Chapter 13, Problem 1FSC

Financial Statement Analysis Case

You are interested in further analyzing and comparing the liquidity of Pfizer Inc., and Johnson & Johnson Company. In an earlier analysis in Appendix B of Chapter 6, you found the current ratios of both companies at the end of fiscal year 2016 were above the threshold of 1 at 1.25 for Pfizer and 2 47 for Johnson & Johnson. In the Chapter 13 Financial Statement Analysis case, you assessed additional measures of Johnson 4 Johnson’s liquidity, which follow. Using information from the 2015 and 2016 financial statements for Pfizer, answer the following questions about the company’s liquidity and then compare the two companies.

1. a. Compute Pfizer’s quick ratio for each year.
2. b. Compute Pfizer’s cash ratio for each year.
3. c. Compute Pfizer’s defensive interval ratio for each year.
4. d. Comment on changes in Pfizer’s liquidity from 2015 to 2016 based on the ratios computed.
5. e. Compare the changes in Pfizer’s liquidity from 2015 to 2016 to those computed in Example 13.19 in the text for Johnson & Johnson. The following tables are included for the comparison.

Pfizer Inc. *

Fiscal Year (in millions)	2015	2016	Percentage Change
Total assets	$167,381	$171,615	2.5%
Cash and cash equivalents	3,641	2,595	(28 7)
Short term marketable securities	19,649	15,255	(22.4)
Accounts receivable	8,176	8,225	0.6
Current assets	43,804	38,949	(11.1)
Current liabilities	29,399	31,115	5.8
Fiscal Year (in millions)	2015	2016	Percent Change
Cost of goods sold	9,648	12,329	27.8
Sales, marketing and administrative expenses	14,809	14,837	0.2
Research and development expense	7,690	7,872	2.4
Depreciation and amortization	5,157	5,757	11.6
Working capital	14,405	7,834	(45.6)
Current ratio	1,49	1,25	(16.1)

	2015	2016	Percent Change
Working capital	$32,463	$38,745	19.4%
Current ratio	2.17	2.47	13.8
Quick or acid test ratio	1.77	204	15.3
Cash ratio	1.38	1.59	15.2
Defensive interval ratio	373.1	416.6	11.6