Medtronics

8/13/2019 Medtronics

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Financial Analysis of Marketing Decisions

BU.410.610 (81)

Mid-Term Assignment

13 September 2012


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Section 1

The financial ratios for 2011 and 2012 computed in section 2 and section 3 of this report show

that profitability of Medtronic has gone up from 19.43% in 2011 to 22.34% in 2012. These

figures are based on the companys ability to run its operations efficiently while controlling costs

and passing them effectively to consumers as visible form the breakeven analysis and

profitability ratios.

The breakeven analysis tells us that the company has made higher profits in 2012 by reaching

breakeven point at an earlier stage as compared to the previous year. This was done by

controlling costs while increasing sales. The company has been able to do so by various

strategies of globalization, innovation and differentiation. It worked on emerging markets and

focused on existing products, restructuring them and dividing them into two broad categories to

manage them efficiently, and invested in R&D to introduce new products to increase sales while

keeping costs as low as possible.

Breakeven ($) 2011 2012

Corporate 11,005.30 10,723.68

CVG 5,531.06 5,410.14

RTG 5,468.31 5,314.80

A higher gross profit margin of 75.97% in 2012 from 75.44% in 2011 also suggests that the

company has managed to decrease the costs relative to the sales. Introduction of new products,

acquisitions and alliances and product differentiation had a positive impact on sales, while

downsizing of staff by investing in R&D for efficient working solutions and letting go of

unprofitable products had a positive impact on lowering costs.


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The cash flow margin for 2011 is calculated to be 23.47% while that of 2012 is 27.61%, which

suggests operational efficiency to generate cash. This cash can be utilized in R&D to further

improve performance, in dividends to increase shareholder value or acquisitions or mergers to

expand locally and globally. All of these investments play an important part to fulfill the CEOs

mission of 2011, which is innovation and globalization.

The CEO of Medtronic also aimed to better utilize the companys resources in 2011. The

company managed to fulfill part of its goal as visible from the receivable and inventory turnover

ratios from both fiscal years.

Ratios 2011 2012

Receivables turnover 4.16 4.25

DSO 87 85

Inventory turnover 2.30 2.16

DSH 157 167

The higher receivable turnover in 2012 suggests that the company not only is better using its

assets, but can give credit and collect it 4.25 times in 360 days with a cycle of approximately 85

days. Better credit policies for the fiscal year 2012 have positively impacted this ratio. However,

the decreased inventory turnover ratio also suggests that the company is not converting its

inventory to cash very efficiently. This might be due to the introduction of many new products in

the fiscal year 2012, and might increase in the fiscal year 2013 with the distribution and

performance measures for new products which were launched in the third and fourth quarters of

2012. For now, the figures suggest that the company needs to work on increasing this figure by

better estimating demand and stocking accordingly. This in return will have a positive impact on


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working capital and liquidity ratios, which have apparently decreased from 2011 to 2012.

Although the working capital is still positive in 2012, it is lower than 2011. This suggests that the

company may have taken loans to invest in new ventures and the low liquidity ratio suggests that

it might not be able to pay them off when the time comes. But growth in sales due to new

products and acquisitions in 2012 suggests that the liquidity ratio and working capital will be

higher for next year.

Following its strategies to decrease costs, differentiate and introduce products, improve

processes and expand into global markets, the company managed to fulfill its goals for 2011. The

company was able to make profit regardless of major costs of restructuring, additional

investment in R&D and acquisitions. With a new strategy the company has managed to increase

profitability under the new leadership in the face of severe competition, economic meltdown and

massive expansion of the health industry, thus developing a level of trust with the stakeholders.

With the CEO presenting new competitive goals for 2012 and strategies to expand product lines,

provide more value to customers and build on global markets, he aims to build on what he has

built during his first year in the company, which seems to be a logical approach to achieve higher

profitability.


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Section 2

Sales breakeven (corporate) = Total fixed cost / 100total variable cost as a percentage oftotal sales

= 8298 / 10024.6

= 8298 / 0.754

Sales breakeven (corporate) = $ 11, 005.30

Sales breakeven (CVG) = Total fixed cost / 100total variable cost as a percentage of totalsales

Total fixed cost for CVG = 147+135.72+2766.50+754+7+229.50+139 = 4178.72

Total variable cost as a percentage of sales = 2089 / 8544 = 24.45%

Sales breakeven = 4178.72 / 10024.45

= 4178.72 / 0.7555

Sales breakeven (CVG) = $ 5,531.06

Sales breakeven (RTG) = Total fixed cost / 100total variable cost as a percentage of totalsales

Total fixed cost for RTG = 98+125.28+2766.5+754+7+229.5+139 = 4119.28

Total variable cost as a percentage of sales = 1822.99 / 7389 = 24.67

Sales breakeven = 4119.28 / 10024.67

= 4119.28 / 0.7533

Sales breakeven (RTG) = $ 5,468.31

Profitability = Net income / Net sales= 3096 / 15933 = 19.43%

Gross profit margin = Gross profit / Net sales


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= 12021 / 15933 = 75.44%

Receivables turnover = Net sales / Net receivables= 15933 / 3822 = 4.16

Inventory turnover = CoGS / Inventory= 3912 / 1695 =2.30

Cash flow margin= Cash flow from operations / Net sales= 3741 / 15933 = 23.47%

Working capital= Current assetsCurrent liabilities= 91174714 = 4,403

Liquidity ratio (current) = Current assets / Current liabilities= 9117 / 4714 = 1.93

Working capital turnover = Net sales / Net working capital= 15933 / 4403 = 3.61

Days sales outstanding = 360 / Receivables turnover= 360 / 4.16 = 86.53 = 87 days

Days sales on hand =360 / Inventory turnover= 360 / 2.30 = 156.52 = 157 days


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Section 3

Sales breakeven (corporate) = Total fixed cost / 100 total variable cost as a percentage oftotal sales

= 8150 / 10024

= 8150 / 0.76

Sales breakeven (corporate) = $ 10,723.68

Sales breakeven (CVG) = Total fixed cost / 100total variable cost as a percentage of totalsales

Total fixed cost for CVG = 54+45.24+2811.5+745+6+182+74.5+167.5 = 4085.74

Total variable cost as a percentage of sales = 2076.72 / 8482 = 24.48%

Sales breakeven = 4085.74 / 10024.48

= 4085.74 / 0.7552

Sales breakeven (CVG) = $ 5,410.14

Sales breakeven (RTG) = Total fixed cost / 100total variable cost as a percentage of totalsales

Total fixed cost for RTG = 36+41.76+2811.5+745+6+182+74.5+167.5 = 4064.26

Total variable cost as a percentage of sales = 1812.28 / 7702 = 23.52%

Sales breakeven = 4064.26 / 10023.52

= 4064.26 / 0.7648

Sales breakeven (RTG) = $ 5,314.80

Profitability = Net income / Net sales= 3617 / 16184 = 22.34%

Gross profit margin = Gross profit / Net sales


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= 12295 / 16184 = 75.97%

Receivables turnover = Net sales / Net receivables= 16184 / 3808 = 4.25

Inventory turnover = CoGS / Inventory= 3889 / 1800 =2.16

Cash flow margin= Cash flow from operations / Net sales= 4470 / 16184 = 27.61%

Working capital= Current assetsCurrent liabilities= 95155857 = 3,658

Liquidity ratio (current) = Current assets / Current liabilities= 9515 / 5857 = 1.62

Working capital turnover = Net sales / Net working capital= 16184 / 3658 = 4.39

Days sales outstanding = 360 / Receivables turnover= 360 / 4.25 = 84.70 = 85 days

Days sales on hand = 360 / Inventory turnover= 360 / 2.16 = 166.66 = 167 days

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