Running head: STRYKER CORPORATION FINANCIAL ANALYSIS

Stryker Corporation Comprehensive Financial Analysis Paper Team A Siena Heights University LDR 640 Financial Systems Management Shawn Armstrong, Roland Gardner, Kimberly Pizaa & Ranae Reynolds May 23, 2012

Running head: STRYKER CORPORATION FINANCIAL ANALYSIS Table of Contents

Page Number List of Tables and Figures Abstract 3 4

Introduction Definitions Stryker Corporations Financial Documents 12 Financial Ratio Calculations Trend Analysis Peer group Analysis Analytical Report Assessment Recommendations Conclusion References

5-6 6-7 8-11 11-13 13-17 18-22 22-24 24-28 28-29 29-30 31-33

Running head: STRYKER CORPORATION FINANCIAL ANALYSIS

List of Table and Figures Page Number 8-9 9-10 10-11 12-13 14 18 23

Table 1: Stryker Corporation Annual Income Statement Table 2: Stryker Corporation Annual Balance Sheet Table 3: Stryker Corporation Annual Statement of Cash Flows Table 4: 12 Financial Ratios Calculated Table 5: Trend Analysis of 12 Financial Ratios Table 6: Peer Group Analysis of 12 Financial Ratios Table 7: Analytical Report of 12 Financial Ratios

Running head: STRYKER CORPORATION FINANCIAL ANALYSIS Abstract

Stryker Corporation is one of the top global leaders in the medical device industry. With the healthcare industry and the economy going through drastic changes, existing and future lenders/creditors as well as consumers must look at how Stryker has positioned themselves in the past and with future projects. Performing calculations on the top 12 financial ratios, a trend, peer group, and analytical analysis as well as assessing and looking at recommendations for Stryker, are a significant part of understanding the financial position (past, present, and future) of the corporation and essentially where it will be in the future.

Running head: STRYKER CORPORATION FINANCIAL ANALYSIS

The ability to look at financial statements and know how to calculate and interpret the information on the balance sheet, income, or cash flow statement is critical for any individual working in or seeking a managerial or higher level, position. Furthermore, individuals that have or are seeking to start up their own business also need financial knowledge in order to make sound decisions for their business. Nowadays, in addition to having at least a bachelors degree companies are seeking to fill management positions with applicants who have experience with budgeting and figuring how well their department or company is doing at a given time as well as how well they standup next to their competitors and the industry. Stryker Corporation was the company the group decided to utilize for this LTP project. Stryker Corporation was founded in 1941 and is the global leader in medical products and quality innovations (Stryker, 2010). The company's goal is and has always been, focused around helping patients lead a healthier, more active lives through products and services that makes surgery and recovery simpler, faster and more effective" (Stryker, 2010, pp.1). Financially, Stryker has been positioning their corporation well within their respected industry, which is the reason why we chose Stryker for this project. The LTP Project in LDR 640 Financial Systems Management, required individuals to form a team and select a company of our choice to research how they rate financially to two of their competitors. In addition, calculations of 12 financial ratios chosen by the group along with a trend and peer group analysis, an analytical report based on the company's global financial performance, an assessment on what the company should have done differently, and recommendations on the global strategies of the business for the next years also need to be performed in this project. Definitions:

Running head: STRYKER CORPORATION FINANCIAL ANALYSIS

Acid Test: test to determine if a company has enough short-term assets to cover liabilities without selling inventory (Investopedia, 2012). Current Ratio: ratio used to measure a companys ability to pay short term obligations (Investopedia, 2012, p.1). Debt to Equity Ratio: financial leverage measure and calculates the total interest bearing debt divided by the owners equity (Hawawini & Viallet, 2011, p.154). Earnings Before Interest, Tax, & Depreciation (EBITD) margin: EBITD divided by total revenue. EBITD or EBITDA margin measures the extent to which cash operating expenses use up revenue (InvestorWords.com, 2012, pp.1). Global Financial Performance: looking at one companys financial performance compared to competitors around the world. Gross Profit Margin: assess a firms financial health by revealing the proportion of money left over from revenues after accounting for the cost of goods sold. Serves as the source for paying additional expenses and future savings (Investopedia, 2012). Interest Coverage: EBIT divided by interest expense. This financial ratio indicates how many times the firms pre-tax operating profit covers its interest expense (Hawawini & Viallet, 2011, p. 152). Inventory Turnover: this ratio demonstrates how many times a companys inventory is purchase and is replaced over a time period (Investopedia, 2012). Market to Book Value: financial ratio used to measure of find the value of a company by comparing the book value of a firm to its market value (Investopedia, 2012). Peer Group Analysis: using similar companies or competitors for comparing results of a firm, (InvestorDictionary.com, 2012).

Running head: STRYKER CORPORATION FINANCIAL ANALYSIS

Price Earnings: earnings multiple; A valuation ratio of a companys current share price compared to its per-share earnings, (Investopedia, 2012). Receivable Turnover: measure used to quantify a firms effectiveness in extending credit as well as collecting debts; measures efficiency of a firm to use its assets, (Investopedia, 2012). Return on Assets: measures the profit generated by one dollar of assets and the ability of managers to generate profits from the firms assets, (Hawawini & Viallet, 2011, p: 144). Return on Invested Capital (ROIC): calculated by dividing the after-tax operating profit by the amount of capital that was used to generate that profit, (Hawawini & Viallet, 2011, p. 22). Assess a given firm/companys efficiency at allocating capital to make profitable investments (Investopedia, 2012). Trend analysis: technical analysis that tries to predict the future movement of a stock based on past data. Base on the idea that what has happened in the past gives traders or companies an idea of what will happen in the future (Investopedia, 2012).

Running head: STRYKER CORPORATION FINANCIAL ANALYSIS Strykers Financial Statements Table 1 Stryker Corporation Annual Income Statement

Sales Cost of Sales Gross Operating Profit Selling, General, and Administrative Expenses Research & Development Operating Income before D & A (EBITDA) Depreciation & Amortization Interest Income Other Income - Net Special Income / Charges Total Income Before Interest Expenses (EBIT) Interest Expense Pre-Tax Income Income Taxes Minority Interest Net Income From Continuing Operations Net Income From Discontinued Operations Net Income From Total Operations Extraordinary Income/Losses Income From Cum. Effect of Acct. Change Income From Tax Loss Carryforward Other Gains / Losses Total Net Income Normalized Income (Net Income From Continuing Operations, Ex. Special Income / Charge) Preferred Dividends Net Income Available To Common Basic EPS from Continuing Ops. Basic EPS from Discontinued Ops.

Dec-11 8,307.00 2,452.00 5,855.00 3,150.00 462 2,243.00 481 34 0 0 1,720.00 34 1,686.00 341 0 1,345.00 0 1,345.00 0 0 0 0 1,345.00

Dec-10 7,320.00 1,933.70 5,386.30 2,707.30 393.9 2,285.10 410.2 0 -21.8 -123.5 1,729.60 0 1,729.60 456.2 0 1,273.40 0 1,273.40 0 0 0 0 1,273.40

Dec-09 6,723.10 1,833.90 4,889.20 2,506.30 336.2 2,046.70 385.3 0 29.5 0 1,623.90 0 1,623.90 516.5 0 1,107.40 0 1,107.40 0 0 0 0 1,107.40

1,421.00 1,345.00 3.48 0

1,396.90 1,273.40 3.21 0

1,174.40 1,107.40 2.79 0

Running head: STRYKER CORPORATION FINANCIAL ANALYSIS

Basic EPS from Total Operations Basic EPS from Extraordinary Inc. Basic EPS from Cum Effect of Accounting Change Basic EPS from Tax Loss Carryf'd. Basic EPS from Other Gains (Losses) Basic EPS, Total Basic Normalized Net Income/Share EPS fr Continuing Ops. EPS fr Discontinued Ops EPS fr Total Ops. EPS fr Extraord. Inc. EPS fr Cum Effect of Accounting Change EPS fr Tax Loss Carfd. EPS fr Other Gains (L) EPS, Total Diluted Normalized Net Inc/Shr (Net Income From Continuing Operations, Ex. Special Income / Charge) Dividends Paid per Share
(AOL Money & Finance, 2012). Table 2 Stryker Corporation Annual Balance Sheet

3.48 0 0 0 0 3.48 3.68 3.45 0 3.45 0 0 0 0 3.45

3.21 0 0 0 0 3.21 3.52 3.19 0 3.19 0 0 0 0 3.19

2.79 0 0 0 0 2.79 2.96 2.77 0 2.77 0 0 0 0 2.77

3.64 0.75

3.5 0.63

2.94 0.25

Dec-11 Assets Cash and Equivalents Receivables Inventories Sale Of Short-Term Investments Other Current Assets Total Current Assets Property, Plant & Equipment, Gross Accumulated Depreciation & Depletion Property, Plant & Equipment, Net Intangibles Other Non-Current Assets Total Non-Current Assets Liabilities & Shareholder Equity Total Assets Accounts Payable 905 1,417.00 1,283.00 N.A. 0 7,211.00 2,055.00 1,167.00 888 1,442.00 475 5,194.00 12,405.00 345

Dec-10

Dec-09

1,757.60 658.7 1,251.90 1,147.10 1,056.80 943 N.A. N.A. 0 0 7,631.40 5,851.20 1,849.90 1,963.70 1,051.60 1,016.10 798.3 947.6 703 634.7 441.8 422.1 3,263.70 3,220.10 10,895.10 291.7 9,071.30 200.2

Running head: STRYKER CORPORATION FINANCIAL ANALYSIS

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Short Term Debt Other Current Liabilities Total Current Liabilities Long Term Debt Deferred Income Taxes Other Non-Current Liabilities Minority Interest Total Non-Current Liabilities Total Liabilities Preferred Stock Equity Common Stock Equity Common Par Additional Paid In Capital Cumulative Translation Adjustment Retained Earnings Treasury Stock Other Equity Adjustments Total Capitalization Total Equity Total Liabilities & Stock Equity Total Common Shares Outstanding Preferred Shares Treasury Shares Basic Weighted Shares Outstanding Diluted Weighted Shares Outstanding Number of Employees Number of Part-Time Employees
(AOL Money & Finance, 2012).

17 197 1,828.00 1,751.00 0 1,143.00 0 2,894.00 4,722.00 0 7,683.00 38 1,022.00 0 6,479.00 0 144 9,434.00 7,683.00 12,405.00 381 0 0 386.5 389.5 21241 0

25.3 117.8 1,605.00 996.5 0 1,120.00 0 2,116.50 3,721.50 0 7,173.60 39.1 964.1 0 6,016.90 0 153.5 8,170.10 7,173.60 10,895.10 391.1 0 0 396.4 399.5 20036 0

18 194.4 1,441.00 0 0 1,035.20 0 1,035.20 2,476.20 0 6,595.10 39.8 899.9 0 5,397.40 0 258 6,595.10 6,595.10 9,071.30 397.9 0 0 397.4 399.4 18582 0

Table 3 Stryker Corporation Annual Statement of Cash Flows

Dec-11 Cash Flow From Operating Activities Net Income (Loss) Operating Gains/Losses Extraordinary Gains / Losses (Increase) Decrease In Receivables (Increase) Decrease in Inventories (Increase) Decrease In Other Current Assets (Decrease) Increase In Payables 1,345.00 47 0 -152 -166 0 44

Dec-10 1,273.40 -31.7 0 -121.4 -131.2 0 95.9

Dec-09 1,107.40 19.6 0 -9.8 33.7 0 -80.5

Running head: STRYKER CORPORATION FINANCIAL ANALYSIS

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(Decrease) Increase In Other Current Liabilities (Increase) Decrease In Other Working Capital Other Non-Cash Items Net Cash From Continuing Operations Net Cash From Discontinued Operations Cash Provided By Investing Activities Net Cash From Total Operating Activities Sale of Property, Plant & Equipment Cash Used for Investing Activities Sale of Short-Term Investments Purchases of Property, Plant & Equipment Acquisitions Purchases of Short-Term Investments Other Cash from Investing Activities Cash Provided by Financing Activities Net Cash From Investing Activities Issuance of Debt Cash Used for Financing Activities Issuance of Capital Stock Repayment of Long-Term Debt Repurchase of Capital Stock Payment of Cash Dividends Other Financing Charges, Net Net Cash From Financing Activities Effect of Exchange Rate Changes Net Change in Cash & Cash Equivalents
(AOL Money & Finance, 2012).

63 -282 218 1,434.00 0 1,434.00 67 6,869.00 -226 -2,066.00 -6,779.00 0 -2,135.00 927 0 -190 -622 -279 3 -161 9 -853

67.2 -141.3 230.1 1,547.40 0 1,547.40 60.9 5,210.10 -182.1 -265.4 -5,619.00 0 -795.5 1,096.20 3.6 -80.8 -425.5 -238.3 54.9 410.1 -63.1 1,098.90

258.1 -286.4 106 1,460.70 0 1,460.70 1.5 3,973.70 -131.3 -570.2 -4,602.10 0 -1,328.40 16.9 6.3 -19.6 0 -198.4 1.5 -193.3 18.6 -42.4

12 Financial Ratios Calculated for Stryker 2011 The LTP project required the selection of first a company of our choice (Stryker) along with financial ratios for the following five areas: 1. Liquidity 2. Leverage

Running head: STRYKER CORPORATION FINANCIAL ANALYSIS 3. Asset Management 4. Profitability 5. Market Value Within each of these five areas, our group identified two to three ratios (12 total) that would allow our team to gauge how profitable and financially stable the Stryker

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Corporation is. Furthermore, the below table represents the financial calculations of all 12 ratios selected for 2011 along with the formula that is used to calculate each ratio. Table 4 Stryker Corporation and 12 Financial Ratios Calculated
Liquidity Ratios
Quick/Acid Test

Formula

Calculation

(Cash+Accounts Receivable+Short-term Investments)/Current Liabilites Cash= 905,000 Accounts Receivable= 2,237,000 Short Term Investments= 2,513,000 Current Liabilities= 1,828,000 Acid Test= 3.093544858 Current Assets/Current Liabilities Current Assests= Current Liabilities= Current Ratio= EBIT= Interest Expense= Interest Coverage= 7,211,000 1,828,000 3.945 1686000 858,174 50.90%

Current Ratio

Interest Coverage

EBIT/Interest Expense

Leverage Ratios
Debt to Equity Ratio Total Liabilities/Shareholder's Equity Total Liabilities= Shareholders Equity= Debt to Equity Ratio= Net Income= Dividends= Total Capital= ROIC= 4,722,000 1,086,060 0.23 1,345,000 361,000 5,383,000 18.28%

Return on Invested Capital (ROIC)

Net Income-Dividends/Total Capital

Running head: STRYKER CORPORATION FINANCIAL ANALYSIS

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Asset Management
Inventory Turnover Sales/Inventory or Cost of Goods Sold/Average Inventoy Sales= Inventory= Inventory Turnover= 2,811,000 1,283,000 2.190958691

Receivable Turnover

Net Credit Sales/Average Account Receivable

Net Credit Sales= 8968193 Average Account Receivable= 1,417,000 Receiveable Turnover= 6.329

Profitability Ratios
EBITD Margin Earnings before interest, tax, depreciation and amortization/net sales EBIT before interest...= Net sales= EBITD Margin= Revenue= Cost of Goods Sold= Revenue= GPM= Net Income= Total Assets= Return on Assets= Market Value per Share= EPS= P/E= Book Value of Firm= Market Value of Firm= Market to Book Value 1,720,000 8,307,000 20.71% 8,307,000 2,811,000 8,307,000 66.16% 1,345,000 12,405,000 10.84% 10.4636 0.74 14.14 6261000 15502236 2.476

Gross Profit Margin

Revenue-Cost of Goods Sold/Revenue

Return on Assets

Net Income/Total Assets

Market Value Ratios

Price Earnings Market Value per Share/Earnings per Share (EPS)

Market to Book Value

Book Value of Firm/Market Value of Firm

(AOL Money & Finance, 2012).

Trend Analysis of 12 Financial Ratios In order to gage how a company is doing over time, as well as how they compare against their competitors, companies must perform trend analyses. In addition, companies use a trend analysis as a way to predict outcomes in the future (Investopedia, 2012). Specifically for this trend analysis on the Stryker Corporation, the most recent three years (2009-2011) were utilized as well as the 12 financial ratios that were selected for this project. The table below represents all numbers for each of the 12 financial ratios over

Running head: STRYKER CORPORATION FINANCIAL ANALYSIS

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the three past three years for Stryker. In addition, an analysis of each of the ratio groups is also provided. Table 5 Stryker Corporation Trend Analysis

2011 Liquidity Ratios

Quick/Acid Test Current Ratio Interest Coverage 2.65 3.945% 50.59%

2010
3.51 4.755% 31.04%

2009
2.85 4.061% 31.04%

Leverage Ratios
Debt to Equity Ratio Return on Invested Capital 0.2301 18.39% 0.1423 16.11% 0.0027 15.24%

Asset Management
Inventory Turnover Receivable Turnover 2.4 6.329 2.29 6.325 2.3 6.065

Profitability Ratios
EBITD Margin Gross Profit Margin Return on Assets 20.3% 66.59% 11.55% 23.63% 68.70% 12.51% 24.15% 67.64% 13.62%

Market Value Ratios

Price Earnings Market to Book Value (AOL Money & Finance, 2012). 14.14% 2.476 16.95% 2.994 18.18% 3.037

Liquidity Ratios To begin this analysis, well start with the liquidity ratios of quick/acid test, current ratio, and interest coverage. Beginning in 2009 the quick/acid test was 2.85 followed by 3.51 in 2010 and 2.65. While the result of the quick/acid test fluctuated over the three year time period, it was still over 1, which indicates that the company was still able to pay their current liabilities and poses no potential risk for investors. Furthermore,

Running head: STRYKER CORPORATION FINANCIAL ANALYSIS

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if the trend stays consistent in 2012 the quick/acid test ratio will likely be higher than the 2.65 that were recorded in 2011. Like the quick/acid test, the current ratio had a fluctuating downward trend from 2009-2011, beginning with 4.06, rising to 4.755 and then falling to 3.945 in 2011. Since the quick/acid test and current ratios are similar, it would be suspected that the trend would be similar to each other. In reviewing the current ratio, as long as the ratio is above 1 the company is financially healthy/efficient and can pay short-term obligations off when they come due (Investopedia, 2012). Again, just like the quick/acid test, if the trend stays consistent in 2012 the current ratio would see a slight spike above the 3.945 that was recorded in 2011. The interest coverage ratio has a unique trend for Stryker. Looking at the income statement one can see that there interest expense recorded in 2008 nothing in 2009 or 2010, but again there was a recording in 2011. Looking at the trend for both 2009 and 2010 interest coverage was 31.04 and in 2011 it was 50.59. While Im assuming that these numbers represent percentages, they can easily be interrupted to indicate that Stryker can cover the interest from loans in which they took out. Leverage Ratios In viewing the trend for both the debt to equity and return on invested capital ratios for Stryker over the three years, it can be noted that both set of ratios have shown an upward trending of numbers. With reference to the debt to equity ratio, it is essential for Stryker to finance its growth with some debt in order to generate more revenue, which can be noted on the income statement. The upward trend of the debt to equity ratio demonstrates that Stryker has taken on some debt, which is usual for a company in the

Running head: STRYKER CORPORATION FINANCIAL ANALYSIS

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medical industry. If the trend stays true, in 2012 the debt equity ratio will likely be above or around 0.23. Looking at the return on invested capital ratio, like stated above, it also displayed an upward trend from 2009-2011. Comparing 2009 to 2011, there was over a 3% increase in the return on invested capital ratio. This increase represents that Stryker is able to use its use its invested capital wisely to generate more revenue. Again, if the trend stays consistent then the return on invested capital ratio will continue on the upward side. Asset Management Ratios Since the inventory and receivable turnover ratios are connected to each other it makes sense that their trends are about the same. Over the three years both set of numbers hardly differed from year to year. The inventory turnover ratio saw slight increase of 0.1 from 2009 to 2011. This increase resulted in the receivables turnover ratio increasing 0.294, which again is expected since they are interlinked with each other. Furthermore, with the growth of the company and its consumers, Stryker is bound to expect from increase in the length of time that inventory and their receivables are able to turnover. Profitability Ratios EBITD and gross profit margin as well as return on assets are the ratios that were utilized for profitability. EBITD and return on assets seem to have the same downward trend from 2009-2011. While the downward decrease with return on assets is minimal (2%), the EBITD saw almost a 4% decrease over the three year period. Since EBITD is used to determine how strong the businesses core is related to competitors (Buzzle.com,

Running head: STRYKER CORPORATION FINANCIAL ANALYSIS

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2012) Stryker may want to look at this number a little more closely if it continues to fall (like the trend has been). While EBITA and return on assets have seen a downward trend, gross profit margin for Stryker has seen a fluctuating effect. In 2009 Stryker reported a gross profit margin of 67.64%, which increased to 68.70% and then fell back down to 66.59%. While there has been a slight increase and decrease over the past three years, the numbers still reflect that Stryker was able to have over 65% of revenue left over after the cost of goods sold. Furthermore, one would suspect that Stryker would see a slight increase in their gross profit margin reporting for 2012. Market Value Ratio Price earnings saw a downward reporting trend from 2009-2011 with an overall decrease of over 4%. In addition, Strykers market to book value also had the same downward trend with an overall decrease of less than 1%. While these two ratios are not favorable for Stryker, the trend would suggest that these two ratios would continue on the downward slope. While a majority of the financial ratios that were selected for the LTP project showed to be favorable for Stryker, there are a couple ratios with trends that are not favorable. While the company is still profitable, it must not overlook their numbers compared to that of their competitors and the industry standards in order to better position themselves for growth in the future.

Running head: STRYKER CORPORATION FINANCIAL ANALYSIS Peer Group Analysis

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According to Investopedia, peer group analysis in the financial market deals with the companies that operate in the same industry sector and are similar in size. We will look at Zimmer Holdings and Boston Scientific who are the two top competitors to Stryker Corporation. The specific areas that we will look closely at are: Liquidity, Asset Management, Solvency, Profitability and Market Value. Table 5 Peer Group Analysis Ratio 2.6 3.9 50.6 Stryker Liquidity Acid Test Current Ratio Interest Coverage Asset Management Zimmer Holdings Liquidity 2.4 3.8 18.7 Asset Management 0.8 5.5 Solvency 0.31 0.29 Profitability 32.8 82.9 8.9 Market Value 16.1 2.09 Boston Scientific Liquidity 0.8 1.7 3.3 Asset Management 2.6 5.9 Solvency 0.38 0.37 Profitability 22.4 69 2.1 Market Value 20.3 0.75

Inventory Turnover 6.2 Receivable Turnover Solvency 0.23 Debt to Equity Ratio 0.23 Debt to Invested Capital Profitability 27 EBITD Margin 66.1 Gross Profit Margin 10.8 Return on Assets Market Value 16 Price Earnings 2.73 Market to Book Value (AOL Money & Finance, 2012).

2.1

Running head: STRYKER CORPORATION FINANCIAL ANALYSIS

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Conclusion When comparing the five different ratios of our competitors, we can see that the Liquidity ratios of acid test out of all three competitors Boston Scientific falls well below the warning line. The acid test ratio should always be greater than one (1). Falling below the ratio of one (1) gives a caution flag that the above company may not be able to pay their current liabilities. As with all companies, being able to pay back what you have borrowed speaks volumes about your company. The Current Ratio of a company tells us that the higher the current ratio, the more capable the company will be in paying back its obligations. If the ratio is under one (1) it suggests that the company would be unable to pay its obligations if they become due at that point. (Investopedia, 2012). As we can view from the table above, Stryker has a current ratio of 3.9 which is just one ratio above Zimmer Holdings whose current ratio of 2011 is 3.8, but Boston Scientific has the lowest current ratio of 1.7. When a companys interest coverage ratio is 1.5 or lower, its ability to meet interest expenses may be questionable. An interest coverage ratio below one (1) indicates the company is not generating sufficient revenues to satisfy interest expenses. (Investopedia, 2012) Strykers interest ratio shows they are well above the ratio number, where they do not have to worry about being in financial debt. Asset Management Ratios A companies turnover rate that may be low in number would suggest to others that sales are not going as well as expected and therefore, will leave the company to have more inventory leftover than intended, but if the ratio is high this could mean that sales

Running head: STRYKER CORPORATION FINANCIAL ANALYSIS

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are moving in the direction anticipated or those persons in charge of buying the products are not doing so effectively. High inventory levels are unhealthy because they represent an investment with a rate of return of zero. It also opens the company up to trouble should prices begin to fall. A high Receivable Turnover ratio indicates that a company operates on a cash basis or that its extension of credit and collection of accounts receivable is efficient. As we can see from Table 1, Strykers receivable turnover ratio is high enough to conclude they are in good standing with creditors as well as their competitors who are also in the high percentile ratio for receivable turnover, but Strykers ratio shows us why they are number one in the industry over their competitors. In the event the ratio is low, the company might want to redefine their policies as it relates to their credit to make sure that collection is done in a timely manner this way the company can see where credit is not earning interest for the firm. Solvency In 2011 the Debt to Equity Ratio as well as the Debt to Invested Capital for Stryker remained at 0.23. Compared to its competitors, Strykers ratio is low. This is precisely where Stryker wants to be, because having a high Debt to Equity Ratio says to others that an individual company has been vigorously financing its growth with debt. Strykers competitors ratios are very high which would indicate they borrow money often and therefore have a high ratio on the percentage that is owed back to the financial institution. The downside of trying to figure out the Debt to Invested Capital is difficult. Many companies wont be able to find out where the return on capital generated from

Running head: STRYKER CORPORATION FINANCIAL ANALYSIS because its never stated. So the ratios that are figured in Table 1 show Stryker to have

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the lowest ratio out of all three companies. Unfortunately, looking the ratio, we will not know if this is a good thing or not. According to investopedia the ROIC does not specify whether it is from continuing operations or from a one-time event, such as a gain from a foreign currency transaction. Some examples of invested capital include: buildings, projects, machinery, and even other companies. Profitability EBITD: Stryker profited $1,720,000 in 2011 which gave them a ratio of 27 and although Zimmer Holdings had a great 2011 profit with a percent of 32.8 and Boston Scientific fell to a 22.4 profit in 2011 before they have paid taxes and interest on any debt that has not been paid, Stryker did well in their profit for 2011, but should look at their competitor Zimmer Holdings financial profit and make the appropriate adjustments as needed to up their earnings. Gross Profit Margin: Strykers gross profit margin for 2011 is 66.1. They will use this margin to make the necessary comparisons to their competitors and focus on where they need to cut cost and where they need to save money based on the different ratios of each company. Return on Assets: The ROA for Stryker for the year 2011 is 10.8 which compared to the other companies is at a great percent. Its important to know your ROA in order to fund the operations of the company and it also gives the person whos investing in your company a look into how effectively the company is converting the money it has to invest into the net income.

Running head: STRYKER CORPORATION FINANCIAL ANALYSIS Market Value Each company should focus on maintaining a low Price Earnings Ratio.

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Currently, Stryker and Zimmer Holdings are at a 16 ration where Boston Scientific has a ratio of 20.3. Both companies need to strive to keep this ratio low, so the persons who are investing in their company wont expect you to provide a high earning as the years go forward. This way if you maintain a low ratio, the investors already can anticipate the earnings the company will obtain looking down the road. When comparing the Book-To-Market Ratio we can see that Stryker and Zimmer Holdings has a ratio above one (1) which says that the stock in the company is undervalued compared to Boston Scientific who has a ratio under one (1) which states their stock is overvalued. As you can see from the comparisons, Stryker Corporation is overall the best company within this industry. Although, there are areas that could be improved by Stryker, their ratios for 2011 compared to their competitors shows why they are the top leading supplier in their industry.

Analytical Report The analytical report is a viewing of the Strykers global financial performance based on the comprehensive financial statement analysis. In accordance with the trend analysis and the peer group analysis, the analytical report will take a look at the global perspective of the Strykers financial stance. Stryker Corporation is known as a global leader in innovation of medical technology. Stryker has strategically positioned their corporation into the global market

Running head: STRYKER CORPORATION FINANCIAL ANALYSIS as they have representative offices in 120 countries, employee approximately 20,000 workers worldwide and is recognized as a fortune-500 company ("www.stryker.com,"

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2011). In addition, Stryker was named a Worlds Most Innovative Company by Forbes Magazine in 2011, placing #95 out of 100 in the debut year of the list being published. Below you is statistical data on how Stryker currently matches up financially amongst with other global competitors within the industry using relevant information used in both the trend and peer group analysis ("Stryker corp.3 (syk.n)," 2012):

Table 6 Stryker Corporation Analytical Report

Stryker
3.82 4.67 --

Industry
1.61 2.13 1.42

Sector
1.37 1.69 1.44

Liquidity Ratios
Quick/Acid Test (MRQ) Current Ratio (MRQ) Interest Coverage (TTM)

Leverage Ratios
Total Debt to Equity (MRQ) Return on Investment (5 Yr. Avg.) 22.11 16.00 54.47 9.80 34.38 12.05

Asset Management
Inventory Turnover (TTM) Receivable Turnover (TTM) 2.23 6.08 4.23 4.60 3.42 8.87

Profitability Ratios
EBITD Margin (5 Yr. Avg.) Gross Profit Margin (5 Yr. Avg.) Return on Assets (5 Yr. Avg.) 28.20 67.84 13.30 20.26 48.83 7.31 22.50 55.19 9.65

Market Value Ratios

Price Earnings (TTM) Market to Book Value (MRQ) 15.08 2.57 26.12 2.37 24.82 1.55

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Stryker Corporation Assessment Stryker Corporation (Stryker) is a mega giant whose products and supplies are familiar and recognizable in healthcare facilities nationwide. Stryker is one of the worlds leading medical technology companies dedicated to helping healthcare professionals perform their jobs more proficiently while at the same time enhancing patient care. Stryker offers a diverse array of innovative medical technologies including reconstructive, medical and surgical, neuro-technology and spine products designed to help people lead more active and satisfying lives. Strykers reputation in the medical industry is well known, but evaluating its true value reveals a true assessment of Strykers position. Therefore what follows is a look at Strykers Liquidity Ratios, Leverage Ratios, Asset Management, Profitability Ratios, and Market Value Ratios. Liquidity Ratios Quick/Acid Test A measure of a companys liquidity and ability to meat its obligations. Quick ratio is obtained by subtracting inventories from current assets and then dividing by current liabilities. Quick ratio is viewed as a sign of a companys financial strength or weakness. (Higher number means stronger, lower number means weaker). In general, most creditors accept a quick ratio of 1 or more. Stryker Corporations 2011 Quick/Acid Test result was 2.65. Current Ratio- This ratio is mainly used to give an idea of a companys ability to pay back its short-term liabilities (debt and payables) with its short-term assets (cash, inventory, receivables) (Investopedia, 2012). The higher the current ratio, the more capable the company is of paying its obligations. A ratio under 1

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suggests that a company would be unable to pay its obligations if they came due at that point. It is indicative of a company that is in poor financial health. Strykers current ratio for 2011 was 3.945%. Interest Coverage The Interest Coverage Ratio is used to determine how easily a company can pay interest on outstanding debt. Interest Coverage Ratio is EBIT divided by Interest Expense. When a companys interest ratio is coverage ratio is 1.5 or lower, its ability to meet interest expenses may be questionable. Strykers Interest Coverage for 2011 was 0.5059%. Leverage Ratios Debt to Equity Ratio A high debt/equity ratio generally means that a company has been aggressive in financing its growth with debt. The debt/equity ratio is dependent upon which the company operates. For example, capital-intensive industries such as auto manufacturing tend to have a debt/equity ratio above 2, while personal computer companies have a debt/equity of under 0.5. Stryker had a debt to equity ratio of 0.2301 in 2011. Return on Invested Capital The return on invested capital (ROIC) ratio attempts to measure managements ability to allocate the companys capital into profitable investments that produce returns (Hawawini & Viallet, 2011). Trend analysis is a good indicator and measurement of managements effectiveness over time. Investors should look for an ROIC of 10% or higher over 10 years. Strykers ROIC was 15.24% in 2009, 16.11% in 2010, and 18.39% in 2011. Asset Management

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Inventory Turnover A ratio showing how many times a companys inventory is sold and replaced over a period. This ratio should be compared against industry averages. A low turnover implies poor sales and, therefore excess inventory. A high ratio implies either strong sales or ineffective buying. Generally, inventory turnover is calculated as: sales divided by inventory. Stryker turnover ratio for 2011 was 2.4.

Receivable Turnover An accounting measure used to quantify a firms effectiveness in extending credit as well as collecting debts. The accounts receivable turnover formula is as follows: Net Credit Sales divided by Average Accounts Receivable. A low ratio implies the company should re-assess its credit policies to ensure the timely collection of imparted credit that is not earning interest for the firm (Investopedia, 2012). A high ratio either implies that a company operates on a cash basis, or that its extension of credit and collection of accounts receivable is efficient. Stryker receivable turnover ration for 2011 was 6.329.

Profitability Ratios EBITD Margin An indicator of a companys financial performance, which is calculated as: This measure attempts to gages a firms profitability before any legally required payments such as taxes and depreciation (InvestorWords.com, 2012). Generally compared across industries. For instance, Boston Scientifics EBITD for 2011 was 5.79%. Zimmer Holding recorded 17.o% for 2011. Stryker 2011 EBITD margin for 2011 was 20.3%.

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Gross Profit Margin - A financial metric used to access a firms financial health by revealing the proportion of money left over from revenues after accounting for the cost of goods. Gross Profit Margin = Revenue-COGS divided by Revenue, where COGS = Cost of Goods Sold (Investopedia, 2012). In 2011, Strykers Gross Profit Margin was 66.59%. The more proficient a company is, the higher the profit margin.

Return on Assets An indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how efficient management is at using its assets to generate earnings (Hawawini & Viallet, 2011).. The formula for return on assets is: Net Income divided by Total Assets. The higher the RAO number, the better, because the company is earning more money on less investment. Stryker earned 11.55% in 2011. A downward trend as compared to 2009, and 2010.

Market Value Ratios Price-Earning Ratio P/E Ratio The P/E is sometimes referred to, as the multiple because it shows how much investor are willing to pay per dollar of earnings. For example, if a company were currently trading at a multiple (P/E) of 20, the interpretation is that an investor is willing to pay $20 for $1 of current earnings. The price earnings for Stryker for 2011 were 14.14%. Market to Book Value A ratio used to find the value of a company by comparing the book value of a firm to its market value (Investopedia, 2012). Book value is calculated by looking at the firms historical cost, or accounting value. Market value is determined in the stock market through it market

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capitalization. In basic terms, if the ratio is above 1 then the stock is undervalued. If it is less than 1, the stock is overvalued. In 2011, Strykers Market to Book Value was 2.476. Stryker was named the Worlds Most Innovative Company by Forbes Magazine, placing #95 out of 100 in the debut year of the list being published (Stryker Awards, 2010). More impressively however, is the lofty standing of #323 that it enjoys on the Fortune 500 list. By most measures: Liquidity and Leverage Ratios, Asset Management and Market Value Ratios, Stryker Corporation in an industry powerhouse poised to be a financial leader for the foreseeable future. The only blemish on its sterling financial records is the downturn in its Profitability Ratios due to its downward spiral of its Return on Assets from 2009 through 2011. Stryker Corporation Recommendations Stryker has been amongst the leading medical supply companies in supplying trauma implant, spinal implant, cranio-maxillofacial implant, surgical equipments segments, as well as, surgical navigation, arthroscopy, and laparoscopic imaging products segments for the pat 3 years. The corporations goal is to become a stronger competitor in the global medical marketplace by designing, manufacturing, and distributing that support physicians and hospitals as they seek to proved quality patient care at affordable cost. Technological advancements have created a new niche market for Stryker to produce newer long lasting implants. This new development increases the number of patients that can be served. With advancement allows patients in their 50s and 60s to receive orthopedic implants that they were not able to get before, due to the fact that people were likely to outlive the lifespan of the implants. However, one of the

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limitations of capitalizing on this new market is that Medicare and other third party payer are not covering the expense. Another advantage to the Stryker target market is the rising obesity rate. If the fitness initiatives have the impact as designed then Stryker will see a decline in sales. High obesity rates increase the likelihood that older individuals will need hip and knee implants. Orthopedic implants accounted for 59% of Strykers sales in 2010 (Stryker, 2012). In analyzing the companies success and contributing factors recommendations can be made to strategically plan added value on a global scale. According to Medical Tourism, the U.S. contributes about 60% of the global orthopedic devices market, whereas emerging economies such as India and China offer immense growth opportunities due to medical tourism and huge untapped patient population (Market and Market.com, p.1, 2011). Stryker is amongst the key players in this market. Expanding operations in India and China seem to be a logical business venture, but the costs must not be looked at to ensure that this will not affect the corporations financial health. Looking at the financial ratios and the analyses that were conducted for this project, it seems that the expansion into India and China would be a good move for the company and would ultimately result in more revenue being brought in.

Conclusion Stryker Corporation is one of the global leaders in the medical device industry. On top of receiving numerous awards in the past three, the company boosts the acquisition of Boston Scientific Neurovascular division and made the Forbes Magazine Worlds Most Innovative Company in 2011 (Stryker, 2012). Reviewing the trend, peer group and analytical analysis we

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can conclude that Stryker has positioned themselves well both financially and competitively. While the trend analysis identified a few downward trends, this is expected within the industry that Stryker is located (medical device). Furthermore, the peer group and analytical analyses as well as the assessment of Stryker demonstrated and proved the financial stability and competitive dominance the corporation has. In order for Strykers continued success the corporation must focus expanding their services in other areas. While the corporation has numerous sites through out the world, this financial analysis concluded that expanding into India and China would help to tap into a new patient population. By doing this, Stryker will penetrate markets areas that other competitors have quite expanded to and will continue their financial and competitive advantage within the medical device industry.

Running head: STRYKER CORPORATION FINANCIAL ANALYSIS References Accounting Explained.com. (2012). Inventory Turnover Ratio. Retrieved from http://accountingexplained.com/financial/ratios/inventory-turnover

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AOL Money & Finance. (2012). Stryker Corporation: Annual Income, Balance, and Cash Flows Statements. Retrieved from: http://www.dailyfinance.com/quote/nyse/stryker-corp/syk/financialstatements?source=esadlfltnal0001 Buzzle.com. (2012). EBITA Calculation. Retrieved from http://buzzle.com/ Articles/ebitda-calcuation.html Hawawini &Viallet. (2011). Finance for Executives Managing for Value Creation 4th ed. Mason, OH: South-Western, Cengage Learning. Investopedia. (2012). Acid-Test Ratio: Definition. Retrieved from http://www.investopedia.com/terms/a/acidtest.asp#axzz1u5usDCAU Investopedia. (2012). Current Ratio: Definition. Retrieved from http://www.investopedia.com/terms/c/currentratio.asp?q=current%20ratio#axzz1v JnEZmev Investopedia. (2012). Gross Profit Margin: Definition. Retrieved from http://www.investopedia.com/terms/g/gross_profit_margin.asp?q=gross%20profit %20margin#axzz1vJnEZmev Investopedia. (2012). Inventory Turnover: Definition. Retrieved from http://www.investopedia.com/terms/i/inventoryturnover.asp?q=inventory%20turn over#axzz1vJnEZmev Investopedia. (2012). Market to Book Value: Definition. Retrieved from

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http://www.investopedia.com/terms/b/booktomarketratio.asp?q=market%20to%2 0book%20value#axzz1vJnEZmev Investopedia. (2012). Price Earnings: Definition. Retrieved from http://www.investopedia.com/terms/p/priceearningsratio.asp?q=Price%20earnings#axzz1vJnEZmev Investopedia. (2012). Receivable Turnover: Definition. Retrieved from http://www.investopedia.com/terms/r/receivableturnoverratio.asp?q=receivables% 20turnover#axzz1vJnEZmev Investopedia. (2012). Return on Invested Capital (ROIC). Retrieved from http://www.investopedia.com/terms/r/returnoninvestmentcapital.asp?q=ROIC#ax zz1vJnEZmev Investopedia. (2012). Trend Analysis: Definition. Retrieved from http://www.investopedia.com/terms/t/trendanalysis.asp#axzz1u5usDCAU InvestorDictionary.com. (2012). Peer Group Analysis Definition. Retrieved from http://www.investordictionary.com/definition/peer-group-analysis InvestorWords.com. (2012). Earnings Before Interest, Tax, and Depreciation Margin. Retrieved from http://www.investorwords.com/15358/earnings_before_interest_taxes_and_depre ciation_EBITD.html Markets and Markets.com. (2011). Orthopedic Devices Market: Forecast to 2012. Retrieved from http://www.marketsandmarkets.com/Market-Reports/orthopedicdevice-280.html Stryker. (2010). Stryker: About Us. Retrieved from

Running head: STRYKER CORPORATION FINANCIAL ANALYSIS http://www.stryker.com/en-us/corporate/AboutUs/index.htm Stryker. (2010). Stryker Awards. Retrieved from http://www.stryker.com/en-us/corporate/AboutUs/Awards/index.htm Stryker. (2010). We Make A Difference. Retrieved from http://www.stryker.com/en-us/index.htm Stryker Corp (syk.n) financials. (2012, May 01). Retrieved from

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http://www.reuters.com/finance/stocks/financialHighlights?symbol=SYK.N