1. Introduction
1.1. About Covidien
Covidien is an international company that produces medical device, supplies and pharmaceuticals. The main company’s brands are Kendall, Mallinckrodt, Nellcor, Puritan-Bennett and Valleylab. The company is incorporated in Dublin, Ireland, its corporate offices are located in Mansfield, Massachusetts, USA. The number of company’s personnel equals 41,000; nearly two thirds of whom work in 53 manufacturing facilities located in 16 countries. Covidien sells its products to customers in more than 65 countries, while over 45 % of total sales are derived from outside the United States.
1.2. Industry Analysis
1.2.1. Industry Competitors
Broadly, medical devices are instruments used for the diagnosis and treatment of conditions in patients (Zhong, 2012). Thus, the main competitors of Covidien are: Becton Dickinson (BD), CR Bard (Bard) and Johnson & Johnson.
1.2.2. EU Debt Crisis
The European Union shares a common currency but, in contrast to the US, is not a fiscal union with the ability to tax or issue debt (Ernst & Young, 2012). For Covidien, the state of the European Union economy has a direct impact upon the sales, because the future trends are hard to predict.
1.2.3. US Debt Deal
After raising the debt ceiling in 2011, it was suggested that Medicare should have greater negotiating power on drug prices to reduce governmental spending. However, the industry may lose the revenue in such situation.
1.2.4. Emerging Markets & BRICs Market
Having difficulties at the European markets, Covidien can expand onto emerging markets like BRICs (Brazil, Russia, India and China). In fact, Covidien already has headquarters in India; it actively develops the relations with these countries.
2. Strategic Position
2.1.Financial Analysis of Covidien
2.1.1Assets and Liabilities
The analysis of assets and liabilities is the balance sheet analysis. The analysis of the dynamics of the main items in the balance sheet and comparing the current data with previous periods is also known as horizontal analysis. By-turn, studying the structure and main indicators of the balance sheet is vertical analysis.
The latest financial period is the fourth quarter of 2012 year, which means the state of the company’s assets and liabilities as at September 30, 2012 (the end of 2012 fiscal year).
In order to perform a deeper study of the company’s assets, liabilities and owner’s equity it is necessary to compare and analyze the previous periods (1st and 2nd quarter of 2012). The balance sheet of Covidien as at September 30, 2012 is presented in the table below:
ItemAs at 2012-09As at 2012-06As at 2012-03
Assets
Cash & Short Term Investments1.866B1.935B1.633B
Receivables1.702B1.662B1.874B
Inventory1.772B1.723B1.64B
Prepaid Expenses342.00M938.00M905.00M
Other Current Assets
Total Current Assets6.272B6.258B6.082B
Gross Property, Plant & Equipment5.78B
Accumulated Depreciation2.908B
Net Property, Plant & Equipment2.872B2.806B2.734B
Long Term Investment
Goodwill & Intangibles11.63B11.57B10.80B
Other Long Term Assets877.00M889.00M917.00M
Total Long Term Assets15.98B15.86B15.07B
Total Assets22.26B22.11B21.15B
Liabilities
Current Portion of Long Term Debt509.00M511.00M511.00M
Accounts Payable589.00M596.00M591.00M
Accrued Expenses1.814B1.408B1.462B
Deferred Revenues
Other Current Liabilities
Total Current Liabilities2.912B2.596B2.643B
Total Long Term Debt4.531B4.574B3.824B
Deferred Income Tax828.00M
Other Long Term Liabilities3.421B4.232B4.156B
Total Long Term Liabilities8.78B8.806B7.98B
Total Liabilities11.69B11.40B10.62B
Shareholder’s Equity
…