Provide A Response To Case 22 Eli Lilly Company Answer 2

Provide A Response To Case 22 Eli Lilly Companyanswer The 2 Ques

Develop the projected financial statements that fully assess and evaluate the impact of your proposed strategy. How are/is the acquisitions/growth financed? Will you increase debt further, or dilute ownership of LLY stock to raise the capital needed?

Note that including the above 2 questions, there are a total of 4 questions that need to be answered for this assignment. You will need to use information contained in Chapters 7 and 8 in order to successfully complete this assignment. Place the results of the exercise(s) in a single document and submit it via the link provided. Include your name, class, section number, and the number of the exercise(s) on the attachment (ex: 1B, Step 3).

Paper For Above instruction

In analyzing Eli Lilly & Company's strategic initiatives, particularly in relation to acquisitions and growth strategies, it is essential to project the company's financial statements comprehensively. These projections include the income statement, balance sheet, and cash flow statement, which collectively help evaluate the financial implications of proposed strategic moves. Accurate forecasting involves examining historical data, understanding market conditions, and applying relevant financial ratios and assumptions derived from Chapters 7 and 8, which cover financial statement analysis, forecasting techniques, and capital structure considerations.

Projected Financial Statements and Impact Assessment

The development of projected financial statements begins with estimating revenue growth based on historical trends and market analysis. For Eli Lilly, which operates in the pharmaceutical industry characterized by R&D investments and patent expirations, revenue projections must account for new product launches, patent cliffs, and potential market expansion through acquisitions. Gross profit margins are then projected considering manufacturing costs and pricing strategies.

Operating expenses, including R&D, selling, general, and administrative costs, are forecasted as a percentage of sales, adjusted for inflation and strategic investments. The net operating income thus derived enables the calculation of earnings before interest and taxes (EBIT). Taxes are computed based on the applicable corporate tax rate, yielding net income predictions.

The balance sheet projections involve estimating assets, liabilities, and equity alterations. For example, to finance growth, Eli Lilly might consider different capital structure scenarios. The cash flow statement projections focus on operating cash flows, investing activities such as acquisitions or capital expenditures, and financing activities, including debt issuance or stock repurchases.

Assessing the impact of this strategy involves comparing these projections against historical financial data, analyzing key ratios like debt-to-equity, return on assets, and profit margins. These ratios help determine whether the company's leverage is sustainable and whether its profitability is likely to improve with the growth strategy.

Financing Acquisitions and Growth

The financing approach for acquisitions and growth initiatives influences Eli Lilly’s financial health significantly. The company could opt to increase debt levels, thus leveraging its balance sheet to fund acquisitions while maintaining ownership levels. Increasing debt may be advantageous if the company can secure favorable borrowing rates and generate returns exceeding the debt costs.

Alternatively, diluting ownership by issuing new equity could provide capital without adding leverage, but this approach may dilute existing shareholders' interests and potentially impact stock prices negatively. The decision depends on the company's current debt capacity, cost of capital, and strategic priorities.

Based on Chapters 7 and 8, which discuss capital structure policies and financial leverage, the optimal choice should balance risk and return. If Eli Lilly's debt levels are within acceptable limits, and interest rates are favorable, debt financing may be preferred. Conversely, if market conditions favor equity issuance and the company aims to avoid increased leverage risk, issuing shares may be prudent.

In conclusion, projecting financial statements provides critical insights into the expected outcomes of Eli Lilly's growth strategy. The financing method chosen—debt or equity—will influence not only the company's financial ratios but also its strategic flexibility and shareholder value.

References

• Brigham, E. F., & Ehrhardt, M. C. (2019). Financial Management: Theory & Practice. Cengage Learning.
• Gombola, M. J., & Liu, F. (2018). Financial Statement Analysis: A Practitioner's Guide. Routledge.
• Ross, S. A., Westerfield, R., & Jaffe, J. (2021). Corporate Finance. McGraw-Hill Education.
• Peterson, P. P., & Fabozzi, F. J. (2019). Analysis of Financial Statements. Wiley.
• Brealey, R. A., Myers, S. C., & Allen, F. (2020). Principles of Corporate Finance. McGraw-Hill Education.
• Damodaran, Aswath. (2018). Investment Valuation: Tools and Techniques for Determining the Value of Any Asset. Wiley.
• Higgins, R. C. (2018). Analysis for Financial Management. McGraw-Hill Education.
• Bodie, Z., Kane, A., & Marcus, A. J. (2021). Investments. McGraw-Hill Education.
• Modigliani, F., & Miller, M. H. (1958). The Cost of Capital, Corporation Finance and the Theory of Investment. The American Economic Review, 48(3), 261–297.
• Academic journals and industry reports relevant to pharmaceutical financing and strategic growth planning.