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Current Ratio - Eli Lilly

Essay by   •  April 13, 2011  •  Essay  •  306 Words (2 Pages)  •  1,615 Views

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From 2008-2010 Eli Lilly held a fairly consistent amount of current assets at and average of $12.4 billion. Likewise, current liabilities were more stable between 2009-2010 at $6.75 billion. Looking at the two years preceding 2008, the company held a similar amount of current assets with slightly less in current liabilities. The point to be made is that 2008 is an anomaly and not the trend for this ratio. Further investigation of the increased debt level in 2008 should be investigated in conjunction with these numbers. Outside of 2008, the company produced a current ratio between 1.75-2.27, with an average of 1.94 (reuters.com). However, this is below the industry average of 2.43 suggesting their competitors may be better positioned to withstand an industry-wide financial disaster.

Inventory to sales

Keeping their inventory stable at around $2.6 billion while increasing sales each year allowed Lilly to raise their inventory to sales ratio in consecutive years. By definition, this ratio shows the amount of sales generated for every $1 invested in inventory. Thus an increasing ratio could be the result of an increased marketing campaign, entry into new markets, development of a popular product, increased sales incentives, price increases, or anything that may boost sales. It may also indicate more effective management of inventory, though with increasing sales each year it's more likely that the effectiveness belongs to the sales side. Nonetheless, this is a good sign for investors.

Inventory turnover

Another measure of inventory management is how quickly the company uses its stock of inventory. This is important because inventory is generally the largest component of a company's working capital (Bragg, 2007). If inventory is not turned over in a timely manner, then the company may have too much capital tied up in illiquid assets, putting them in a competitive

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