Question

Determine the cash flow analysis, return on assets, and return on equity for Teva 2017. Show balance tables and calculations.

TEVA PHARMACEUTICAL INDUSTRIES LIMITED CONSOLIDATED BALANCE SHEETS (U.S. dollars in millions)
	December 31, 2017	December 31, 2016
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$ 963	$ 988
Trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7,128	7,523
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4,924	4,954
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1,100	1,629
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	701	1,293
Assets held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	566	841
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15,382	17,228
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	574	625
Other non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	932	1,235
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7,673	8,073
Identifiable intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17,640	21,487
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	28,414	44,409
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$70,615	$93,057
LIABILITIES AND EQUITY
Current liabilities:
Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$ 3,646	$ 3,276
Sales reserves and allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7,881	7,839
Trade payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2,069	2,157
Employee-related obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	549	859
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	3,014	3,405
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	724	836
Liabilities held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	38	116
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17,921	18,488
Long-term liabilities:
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	3,277	5,413
Other taxes and long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1,843	1,639
Senior notes and loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	28,829	32,524
Total long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	33,949	39,576
Commitments and contingencies, see note 13
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	51,870	58,064
Equity:
Teva shareholders’ equity:
Preferred shares of NIS 0.10 par value per mandatory convertible preferred share; December 31, 2017 and December 31, 2016: authorized 5.0 million shares; issued 3.7 million shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	3,631	3,620
Ordinary shares of NIS 0.10 par value per share; December 31, 2017 and December 31, 2016: authorized 2,495 million shares; issued 1,124 million shares and 1,123 million shares, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	54	54
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	23,479	23,409
Retained earnings (accumulated deficit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	-3,803	13,607
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	-1,853	-3,159
Treasury shares as of December 31, 2017 and December 31, 2016 —107 million ordinary shares and 108 million ordinary shares, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	-4,149	-4,194
	17,359	33,337
Non-controlling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1,386	1,656
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	18,745	34,993
Total liabilities and equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$70,615	$93,057
Refernce: Teva 2017 10K, page 108
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(U.S. dollars in millions, except share and per share data)
	Year ended December 31,
	2017	2016	2015
Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$ 22,385	$21,903	$19,652
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11,560	10,044	8,296
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10,825	11,859	11,356
Research and development expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1,848	2,111	1,525
Selling and marketing expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	3,656	3,860	3,478
General and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1,330	1,285	1,360
Goodwill impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17,100	900	—
Other asset impairments, restructuring and other items . . . . . . . . . . . . . . . . . . . . .	5,074	1,419	1,176
Legal settlements and loss contingencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	500	899	631
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	(1,199)	(769)	(166)
Operating (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	(17,484)	2,154	3,352
Financial expenses – net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	895	1,330	1,000
Income (loss) before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	(18,379)	824	2,352
Income taxes (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	(1,933)	521	634
Share in (profits) losses of associated companies—net . . . . . . . . . . . . . . . . . . . . .	3	(8)	121
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	(16,449)	311	1,597
Net income (loss) attributable to non-controlling interests . . . . . . . . . . . . . . . . . .	(184)	(18)	9
Net income (loss) attributable to Teva . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	(16,265)	329	1,588
Accrued dividends on preferred shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	260	261	15
Net income (loss) attributable to ordinary shareholders . . . . . . . . . . . . . . . . . . . . .	($16,525)	$ 68	$ 1,573
Earnings (loss) per share attributable to ordinary shareholders: Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$ (16.26)	$ 0.07	$ 1.84
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$ (16.26)	$ 0.07	$ 1.82
Weighted average number of shares (in millions):
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1,016	955	855
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1,016	961	864
Reference: Teva 2017 10K, page 109
TEVA PHARMACEUTICAL INDUSTRIES
LIMITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. dollars in millions)
	Year ended December 31,
	2017	2016	2015
Operating activities:
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	($16,449)	$ 311	$ 1,597
Adjustments to reconcile net income (loss) to net cash provided by operations:
Impairment of long-lived assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	20,882	1,645	361
Deferred income taxes—net and uncertain tax positions . . . . . . . . . . . . . . . . . . . .	(2,331)	15	237
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2,112	1,524	1,308
Net (gain) loss from sale of long-lived assets and investments . . . . . . . . . . . . . . .	(1,090)	(764)	(86)
Venezuela deconsolidation loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	383	—	—
Net change in operating assets and liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . .	(363)	1,219	967
Research and development in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	175	422	35
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	133	124	117
Venezuela impairment of net monetary assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .	42	603	—
Other items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13	(14)	146
Other-than-temporary impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	—	140	736
Impairment of equity investment—net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	—	—	124
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	3,507	5,225	5,542
Investing activities:
Proceeds from sales of long-lived assets and investments . . . . . . . . . . . . . . . . . . .	3,477	2,002	524
Purchases of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	(874)	(901)	(772)
Other investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	(282)	(212)	(5)
Purchases of investments and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	(200)	(481)	(2,003)
Acquisitions of businesses, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . .	43	(36,148)	(3,309)
Net cash provided by (used in) investing activities . . . . . . . . . . . . . . . . . . . . . .	2,164	(35,740)	(5,565)
Financing activities:
Repayment of long-term loans and other long-term liabilities . . . . . . . . . . . . . . .	(3,300)	(999)	(2,521)
Net change in short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	(1,683)	1,998	29
Dividends paid on ordinary shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	(901)	(1,303)	(1,155)
Proceeds from long-term loans and other long-term liabilities, net of issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	506	25,252	2,099
Dividends paid on preferred shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	(260)	(255)	—
Other financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	(74)	(169)	(178)
Dividends paid to non-controlling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	(38)	—	—
Proceeds from issuance of ordinary shares, net of issuance costs . . . . . . . . . . . . .	—	329	3,291
Proceeds from issuance of mandatory convertible preferred shares, net of issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	—	329	3,291
Proceeds from exercise of options by employees . . . . . . . . . . . . . . . . . . . . . . . . .	*	35	388
Purchases of treasury shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	—	—	(439)
Net cash provided by (used in) financing activities . . . . . . . . . . . . . . . . . . . . . .	(5,750)	25,217	4,805
Translation adjustment on cash and cash equivalents . . . . . . . . . . . . . . . . . . .	54	(660)	(62)
Net change in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	(25)	(5,958)	4,720
Balance of cash and cash equivalents at beginning of year . . . . . . . . . . . . . . .	988	6,946	2,226
Balance of cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . .	$ 963	$ 988	$ 6,946

Answer 1

Solution:-

Cash flow analysis:-

Cash flow from operations generated during 2017 was $3.5 billion, down 33% compared to $5.2 billion in 2016. Free cash flow, excluding net capital expenditures, was $2.7 billioncompared to $4.4 billion in 2016, a decrease of 38%. The decrease was mainly due to business performance as well as higher payments for legal settlements.

Cash flow from operations generated during the fourth quarter of 2017 was $1.2 billion, a decrease of 17% compared to the fourth quarter of 2016. Free cash flow, excluding net capital expenditures, was $0.9 billion, down 16% compared to the fourth quarter of 2016.

Return on assets:-

Return on assets (ROA) measures the rate of return on the total assets (shareholder equity plus liabilities). It measures a firm's efficiency at generating profits from shareholders' equity plus its liabilities. ROA shows how well a company uses what it has to generate earnings. ROAs can vary drastically across industries. Therefore, return on assets should not be used to compare companies in different industries. For retailers, a ROA of higher than 5% is expected. For example, Wal-Mart (WMT) has a ROA of about 8% as of 2012. For banks, ROA is close to their interest spread. A banks ROA is typically well under 2%.

Return on equity:-

Return on equity is calculated as Net Income attributable to Common Stockholders (Net Income minus the preferred dividends paid) divided by its Total Stockholders Equity. Teva Pharmaceutical Industries Ltd's annualized net income attributable to common stockholders for the quarter that ended in Jun. 2018 was $-964 Mil. Teva Pharmaceutical Industries Ltd's Total Stockholders Equityfor the quarter that ended in Jun. 2018 was $18,280 Mil. Therefore, Teva Pharmaceutical Industries Ltd's annualized return on equity (ROE) for the quarter that ended in Jun. 2018 was -5.27%.

Return on Equity (ROE) measures the rate of return on the ownership interest (shareholder's equity) of the common stock owners. It measures a firm's efficiency at generating profits from every unit of shareholders' equity (also known as net assets or assets minus liabilities). ROE shows how well a company uses investment funds to generate earnings growth. ROEs between 15% and 20% are considered desirable.