Accounting at Biovail.docVIP

Comparative Financial Analysis A comparison of Biovails earnings release against income statements of two competitors (Abbott Laboratories and Cephalon) highlights several performance areas requiring managerial attention. In addition to confirming soft product revenues, low investments in internal development, and the failure to report foreign exchange losses, the analysis reveals the following: Biovails amortization and write-down of assets represented 21.4% and 13.1% of revenues for 2001 and 2002 respectively. More than double its competitors, these values indicate a form of expensing substantial acquisition costs and a high level of recognized losses in tangible or intangible assets. Earnings per share are lower than the competitors EPS from 2001 to 2002, giving Biovails investors yet another reason to be concerned about their investment returns. The companys cost of goods sold is rising at a greater rate than its product sales, indicating that earnings per unit sold are going down. While internal development costs fell to only 6.6% of sales, acquired RD expenditures reached 21.3% of annual revenues in 2002, significantly higher than that of the competitors included in the analysis. Biovails records do not report that any dividend payouts have been made to investors. Total operating expenses nearly doubled from 2001 to 2002, fueled by the large RD acquisition expense and the growth of sales and administration costs by over 50% (for product revenue growth of only 23.9%). As a result, operating earnings fell by nearly 20% during that timeframe, while net earnings remained flat. It is worth noting that although the company was criticized for reporting an unsustainably low tax rate, the competitors used for comparison also reported equally low tax rates against earnings. Biovails Current Performance Looking at Biovails own financial records and trends for the 2006 to 2007 period, the following conditions exist: Product revenues are falling, while cost of goods so