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PLEKHANOV RUSSIAN UNIVERSITY OF ECONOMICS

INTERNATIONAL BUSINESS SCHOOL







INTERDISCIPLINARY COURSEWORK
Comparison between two companies:
BAXTER INTERNATIONAL INC vs BAYER AG










Student: Artemyeva Olga
Group: 5203
Supervisors: Fedunin A.S.
Dokukina A.A.
Bezrukov A.V.
Batueva A.D





Moscow
2014
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Table of Contents

1. Introduction ................................................................................................................................................. 3
2. Comparative analysis: Profiles .................................................................................................................... 4
a. Baxter International Inc. Profile .............................................................................................................. 4
b. Bayer AG Profile ..................................................................................................................................... 8
3. Financial analysis ...................................................................................................................................... 13
4. Statistical analysis of the companies ......................................................................................................... 21
a. Comparative analysis of development dynamics .................................................................................. 24
b. Factor analysis of Net Sales, Fixed Assets, Circulating Capital ........................................................... 26
5. Conclusion .................................................................................................................................................... 29
Bibliography ...................................................................................................................................................... 30
Appendices ........................................................................................................................................................ 31



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1. Introduction

Pharmacy market is considered to be one of the most important and largest parts of any
economy in the world. Just everybody is a consumer on this market, as all people can fall ill.
Moreover, pharmacy market is constantly developing, improving human quality-of-life and well-
being as well. Our environment is ever changing and so are viruses and deceases. It is not a secret
for everyone that life on the Earth is the most essential value. That is why it should be protected and
preserved.
To make a comparative analysis I have chosen two pharmacy companies Baxter
Incorporation Inc. and Bayer AG for several reasons. First of all, they are ones of the largest
pharmacy companies in the world, and in Russia as well; secondly, they do not only manufacture,
but have a wide research and development system; and, thirdly, they are competitors (especially in
Russia).
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2. Comparative analysis: Profiles

First of all, it is necessary to know basic information of Baxter International Inc. and Bayer AG
in order to understand their financial standing, experience and position on the market.
a. Baxter International Inc. Profile

Baxter International Inc. (NYSE:BAX), through its subsidiaries, develops, manufactures and
markets products that save and sustain the lives of people with hemophilia, immune disorders,
infectious diseases, kidney disease, trauma, and other chronic and acute medical conditions. As a
global, diversified healthcare company, Baxter applies a unique combination of expertise in medical
devices, pharmaceuticals and biotechnology to create products that advance patient care worldwide.
These products are used by hospitals, kidney dialysis centers, nursing homes, rehabilitation centers,
doctors offices, clinical and medical research laboratories, and by patients at home under physician
supervision. Baxter manufactures products in 30 countries and sells them in more than 100
countries.
Baxter International Inc. was incorporated under Delaware law (the USA) in 1931 as the first
manufacturer of commercially prepared intravenous (IV) solutions. During its first two years, the
company distributed products manufactured by another company in Los Angeles owned by Dr. Don
Baxter. But as demand grew in the Midwest, the need for a more central manufacturing base became
apparent. In 1933, the company opened its first manufacturing facility in a renovated automobile
showroom in Glenview, Illinois. There, six employees turned out the complete line of five IV
solutions in glass containers. When World War II broke out, many of Baxter's IV and blood-
collection products were the only ones to meet the specifications of the U.S. Armed Forces.
Temporary plants opened to meet increased demand. The company grew quickly and began
increasing production capacity while introducing new products and expanding internationally. In
1950, the company opened its second U.S. manufacturing plant in Cleveland, Mississippi. In the late
'50s, Baxter formally established an international division to sell Baxter products around the world.
Today, approximately 60 percent of Baxter sales come from non-U.S. markets. In 1961 Baxter stock
began trading on the New York Stock Exchange. 10 years later Baxter joined Fortune magazine's
listing of the 500 largest American corporations. Sales for the year reached $242 million. During 40
5
years Baxter made a lot of innovations in medical sphere. In 2004 Baxter's board of directors elected
Robert L. Parkinson, Jr. as the company's new chairman and chief executive officer.
The principal executive office is situated in One Baxter Parkway, Deerfield, Illinois. A
global presence and infrastructure is one of Baxter's key strengths. In 2013, nearly 60 percent of
Baxter's sales and workforce were outside the United States. With manufacturing facilities located
throughout the world, Baxter's philosophy of manufacturing locally allows the company to better
manage production, costs and pricing. North America Baxter has many facilities in the United States
including Arkansas, California, Colorado, Florida, Illinois, Indiana, Minnesota, Mississippi, New
York, North Carolina and Puerto Rico. Baxter's headquarters are located in Deerfield, Illinois,
approximately 30 miles north of Chicago. Baxter has significant presence in Europe, Middle East
and Africa, with manufacturing and research facilities in more than a dozen countries including
Austria, Belgium, Czech Republic, Germany, Ireland, Italy, Malta, Poland, Saudi Arabia, Spain,
Switzerland, Tunisia, Turkey and the United Kingdom. The Latin America/Canada region includes
Baxter manufacturing and distribution facilities in Argentina, Brazil, Canada, Chile, Colombia,
Costa Rica, Mexico and Ontario. In Asia Pacific, Baxter has had a significant presence for more
than 40 years. Given the vast geography and dynamic development of the diverse markets, Baxter
Asia Pacific operates in the structure of five sub-regions: Japan, China, North Asia, Australia/New
Zealand and India/Southeast Asia.
As a global healthcare company focused on innovation, Baxter embraces the opportunity to
help solve the worlds greatest healthcare challenges. Focus areas include increasing access to
healthcare for those in need as well as promoting math and science education to better prepare the
next generation of innovators. Thus, for 2015 Baxter has the following goals:
1. Create a new business model to improve access to healthcare for the "base of the
pyramid" (developing economies).
2. Work with donor partners to develop and implement a strategic product donation
plan beginning in 2010 that includes: being the first on the scene following disasters
and tragedies, contributing most needed products to stabilize supply, and contributing
most needed products in least developed and developing economies.
3. Facilitate learning of math and science through biotechnology education for Chicago
Public Schools' teachers and students, and partner with other educational
organizations to provide similar opportunities in other locations.
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Environmental stewardship has been central to Baxter for more than three decades. To
continue to enhance the companys environmental performance, Baxter has programs across the
product life cycle, from product development, materials selection and supplier management to
manufacturing, transport and end-of-life. By 2015 Baxter is planning to:
1. Incorporate sustainable principles into Baxter's purchasing program.
2. Reduce Baxters U.S. car fleet greenhouse gas emissions per kilometer by 20% from
2007 baseline.
3. Reduce greenhouse gas emissions 45% indexed to revenue from 2005 baseline.
4. Increase facility energy usage of renewable power to 20% (of total).
5. Reduce energy usage 30% indexed to revenue from 2005 baseline.
6. Reduce water usage 35% indexed to revenue from 2005 baseline. To help achieve
this, by 2010 evaluate potentially vulnerable watersheds associated with Baxter
facilities and establish aggressive water conservation goals for high-risk areas
7. Implement two projects to help protect vulnerable watersheds or provide
communities with enhanced access to clean water.
8. Reduce total waste generation 30% indexed to revenue from 2005 baseline.
9. Eliminate 5,000 metric tons of packaging material from products sent to customers
from 2007 baseline.
10. Further sustainable product design by identifying and minimizing life cycle impacts
and proactively eliminating or minimizing known substances of concern in new
products and packaging as feasible.
11. Identify new opportunities to replace, reduce and refine (3Rs) the use of animal
testing.
Baxters employees worldwide are essential to creating products that save and sustain lives.
The company is continually improving its programs to provide a safe, healthy and inclusive
workplace and to foster a culture that drives integrity and innovation. By 2015 Baxter is going to:
1. Implement best-in-class programs designed to protect the safety and improve the
health of employees that result in performance in the top three of industry peers.
2. Create and sustain an inclusive culture where diverse ideas, backgrounds,
experiences and perspectives are respected and valued.
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3. Continue to champion internal and industrywide ethical sales and marketing practices
by:
Implementing Baxter's enhanced U.S. Healthcare Compliance Program and
International Anticorruption Program within the company; and
Working with U.S. and international trade associations, non-governmental
organizations and governments to harmonize and enforce standards on
financial interactions with healthcare providers that allow for appropriate
education, research and dialogue on products and services and discourage
improper incentives.
The company has collaboration with Cell Therapeutics, Inc. to develop and commercialize
pacritinib; Coherus Biosciences, Inc. and Momenta Pharmaceuticals, Inc. to develop and
commercialize biosimilars; JW Holdings Corporation for parenteral nutritional products containing
a formulation of omega 3 lipids; Onconova Therapeutics, Inc. for rigosertib, an anti-cancer
compound; and Chatham Therapeutics, LLC to develop and commercialize product for the
treatments of hemophilia B.
As of December 31, 2013, Baxter employed approximately 61,000 people. Its ability to
compete effectively depends on its ability to attract and retain key employees, including people in
senior management, sales, marketing and research positions. Competition for top talent in healthcare
can be intense. Baxters ability to recruit and retain such talent will depend on a number of factors,
including hiring practices of its competitors, compensation and benefits, work location, work
environment and industry economic conditions. Baxter offers a variety of career development tools
and resources that are designed to help employees assess their strengths and development needs, as
well as their career interests and personal motivations. Employees are encouraged to use and refer to
these resources on an ongoing basis.
In addition, employees have a variety of opportunities to grow and learn by taking advantage
of online and in-classroom training programs. All employees have access to Baxters global learning
management system, which offers courses in multiple languages. The system contains more than
500 eLearning programs on subjects such as focus on quality, Baxter processes and systems,
company products, management and career development (including Harvard ManageMentor, a
collection of online resources organized by specific leadership and management topics), PC skills,
environment, health and safety, pharmacovigilance, project management and many more.
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Through Management Essentials, a management-training curriculum, managers and
supervisors receive additional training in a variety of areas including career and development
planning, and coaching and feedback.
Also, experienced managers and directors receive training targeting their business acumen
and their skills in motivating and developing others. The company provides pension and other
postemployment benefits to certain of its employees. Besides, Baxter International sponsors a
number of qualified and nonqualified pension plans for eligible employees. The company also
sponsors certain unfunded contributory healthcare and life insurance benefits for substantially all
domestic retired employees. Newly hired employees in the United States and Puerto Rico are not
eligible to participate in the pension plans but receive a higher level of company contributions in the
defined contribution plans. In September 2013, Baxter completed its acquisition of Gambro - a
global medical technology company that manufactures products for dialysis treatment founded in
Lund, Sweden in 1964 by Holger Crafoord - and assumed a net pension liability of approximately
$212 million from Gambro-related pension plans, of which $209 million has been classified as a
noncurrent liability. The Gambro pension plans were recorded at fair value on the date of acquisition
and were re-measured at year-end as part of the companys annual re-measurement of pension plan
obligations and plan assets.

Key business information 2013
Financial information $ millions % from 2012
Total Revenue 15259 +7,5
Balance Profit 2549 -11,8
Total Assets 25869 +26,87
Total Liabilities 17383 +29,6

b. Bayer AG Profile

Bayer AG (NASDAQ:BAYRY) is a German chemical and pharmaceutical company
founded in Germany in 1863. It is headquartered in Leverkusen, North Rhine-Westphalia, and
Germany and well known for its original brand of aspirin. Bayer is a global enterprise with core
competencies in the fields of health care, agriculture and high-tech polymer materials. As an
innovation company, it sets trends in research-intensive areas. Bayers products and services are
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designed to benefit people and improve the quality of life. At the same time, the Group aims to
create value through innovation, growth and high earning power.
The general partnership "Friedr. Bayer et comp." was founded on August 1, 1863 in Barmen
- now a district of the city of Wuppertal - by dye salesman Friedrich Bayer (18251880) and master
dyer Johann Friedrich Weskott (18211876). The objective of the company was the manufacturing
and selling of synthetic dyestuffs. The natural dyes that had been used until then were scarce and
expensive. New inventions, such as the synthesis of the red dye alizarin, and the strong demand for
tar dyes led to a boom in new foundings. Many dye factories were built at this time, but only
innovative companies with their own research facilities and the ability to exploit opportunities on
the international market managed to survive over the long term. Bayer was one of these companies.
The financial foundation for expansion was laid in 1881, when Bayer was transformed into a joint
stock company called "Farbenfabriken vorm. Friedr. Bayer & Co." The company's impressive
growth in its early years is evident from the size of the workforce, which grew from three in 1863 to
more than 300 in 1881. Between 1881 and 1913, Bayer developed into a chemical company with
international operations. Although dyestuffs remained the company's largest division, new fields of
business were joining the fold. Of primary importance for Bayer's continuing development was the
establishment of a major research capability by Carl Duisberg (18611935). A scientific laboratory
was built in Wuppertal-Elberfeld which was also the company's headquarters from 1878 until
1912 that set new standards in industrial research. Bayer's research efforts gave rise to numerous
intermediates, dyes and pharmaceuticals, including the "drug of the century," Aspirin, which was
developed by Felix Hoffmann and launched onto the market in 1899. In 1988 Bayer celebrated the
125th anniversary of its founding. Sales that year amounted to roughly DM 40 billion, while the
company employed more than 165,000 people worldwide. Additionally, Bayer AG became the first
German company to list its shares on the Tokyo Stock Exchange. The 1990s saw another major
structural transformation, with Bayer, like other companies, facing the challenge of globalization. In
the wake of the radical political changes that took place in Germany and Eastern Europe after 1989,
the company increased its focus on these promising markets. As early as 1992, Bayer broke ground
on a new site in Bitterfeld in eastern Germany, where production of Aspirin began in 1994.The
importance of North America to the Bayer Group continued to increase. In Canada Bayer acquired
Toronto-based Polysar Rubber Corporation in 1990 the most significant acquisition in the
company's history up to that point. The transaction made Bayer the world's biggest supplier of raw
materials for the rubber industry. The addition of a new indication (thrombosis prophylaxis) prompts
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the World Health Organization (WHO) to include acetylsalicylic acid, the active ingredient in
Aspirin, in its List of essential medicines for a second time. The active ingredient had already
been listed as an essential medicine in 1977. In 22 years, in 1999, To mark the 100th birthday of
Aspirin on March 6, professional mountaineers wrap Bayers former high-rise headquarters
building in Leverkusen, transforming it into the worlds biggest Aspirin pack and earning the
company three entries in the Guinness Book of Records. In June, 2010, the Aspirin Social Award is
presented for the first time. The award honors exemplary social projects in the health care sector. In
March 2012, Bayer receives approval from the Australian Therapeutic Goods Administration (TGA)
for Eylea, an eye medicine for the treatment of wet age-related macular degeneration.
Bayer is a global enterprise with core competencies in the fields of health care, agriculture
and high-tech polymer materials. As an innovation company, it sets trends in research-intensive
areas. Its products and services are designed to benefit people and improve their quality of life. At
the same time Bayer aims to create value through innovation, growth and high earning power.
Throughout the world Bayer is preventing, alleviating or curing diseases and improving
diagnostic techniques.
It is helping to provide an adequate supply of high-quality food, feed and plant-based raw
materials.
Bayers high-tech polymer materials are making significant contributions in a variety of
areas such as energy and resource efficiency, mobility, construction and home living.
The company has spent many decades laying the foundations for achieving these goals and is the
only global company to combine expertise in human, animal and plant health and in high-tech
polymer materials. Its focus on innovation is the key to maintaining or achieving leadership
positions in all of the markets. It is also about creating value for Bayers customers, stockholders
and employees, while at the same time considering the needs of other stakeholders in society.
Bayer values of Leadership, Integrity, Flexibility and Efficiency represented by the
acronym LIFE guide our actions as it works to accomplish its mission Bayer: Science For A
Better Life.
The Bayer Group is a global enterprise with companies almost in all countries. Thus, the
Asia/Pacific region is one of the most important markets of Bayer future. In 2013 Bayer generated
8.6 billion in sales there with 28,000 employees. In North America (United States and Canada),
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Bayer is represented in all strategic business areas. In 2013 Bayers 15,200 employees in this region
generated sales of approximately 9.7 billion. Europe is a Home Market for the Group and in
2013 Bayer achieved sales of approximately 15.1 billion in the European market. Numerous major
production facilities and 53,600 employees (of whom 35,300 are based in Germany) give the
company a strong presence in this region. Bayer has been present in Latin America for more than
110 years. In 2013 the companys 16,400 employees in the Latin America / Africa / Middle East
region generated 6.8 billion in sales. Through steady investment and optimization of its activities,
Bayer has established strong positions in Latin America. Thanks to modern and environmentally
compatible production facilities coupled with effective sales and marketing organizations, Bayer is
able to benefit from the growth in the region and is committed to helping shape the business
environment. Important production sites are located in Mexico, El Salvador, Colombia, Brazil and
Argentina. Bayers roots in Africa go back to 1920, when it first began marketing its products there.
Today Bayer is represented throughout the continent, from Casablanca to Cape Town. Bayers
business is managed by the affiliates in the three country groups North, West and Central Africa,
East Africa and Southern Africa. Health care and crop protection are major fields of activity, and
production plants are located in Morocco and South Africa. The countries of the Middle East bridge
the gap between Europe and the Far East. Bayer has been present with its products in this region
since the late 1880s and markets its entire product portfolio there.
Bayer AG is a strategic management holding company, run by its Board of Management on
the Boards own responsibility with the goal of sustainably increasing the companys enterprise
value and achieving defined corporate objectives. The Board of Management performs its tasks
according to the law, the Articles of Incorporation and the Boards rules of procedure, and works
with the companys other governance bodies in a spirit of trust. The Board of Management defines
the long-term goals and the strategies for the Group, its subgroups and its service companies, and
sets forth the principles and directives for the resulting corporate policies. It coordinates and
monitors the most important activities, defines the portfolio, develops and deploys managerial staff,
allocates resources and decides on the Groups financial steering and reporting. Members of the
Board of Management are appointed for a maximum term of five years and are eligible for
reappointment after the completion of their term in office. They joint responsibility for running the
business as a whole. However, the individual members manage the areas assigned to them on their
own responsibility within the framework of the decisions made by the entire Board. The allocation
of duties among the members of the Board of Management is defined in a written schedule. The
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entire Board of Management makes decisions on all matters of fundamental importance and in cases
where a decision of the entire Board is prescribed by law or otherwise mandatory. The rules of
procedure of the Board of Management contain a list of topics that must be dealt with and resolved
by the entire Board. Meetings of the Board of Management are held regularly. They are convened
by the Chairman of the Board of Management (since October 1, 2010 Dr. Marijn Dekkers has been
chairman of Bayer AGs Group Board of Management). Any member of the Board of Management
may also demand that a meeting be held. The Board of Management makes decisions by a simple
majority of the votes cast, except where unanimity is required by law. In the event of a tie, the
Chairman has the casting vote. According to the Board of Managements rules of procedure and
schedule of duties, the Chairman bears particular responsibility for leading and coordinating the
Boards work. He represents the company and the Group in dealings with third parties and the
workforce on matters relating to more than one part of the company or the Group. He also bears
special responsibility for certain departments of the Corporate Center and their fields of activity. The
role of the 20-member Supervisory Board is to oversee and advise the Board of Management. Under
the German Codetermination Act, half the members of the Supervisory Board are elected by the
stockholders, and half by the companys employees. The Supervisory Board is directly involved in
decisions on matters of fundamental importance to the company, regularly conferring with the
Board of Management on the companys strategic alignment and the implementation status of the
business strategy.

Key business information 2013
Financial information $ millions % from 2012
Total Revenue 40157 +1
Balance Profit 4207 +32
Total Assets 51318 -1,4
Total Liabilities 31640 -4,5



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3. Financial analysis

In this Chapter financial data of both companies and their financial standing will be
considered in details
1
.
Liquidity ratios
Baxter International Inc Bayer AG
YEAR 2012 2013 2012 2013
Current Ratio 1,95 1,69 1,5 1,36
Acid Test or Quick
Ratio
1,2 0,96 0,96 0,85

As it can be seen from the table, Baxter International Inc has bigger Current Ratio, than
Bayer AG does. That means in 2012-2013 Baxter had more protection against liquidity problems
and could easier meet its liabilities. At the same time, both companies had a decrease in CR, which
is not a very good indicator for them, as it is a risky situation.
The Quick Ratio measures the ability of a company to use its near-cash or quick assets to
immediately extinguish its current liabilities. The higher it is the better. Still, both companies show
negative tendency (taking into account decrease of ratios of both companies). However, the situation
is actually the same for this ratio like for the Current Ratio: QR for Baxter is bigger than for Bayer,
which means that Baxter has more stand situation in the given periods. In addition, the quick ratio of
Bayer in 2012 was less than 1 - the company could not fully pay back their current obligations and
in 2013 it got even worse.



1
Financial statements and income statements can be found in Appendices.
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Solvency ratios
Baxter International Inc Bayer AG
YEAR 2012 2013 2012 2013
Time interest earned 6,4 times 5,2 times 8,4 times 14,6 times
Preferred stock
dividend coverage
- - - -
Time fixed charges
earned
0,9 times 0,8 times 1,6 times 2,0 times

Time Interest Earned indicates the companys ability to pay the interest on its long-term
debt. For example, in 2013 Bayers operating profit covered interest payment 14,6 times. This is the
highest ratio in the whole table, so it can be concluded that Bayer may have undesirable lack of debt
or may pay down too much debt with earnings that could be used for another projects.
Recommendation is: the company might yield greater returns by investing its earnings into other
projects and borrowings at a lower cost of capital than what it was paying.
There was no possibility to calculate Preferred Stock Dividend Cover as both companies do
not issue preferred shares.
Times Fixed Charge Earned Ratio indicates a firms ability to satisfy fixed financial
expenses such as interest and leases. If Bayer in both years is able to pay the fixed charges, which is
positive, Baxter finds it a bit difficult to meet fixed obligations.

Debt-to-Equity ratios
Baxter International Inc Bayer AG
YEAR 2012 2013 2012 2013
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Debt Ratio 0,66 0,67 0,64 0,6
LT Debt to
Capitalization Ratio
0,44 0,5 0,27 0,21
Debt-to-Equity Ratio 1,93 2,05 1,78 1,47
Total Leverage Ratio 2,94 times 3,06 times 2,78 times 2,48 times

Debt Ratio shows the proportion of a companys total assets financed by short- and long-
term credit sources. The higher this ratio is, the more leveraged the company and the greater its
financial risk. This ratio is higher in Baxter, however the situation is not critical, as ratios of both
companies do not exceed 100%, even they exceed 30-40% acceptable level.
Long-term Debt to Capitalization Ratio is a variation of the Debt-to-Equity Ratio
(considered below). Using this ratio, investors can identify the amount of leverage utilized by a
company and compare to other companies ones to analyze risk exposure. For both companies in
both years the percentage of debt in capital is not high, but Bayer can be proved to be less risky
(lower indicators).
Debt/Equity Ratio is a measure of proportion of equity and debt the company is using to
finance its assets. A high Debt/Equity Ratio generally means that a company has been aggressive in
financial its growth with debt. It can be seen in case of both companies, where the ratio in both years
is over 1. This means that Bayer as well as Baxter could potentially generate more earnings that they
would have done without this outside financing. At the same time, it is quite obvious that Bayer is
trying to overcome this difficulty decreasing its debts.
Total Leverage Ratio is an indication of the degree to which management has financed the
companys asset investments with non-ownership capital. It can be interpreted like this: in 2013
Bayer used $0,48 of non-ownership funds for every 2 dollars of owners equity, while in 2012 the
company used for this purpose $0,78. The same is for Baxter: in 2013 $1,06 were used for every $2
of owners equity and in 2012 $0,94 were used.



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Funds Management ratios

Baxter International Inc Bayer AG
YEAR 2012 2013 2012 2013
Receivables to Sales 0,002 0,002 0,19 0,18
Average Collection
Period
1,05 days 0,86 days 69,8 days 67,6 days
Average Daily Sales


$41,8 $38,8 $110,0 $108,6
Inventory Turnover 2,5 times 2,2 times 2,8 times 2,8 times
Average Inventory
Period
134,5 134,2 167,1 148,9
Asset Turnover 0,70 times 0,59 times 0,77 times 0,78 times
Fixed Asset Turnover 2,3 times 1,9 times 4,01 times 4,03 times
Capital on Invest
Turnover
0,9 times 0,8 times 1,0 times 1,1 times

In the absence of an aging of accounts receivable (classification of outstanding receivables
by days since billing) or other detailed credit information, the receivables-to-sales ratio, computed
over a number of years, can give a crude indication of the trend in a company's credit policy. The
lower receivables-to-sales percentage of Baxter (than of Bayer) is an indicator that its sales most
probably include a high proportion of cash sales.
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Average Collection Period is the approximate amount of time that it takes for a business to
receive payments owed, in terms of receivables, from its customers and clients. The collection
period of Bayer is almost 65 times higher than one of Baxter (it actually decreased in 2013, besides,
for both companies, which can be considered as a positive trend). This means that it takes more time
for Bayer than for Baxter receive payments, and it can become dangerous, because possessing a
lower average collection period means that it does not take a company very long to turn its
receivables into cash (ultimately, every business needs cash to pay off its own expenses (such as
operating and administrative expenses)). Also it indicates management problems within the
company and can result in increasing amount of funds being tied up in the asset.
Average Daily Sales shows how much money the company obtains from one day of sales. It
is obvious that the higher this ratio, the better, as more profits are gained. In particular case Bayer
has 2,5 times higher Average Daily Sales than Baxter, Bayer has higher profit as a result, and this is
proved by its financial statement.
The Inventory Turnover ratio indicates how fast inventory items move through a business. It
is an indication of how well the funds invested in inventory are being managed. A decrease in the
turnover rate indicates that the absolute size of the inventory relative to sales is increasing. This can
be a warning signal, since funds may be tied up in this inventory beyond the level required by the
sales volume, which may be rising or falling. That is particular case of Baxter, as Bayer keep this
ratio in stability.
Average Inventory Period estimates the average length of time items spent in inventory. This
Ratio is a bit higher in Bayer than in Baxter.
Asset Turnover is an indicator of how efficiently management is using its investment in total
assets to generate sales. High turnover rates suggest efficient asset management, since it implies the
company is generating more revenues per dollar of assets. But since this ratio varies widely from
one industry to the next, comparisons are only meaningful when they are made for different
companies in the same sector. So, comparing ratios of the companies-competitors we can claim that
Asset Turnover of Bayer AG is better, as it is higher. It can be concluded that Bayer AG deploys its
assets more efficiently than Baxter International Inc.
Fixed Asset Turnover measures a company's ability to generate net sales from fixed-asset
investments - specifically property, plant and equipment (PP&E) - net of depreciation. A higher
fixed-asset turnover ratio shows that the company has been more effective in using the investment in
fixed assets to generate revenues. The results of calculation show us that investments in fixed assets
made by Bayer are far more efficient than those made by Baxter.
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Capital on Invest Turnover is a measurement comparing the depletion of working capital to
the generation of sales over a given period. This provides some useful information as to how
effectively a company is using its working capital to generate sales. It is obvious from the table that
Bayer used working capital to generate sales in both years better.

Profitability ratios

Baxter International Inc Bayer AG
YEAR 2012 2013 2012 2013
Gross Profit Margin 51,45% 49,77% 52,06% 51,82%
Operating Profit
Margin
19,88% 17,48% 9,96% 10,48%
Net profit Margin 16,39% 13,19% 6,15% 7,94%
Return on Assets 11,79% 8,7% 4,7% 6,21%

Net profit margin represents the percentage of revenue that a company keeps as profit after
accounting for fixed and variable costs. In general, narrow profit margins indicate increased volatile
earnings. For companies with significant fixed costs, wide profit margins reduce the risk that a
decline in sales will cause a net profit loss.
Gross Profit Margin is a financial metric used to assess a firm's financial health by revealing
the proportion of money left over from revenues after accounting for the cost of goods sold. The
gross margin is not an exact estimate of the company's pricing strategy but it does give a good
indication of financial health. Without an adequate gross margin, a company will be unable to pay
its operating and other expenses and build for the future. In general, a company's gross profit margin
should be stable. It should not fluctuate much from one period to another, unless the industry it is in
has been undergoing drastic changes which will affect the costs of goods sold or pricing policies.
Both companies have stable Gross Profit Margin.
Operating margin is a measurement of what proportion of a company's revenue is left over
after paying for variable costs of production such as wages, raw materials, etc. A healthy operating
margin is required for a company to be able to pay for its fixed costs, such as interest on debt. The
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ratios for Baxter are almost 2 times higher, which makes Baxter more successful in dealing with
payment of variable cost of production.
Return on Investment (in my case Return on Assets) is used to evaluate the efficiency of an
investment or to compare the efficiency of a number of different investments. If an investment does
not have a positive ROI, or if there are other opportunities with a higher ROI, then the investment
should be not be undertaken. Baxter has higher ROI, which means that the investment is done in this
company more effectively. However, Bayer showed good growth rate, while Baxter had a decrease
in ROI.

Common Stock ratios
Baxter International Inc Bayer AG
YEAR 2012 2013 2012 2013
Earnings per Share $3,67 $3,94 $2,91 $3,86
Price-Earnings Ratio 19,08 20,51 24,7 26,4
Capitalization Rate 0,05 0,05 0,04 0,04
Dividend Yield 2,3% 2,6% 2,6% 2,1%
Payout Ratio 31% 33% 32% 37%

An earnings-per-share Ratio shows the portion of a company's profit allocated to each
outstanding share of common stock. EPS ratio serves as an indicator of a company's profitability. In
2013 Baxter has earned better profitability.
Price-Earnings Ratio is a valuation ratio of a company's current share price compared to its
per-share earnings. In general, a high P/E suggests that investors are expecting higher earnings
growth in the future compared to companies with a lower P/E. Bayer has better situation, concerning
this ratio.
Capitalization Rate is a rate of return on a real estate investment property based on the
expected income that the property will generate. Capitalization rate is used to estimate the investor's
potential return on his or her investment.
20
Dividend Yield shows how much a company pays out in dividends each year relative to its
share price. The higher Dividend Yield is the better. Baxter had better ratio in 2013.
Payout Ratio shows the percentage of earnings paid to shareholders in dividends. Bayer gave
more earnings to shareholders than Baxter did in both years.
To sum up, Bayer seems to be more financially stable company than Baxter is. However,
Baxter shows good growth rates and promises to become more profitable and successful in the
nearest future.

21
4. Statistical analysis of the companies

To analyze financial standing of Baxter International Inc. and Bayer AG I consider the following
2
:
Efficiency of use of Fixed Assets
Efficiency of use of Circulating Capital
Financial results of activity
Efficiency of use of FA
Fixed Assets are those assets which are used for production or business purposes. Its benefits are
obtained by company in many years after its purchasing. These assets (land and building, plant and
machinery, vehicles, computers and equipment) are not purchased for selling purposes but only used
for trading and providing better services. The presumptive characteristics of using of Fixed Assets
are Yield of Capital Investment and Fixed Assets Intensity.
Yield of capital investment is calculated by the ratio between the volume (value) of
Commodity output and the average value of Fixed Assets.
FA
CO
Y
It shows how much money of Commodity output was produced per 1 cost unit of Fixed Assets. The
growth of yield of capital investment evidences of the effectiveness of fixed assets using is
increased. It means the fixed assets are better used and a company is more effective.
The inverse characteristic of Fixed Assets using is the Fixed Assets Intensity. This indicator
expresses the requirement of Fixed Assets for manufacturing of Commodity output. It is calculated
by dividing the value of Fixed Assets by the value (volume) of Commodity output.
CO
FA
Y
F
1

It shows how much money of Fixed Assets it is needed to invest for manufacturing of 1 cost unit of
Commodity output.


2
Financial statements and income statements can be found in Appendices.
22

Efficiency of use of Circulating Capital
Analysts and business managers closely monitor production expenses so they stay within the
allocated amount. The production cycle involves several expenses, one of which is circulating
capital. While some components of circulating capital are known amounts, others must be estimated.
Circulating capital is directly related to generating profit for the company. Circulating Capital is
classified as:
1. Production circulating assets includes raw material, auxiliary materials, fuel, work-in-
process, expenses related to future periods, not valuable materials, semi-products, other
inventories, which have durability less than one year.
2. Commodity circulating Assets includes finished commodities and goods for resale, Factory
shipment, accounts receivable, short-term investments, monetary assets, accounts payable,
other current liabilities, and other current assets.
In manufacturing process the Circulating Capital ever-changes its form from raw materials to
Finished Commodities and Total revenue. Thus, it could be taken into account as the average rests
of the value of Circulating Capital.
Effectiveness of using of Circulating Capital is the opportunity of a company to put up money
and to receive more of total revenue. The effectiveness is expressed by the following characteristics
of turn-over.
1. Rate of Turnover is calculated by the ratio of total revenue (the value of Products sold) and
the average rests of Circulating Capital. It shows the number of circulations 1 cost unit
returns or how much money was received per 1 cost unit of Circulating Capital.
CC
TR PS
k
t
) (

2. Rate of tie Circulating Capital is inverse characteristic of effectiveness and shows how much
money it is necessary to put up to receive 1 cost unit of total revenue. This indicator is
named as the Circulating Capital intensity also.
) (TR PS
CC
k
tc

23
3. Inventory Days On Hand (days sales in inventory) shows the continuance of 1 circulating
and expressed by number of days. This characteristic is inverse and could be calculated using
the following equations:
period in Days
PS
CC
PS
CC period in Days
k
period in Days
D
t
:
*


Financial results of activity
The efficiency of companys activity is expressed by run up to financial results. There are the
following characteristics of financial results:
Total revenue;
Profit;
Profitability.
Total revenue is the final financial result of a company activity which enables to define rating of
a company. Profit is the characteristic which expresses the difference of the total revenue and total
expenses. The most important characteristics of profit are the Profit from operations and Balance
profit because the first indicator characterizes the primary activity of a company and the second one
describes the total financial results of a company activity.
Consider the factor analysis of Balance profit which includes the rate of Balance profit:
OP
BP
k
BP


Profitability is efficiency of companys activity. Profitability is expressed by the several
characteristics. Two of them are return on equity and return on sales.
1. Return on Equity is calculated by dividing the balance profit by the total sum of fixed assets
and circulating capital and expressed by percentages:
% 100 *
CC FA
BP
R


It shows how many cost units of balance profit were received per 1 cost unit of investment.
2. Return on Sale is the ratio of operating income ("operating profit" in the UK) divided by net
sales (total revenue), usually presented in percent.
24
% 100 *
TR
OP
r

This measure is helpful to management, providing insight into how much profit is being produced
per dollar of sales. An increasing ROS indicates the company is growing more efficient, while a
decreasing ROS could signal looming financial troubles.

a. Comparative analysis of development dynamics

Financial indicators for 2012/2013
Bayer AG 2012 2013 Baxter International Inc. 2012 2013
FA 9893 9957 FA 6098 7832
CC 19544 19019 CC 9260 10004
OP 5811 5657 OP 3354 2576
OOP -1883 -723 OOP -155 -9
NOP -752 -727 NOP 310 18
BP 3176 4207 BP 2889 2549
TR 39741 40157 TR 14190 15259

Numerical value of above mentioned characteristics
YIELD OF CAP INV 4,02 4,03 YIELD OF CAP INV 2,33 1,95
FA INTENSITY 0,249 0,248 FA INTENSITY 0,43 0,51
RATE OF
TURNOVER 2,03 2,11 RATE OF TURNOVER 1,53 1,53
RATE OF TIE CC 0,49 0,47 RATE OF TIE CC 0,65 0,66
INV DAYS ON
HAND 177 171 INV DAYS ON HAND 234,93 236,02
RATE OF BP 0,55 0,74 RATE OF BP 0,86 0,99
ROS 0,15 0,14 ROS 0,24 0,17
ROE 0,11 0,15 ROE 0,19 0,14

Conclusions
25
Bayer AG Baxter International Inc
1) Fixed Assets Yield in total increased by
0,01 USD/USD, that means in 2013 each
1 USD invested into Fixed Assets yielded
0,01 USD more Commodity Output
(Total Revenue) worth.
2) A decrease in FA Intensity of 0,001
USD/USD means that in 2013 Fixed
Assets were used more efficiently during
manufacturing process.
3) In 2013 each 1 USD invested in
Circulating Capital yielded 0,08 USD
more to TR worth.
4) In 2013 it was necessary to invest less
by 0,02 USD to obtain 1 USD of TR in
comparison with 2012
5) A 6-day decrease in Inventory Days-on-
Hand in 2013 is favorable as the
company manages to reduce carrying
costs which require significant
investments.
6) As Rate of Balance Profit increased from
0,55 USD/USD to 0,74 USD/USD, I can
assume that dependence of Bayer on the
primary activity decreased.
7) In 2012 the company generated 15 cents
of Profit from each 1 dollar of sales,
while in 2013 only 14 cents. Though the
difference is quite small, the business is
still considered to be sound.
8) In 2012 each 1 dollar of Total Equity
invested into Fixed Assets yielded 11
1) Fixed Assets Yield in total decreased by
0,38 USD/USD, that means in 2013 each
1 USD invested into Fixed Assets yielded
0,38 USD less Commodity Output (Total
Revenue) worth.
2) In 2013 it was necessary to invest 0,08
USD more into Fixed Assets to obtain 1
USD in Total Revenue.

3) In 2013 each 1 USD invested in
Circulating Capital did not yield any
value more to TR worth.
4) In 2013 it was necessary to invest more
by 0,01 USD to obtain 1 USD of TR in
comparison with 2012
5) A 1-day increase in Inventory Days-on-
Hand in 2013 is unfavorable as the
company does not manage to reduce
carrying costs which require significant
investments.
6) As Rate of Balance Profit increased from
0,86 USD/USD to 0,99 USD/USD, I can
assume that dependence of Baxter on the
primary activity decreased.
7) In 2012 the company generated 24 cents
in Profit from each 1 dollar of sales,
while in 2013 occurred a decrease to 17
cents. Baxter may experience financial
troubles.
8) In 2012 each 1 dollar of Total Equity
invested into Fixed Assets yielded 19
26
cents of Total Profit and 15 cents in
2013.

cents of Total Profit and 14 cents in
2013.


b. Factor analysis of Net Sales, Fixed Assets, Circulating Capital

From the tables given above in Comparative analysis of development dynamics it is quite
obvious that Net Sales (Total Revenue) increased in both companies, so did Fixed Assets, while
Circulating Capital in case of Bayer decreased and in case of Baxter increased. To find out the
reasons factor models were used.
Factor analysis of Total Revenue
The change of commodity output is influenced by the change of yield of capital investment. It is
possible to estimate this influence by dint of the two-factor multiplicative model:


FA Y FA CO
FA Y Y CO
FA Y FA Y CO CO CO
FA Y CO




0
1
0 0 1 1 0 1
*
*
,
where the yield of capital investment is qualitative indicator and the value of fixed assets is
quantitative indicator.

Bayer AG Baxter International Inc

The change in TR for Bayer was 416 million
USD in 2013.

1
*FA Y Y CO =0,02*9957=158,907
million USD
Investments into FA were quite reasonable and
a slight increase in capital investment yield

The change in TR for Baxter was 1069 million
USD in 2013.

1
*FA Y Y CO =(-0,38)*7832=-2966
million USD
Investments into FA were not reasonable and a
decrease in capital investment yield caused
27
caused approximately 160 mln USD increase in
Net Sales.
FA Y FA CO
0
=4,02*64=257,093 million
USD
At the same time, a slight increase in FA was
followed by 257 mln USD increase in TR, that
means Fixed Assets were used more efficiently.
approximately 3000 mln USD decrease in Net
Sales
FA Y FA CO
0
=2,33*1734=4035 million
USD
At the same time, an increase in FA was
followed by approximately 4000 mln USD
increase in TR, that means Fixed Assets were
used more efficiently

Factor analysis of Fixed Assets
The change of fixed assets intensity influences on the change of the Fixed Assets. It is possible to
estimate this influence by means of the following model:

CO F CO FA
CO F F FA
CO F CO F FA FA FA
CO F FA




0
1
0 0 1 1 0 1
*
*
,

where the fixed assets intensity is qualitative indicator and the value (volume) of commodity
output is quantitative indicator.

Bayer AG Baxter International Inc

In total, FA increased by 64 mln USD in 2013.

1
*CO F F FA = (-0,001)*40157=-40,157
mln USD
CO F CO FA
0
=0,249*416=103,558 mln
USD
In 2013 a decrease in FA intensity caused a
relevant decrease of 40,157 mln USD in FA,
while positive change in Total Revenue
resulted in 100 mln USD increase in FA value.

In total, FA increased by 1734 mln USD in
2013.

1
*CO F F FA = 0,08*15259=1274,609
mln USD
CO F CO FA
0
=0,43*1069=459,391 mln
USD
In 2013 Baxters Fixed Assets increased by
1274 mln USD due to an increase in FA
intensity and by 460 mln USD due to an
28
increase in TR.

Factor analysis of Circulating Capital
Inventory days-on hand enables us to estimate the value of free surplus of turnover and the value of
laid-down circulating assets. At the heart of the analysis two-factor multiplicative model underlies.

period in Days
PS D
PS CC and
period in Days
PS D
D CC
period in Days
PS D
CC
PS
CC period in Days
D



* *
* *
0 1


The value of free surplus of turnover and the value of laid-down circulating assets are defined using
the positive or negative value of Circulating assets.

Bayer AG Baxter International Inc

In total, CC decreased by 525 mln USD in 2013

period in Days
PS D
D CC
1
*
=
360
40157 * 54 , 6
1

= -729,58 mln USD



period in Days
PS D
PS CC


*
0

360
416 * 177
204,582 mln USD
The production cycle acceleration resulted in the
free surplus of turnover amounting 730 mln
USD. At the same time the increase of sales has
required 204,5 mln USD worth of CC to be laid
down.

In total, CC increased by 744 mln USD in 2013

period in Days
PS D
D CC
1
*
=
360
15259 * 09 , 1
1
= -
46,4003 mln USD

period in Days
PS D
PS CC


*
0

360
1069 * 235
697,819 mln USD
The production cycle slowdown has required
46,003 mln USD worth of CC to be laid down.
At the same time the increase of sales has
required 698 mln USD worth of CC to be laid
down as well. As a result, the supplier turnover
has required the extra 744 mln USD invested in
CC.


29
5. Conclusion

After gathering all the information, I can conclude that both companies are quite stable and
profitable. Bayer is an old company that has a strong reputation, while Baxter is developing now,
showing rather good results. In total, both companies have sound financial standing, but as for me, I
would prefer to invest my money into Bayer AG rather than to Baxter International Inc because it
has good market share, perfect strategy of development and positive indicators of manufacturing
process and business management, and Baxter seems to be a bit risky for me.
30
Bibliography

Statistics of the Firm. Batueva A.D. IBS Plekhanov University of Economics
Economics of the Firm. Dokukina A.A. IBS Plekhanov University of Economics
http://www.nasdaq.com/
http://www.baxter.com/
http://www.bayer.com


31
Appendices



32


























33
Baxter Consolidated Financial Statement




34
Baxter Consolidated Income Statement