an adequate volume of higher margin products.

The computer and software industry is extremely volatile, which company F has experienced. Company F has extremely large holdings of cash and cash equivalents, which may represent their efforts to insure the company against any future difficulties.

Company E has a higher percentage of A/P, which may reflect a higher degree of supplier financing.

Company F has a lower COGS percentage, which reflects both its premium pricing and the lower cost associated with software production. Company E’s COGS is higher due to its strategy of making money on volume rather than from individual product margins.

Company F has higher gross profit than company E due to its premium pricing. However, Company E’s net profit margin is almost twice as large as company F’s, which reflects their low-cost focus.