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CASE STUDY - Essay Example

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Laporte. The chief executive’s aversion to debt resulted in debt-free balance sheet and created huge cash reserves.
The company…
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CASE STUDY

In 1972 the company reported Net Income of $172.7 million that increased by more than hundred percent to $497.3 million.
The financial performance of the company was characterized by steady and consistent growth and rising profitability. AHP increased revenues, earnings and shareholders’ dividends for straight 29 years. The company managed to retain the growth in the range of 10 percent and 15 percent in recent years. This growth was financed by the company through internal means even though it paid roughly 60 percent of the earnings as dividends.
The earnings growth of the company boosted the share price of the company by nearly three times. The steady growth in sales and rising EPS made the shares of the company an attractive ‘buy’ among the institutional investors. The low debt exposure of AHP seemed to work in favor of the company as it gained wider acceptance from the institutional investors. To couple with this the steady rise in the return on equity of the company seemed to attract more number of buyers which can be the reason for the three fold rise in the share price of the company.
The cash flow position of the company was also very strong as evident from the steady rise in the Cash position of the company. In 1976 the company had Cash of nearly $358.8 million that grew to $729.1 million. Even though the company declared a generous portion of the profits as dividend the cash reserves of the company kept rising steadily. In fact the growth in cash reserves even outpaced the growth rate in sales and profits. This ensured that the liquidity position of the company remained strong. A high liquidity, as measured by a high current ratio, is a good sign as it signifies that the company is capable of taking care of any financial emergency (Siegel, et al., 1997, pp80).
Warner Lambert was the only company that was comparable to AHP. Like AHP the former also operated in roughly the same businesses and had a debt ... Read More
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