Allergan PLC (NYSE:AGN)

The analysis of the financial ratios over the five-year period reveals noticeable trends and shifts in asset and equity utilization efficiency.

Net fixed asset turnover

The ratio shows a consistent decline from 9.58 in 2015 to 8.35 in 2019. This downward trend indicates a gradual decrease in the efficiency with which net fixed assets generate revenue.

Net fixed asset turnover (including operating lease, right-of-use asset)

This variant of the ratio mirrors the trend of the standard net fixed asset turnover from 2015 to 2018. However, there is a sharp decline in 2019 to 6.66, significantly lower than the standard measure. This suggests that the inclusion of operating leases and right-of-use assets, potentially reflecting lease capitalization changes, has a substantial impact on asset turnover efficiency in the latest year.

Total asset turnover

The total asset turnover ratio exhibits a steadily increasing trend from 0.11 in 2015 and 2016, rising to 0.17 in 2019. This improvement demonstrates an enhanced ability of the company to generate sales from its total asset base over time.

Equity turnover

The equity turnover ratio also shows consistent growth, moving upward from 0.20 in 2015 to 0.28 in 2019. This increase implies improved utilization of shareholders’ equity in producing revenue.

In summary, while the efficiency in using net fixed assets has decreased, particularly when accounting for operating leases, the overall utilization of total assets and equity has improved steadily, indicating a positive direction in asset and equity management.

Net Revenues

The net revenues demonstrate a generally fluctuating but overall slightly increasing trend over the analyzed period. Starting at approximately 15.07 billion US dollars at the end of 2015, revenues decreased slightly in 2016 to about 14.57 billion US dollars. This was followed by a recovery in 2017, reaching approximately 15.94 billion US dollars, remaining relatively stable in 2018 near 15.79 billion US dollars, and then increasing marginally to about 16.09 billion US dollars by the end of 2019. This pattern suggests some variability in revenue generation with a modest upward momentum towards the later years.

Property, Plant and Equipment, Net

The net value of property, plant, and equipment revealed a consistent upward trajectory throughout the period under review. The asset base rose from roughly 1.57 billion US dollars in 2015 to approximately 1.93 billion US dollars by the end of 2019. Incremental increases in asset values each year indicate continued investments or capital expenditures, contributing to an expanding fixed asset base within the company.

Net Fixed Asset Turnover

The net fixed asset turnover ratio displays a declining trend over the time span analyzed. The ratio decreased steadily from 9.58 in 2015 to 8.35 by the end of 2019. This decline suggests that the company generated less revenue per unit of net fixed assets over time, potentially indicating diminishing efficiency in utilizing fixed assets to produce revenue, which may warrant further operational review.

Net Revenues

Over the five-year period, net revenues exhibited a fluctuating yet generally stable trend. Starting at $15.07 billion in 2015, revenues declined slightly to $14.57 billion in 2016. This was followed by a recovery and growth phase, with revenues increasing to approximately $15.94 billion in 2017. Subsequently, revenues remained relatively steady around $15.79 billion in 2018 and then showed a modest increase to $16.09 billion in 2019. Overall, revenues demonstrate resilience with mild volatility but no marked long-term upward or downward trend.

Property, Plant and Equipment, Net

This asset category displayed a consistent upward trajectory over the period analyzed. The net value of property, plant, and equipment increased from $1.57 billion in 2015 to $2.42 billion in 2019. Notably, the growth was gradual during the initial years, with values rising from approximately $1.57 billion to $1.79 billion between 2015 and 2018. However, a significant jump occurred between 2018 and 2019, where the value surged by approximately 35%, indicating substantial capital investment or acquisition activity during the last year.

Net Fixed Asset Turnover Ratio

The net fixed asset turnover ratio demonstrated a clear declining trend throughout the period. Starting at 9.58 in 2015, indicating strong efficiency in using fixed assets to generate revenues, the ratio decreased steadily to 6.66 by 2019. This decline suggests that fixed assets grew at a faster pace than revenues, and the company’s efficiency in utilizing these assets to produce revenue diminished over time. The sharpest drop is observable in the final year, aligning with the significant increase in fixed assets and relatively flat revenue growth.

Net Revenues

Net revenues exhibit a generally increasing trend over the five-year period. Beginning at $15.07 billion in 2015, revenues experienced a slight decline in 2016 to $14.57 billion, followed by consistent growth in subsequent years, reaching approximately $16.09 billion by the end of 2019. This indicates a recovery after the initial dip and steady revenue growth overall.

Total Assets

Total assets demonstrate a continuous downward trajectory throughout the observed period. Starting at $135.84 billion in 2015, assets decreased each year, declining to $94.70 billion by the end of 2019. This sustained reduction suggests potential asset divestitures, depreciation, or other factors contributing to a shrinking asset base.

Total Asset Turnover

Total asset turnover improved progressively over the five years, indicating enhanced efficiency in utilizing assets to generate revenue. The ratio remained stable at 0.11 in 2015 and 2016, then rose to 0.13 in 2017, followed by further increases to 0.16 in 2018 and 0.17 in 2019. The growth in asset turnover aligns with the decreasing asset base and rising revenues, reflecting improved operational performance in asset use.

Net Revenues

Net revenues exhibited a generally increasing trend over the five-year period. Starting at approximately 15.07 billion US dollars in 2015, revenues slightly decreased in 2016 but then recovered and increased steadily through 2017 to 2019, reaching nearly 16.09 billion US dollars by the end of 2019. This pattern indicates overall growth in revenue with minor short-term volatility.

Shareholders’ Equity

Shareholders’ equity demonstrated a clear downward trajectory throughout the analyzed period. From about 76.59 billion US dollars in 2015, equity decreased marginally in 2016 and continued to decline each subsequent year, culminating at approximately 58.17 billion US dollars in 2019. This steady reduction suggests possible factors such as share buybacks, dividend payouts exceeding net income, or other equity-reducing activities.

Equity Turnover Ratio

The equity turnover ratio showed a continuous upward trend, moving from 0.20 in 2015 to 0.28 in 2019. This increase implies improved efficiency in the use of shareholders’ equity to generate revenues. The rising ratio correlates with the observed increase in net revenues coupled with the decline in shareholders’ equity, indicating enhanced asset utilization or operational effectiveness.

Overall Analysis

The company experienced steady growth in revenues alongside a significant contraction in shareholders’ equity over the five years. The increasing equity turnover ratio reflects a positive development in operational efficiency, suggesting the company generated more revenue per unit of equity even as the equity base decreased. The inverse relationship between equity and revenue growth may warrant further investigation into the underlying financial and strategic activities influencing equity levels.