A Financial Analysis On The Possibility Of A Merger And Acquisition (Research Paper Sample)

FINANCE
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Introduction
Omega Healthcare Investors, Incorporated
Omega Healthcare Incorporated is an investment company which specializes in leasing healthcare facilities and such related investments in in the US. The public company which was established in 1992 is based in the state of Maryland. House of Hanover, Ltd and Sterling Acquisition Corporation are some of the subsidiaries which are directly owned by the corporation. In its report, it considers its business as a Real Estate Investment Trust (REIT) which takes a long-term approach in healthcare investments. Omega Healthcare Incorporated provided mortgage and lease financing agreements to healthcare operators. Rental income and mortgage interest income makes up some of the operational assets of the company.
Merck & Co.
Merck & Co. Incorporated is a pharmaceutical company based in the US. The company which is based in New Jersey was established in 1891 and nationalized in 1917 as a US business. It deals with a wide range of pharmaceutical products and medical research. The efforts in research by the company has led to the development of different kinds of medicine to cure various diseases and ailments. The range of products produced by the company also includes veterinary health products. Both human and animal healthcare products are distributed in a well-established supply chain network. The business of the corporation is conducted in a regulated business environment which is one of the major risks faced in the industry.
Omega Healthcare Investors, Incorporated Ratio Analysis
Return on Assets (ROA)
The Return on Assets is a profitability ratio which shows how well a company uses its assets to generate profits. The ratio is obtained by dividing the annual net income by the value of the total balance sheet assets. For the year ended 2016, in its consolidated statement of comprehensive income, Omega Healthcare Investors, Inc. had US$383,367,000 million as net income. The total assets as of 2016 were US$8,949,260,000. The Return on Assets ratio for the same year was 0.043. Compared to the previous year 2015, the net income of the company was reported as US$224,524,000. The total assets for the same year were US$7,989,936,000. The Return on Assets for 2015, therefore, is 0.028.
Return on Equity (ROE)
The return on equity is a profitability ratio. The ratio informs on the profits made in relation to the value of equity capital. The ratio is arrived at by taking the net profit divided by the total equity. The net income for the year ended 2016 at Omega Healthcare was US$383,367,000. The total equity in the same year as per the balance sheet is US$4,156,425,000. The Return on equity ratio for the same year, therefore, is 0.092. For the previous year 2015, the net profit amounted to US$224,524,000 and the value of total equity was US$2,751,096,000. The Return on Equity, therefore, is 0.082.
Profit margin
The profit margin is the third metric of profitability. The ratio gives an indication of the actual value of profits made out of the revenue registered by the company. To obtain the ratio we take the net income and divide by the revenue. For the year ended 2016, Omega Healthcare Investors, Incorporated had US$383,367,000 as net income. In the same year, the company’s revenue was reported as US$900,827,000. The profit margin is therefore 43%. Similarly, in the previous year, the reported net income was US$224,524,000 and the revenue related to the profits were US$743,617,000. The profit margin associated with the reported earnings of 2015, therefore, were 30%.
Earnings per Share
Earnings per share as a ratio shows the relationship between the reported Net Income to the common shares in a company (Mehta, 2016, p.437). For the year ended 2016, Omega Healthcare Company had US$383,367,000 in Net Income. The Net Income which attributed to the non-controlling interest based on the total Net Income was US$16,952,000. The Net Income attributed to the common shareholders was US$366,415,000. The weighted average shares outstanding were 191,781,000 and the Net Income attributed to the common shareholders in the same year was US$366,415,000. The earnings per common stock for the same year was US$1.91. Similarly, in 2015 the Net Income available to the common shareholders were US$224,524,000 and the basic weighted average shares outstanding were 172,242,000. The earnings per share ratio, therefore, is US$1.29.
Debt to Worth Ratio
This is an important ratio in analyzing the viability of a merger between the two companies. The ratio gives an insight on the ability of a company to offset losses and meet the long term and the short term financial obligations. To obtain the ratio the total liability is divided by the net worth. The Net Worth is the difference between the total assets and the total liabilities. As of the year ended 2016, Omega Healthcare had US$4,737,274,000 in total assets. The net worth in the same year was US$4,211,986,000. The Debt to worth ratio is 1.12. Similarly, in the previous year, the Total liabilities were US$3,889,071,000 and the net worth was US$4,100,865,000. The debt to worth ratio, therefore, is 0.95.
Merck & Co.
Return on Assets (ROA)
The total assets at Merck & Co. for the year ended 2016 was US$ 95.377 billion. The Net Income for the same year was US$3.941 billion giving a return on assets of 0.041. The return on Assets (ROA) ratio measures the reported net income in relation to the balance sheet assets (Dlabay, Burrow & Kleindl, 2016, p.306). As of the year ended 2015. Merck & Co. had US$101.677 billion in total assets and US$4.459 billion in Net Income reported in its statement of comprehensive income. The Return on Assets in 2015 was 0.044. Compared to the asset base of Omega Healthcare Investors, Incorporated, Merck & Co. has more assets.
Return on Equity (ROE)
The Return on Equity (ROE) relates the profits of the company and the equity capital invested by its shareholders. The ratio is obtained by dividing the Net Income by the weighted average value of the shareholders’ equity. For the year ended 2016, the Net Income at Merck & Co. was US$3.941 billion. The average equity value was US$42.5375 The Return on equity, therefore, was 0.092. Similarly, for the year ended 2015, the Net Income reported was US$4.459 billion and the weighted average equity value was US$46.779 billion. The Return on Equity for the same year obtained by dividing the two was 0.1.
Profit margin
The profit margin is a profitability indicator which looks at the actual value of profits made from the revenue in the company. The Net Income for 2016 at Merck & Co. were US$3.941 billion. The revenue registered in the same financial year was US$39.807 billion. To obtain the profit margin given the two figures, we divide the net income by the revenue. The profit margin based on this revenue is 0.1. For the previous year 2015, the Net Income in the company was US$4.442 billion and the revenue in the same year was US$39.498 billion. The profit margin related to this year was therefore 0.11.
Earnings per Share
For the year ended 2016, the Net Income of Merck & Co. was US$3.941 billion. The Net Income which was attributable to the non-controlling interest was US$21 million. Of the Net Income reported, the Net Income attributable to Merck & Co., Incorporated was US$3.920 billion. The reported basic earnings per common share were US$1.42 and the diluted Earnings per common share attributable to the common stockholders were US$1.41. The Net Income for the year ended 2015 was US$4.459 billion and the Net Income attributable to the non-controlling interest was US$17 million. The basic and diluted earnings per share were US$1.58 and US$1.56 respectively.
Debt to Worth Ratio
Debt to worth ratio analyzes the solvency of the company. It gives an important insight on how well a company can offset losses and still be in a position to meet its financial obligations as they fall due. To arrive at the ratio the total balance sheet liabilities are divided by the net worth of the company which is the difference between the total assets and the total liabilities (Banerjee, 2015, p.485). As of the year ended 2016, the total liabilities of the company were US$55.069 billion. The net worth given by the difference between the total assets and the total liabilities is US$40.308 billion. The corresponding ratio is 1.36. Similarly, for the year ended 2015, the total liabilities of Merck & Co. were US$56.910 billion. The Net Worth was US$44.767 billion. The debt to worth ratio is 1.27.
Profitability Trends
Based on the analysis of the two company, it can be noted that they have a sound financial position. Starting with Omega Healthcare, the company posted positive profits for the two financial years US$366.415 million and US$224.524 million. Similarly, Merck & Co. posted a Net Income of US$3.941 billion in 2016 and US$4.459 billion in 2015. On the profit margin basis, Omega Healthcare had 43% and 30 % for 2016 and 2015 respectively. Merck & Co., on the other hand, had 10% and 11% for the two consecutive ...