Domain: Accounting
Question:
Using the Merck Q4 2024 Financial Statement consolidated Balance Sheet, perform a detailed vertical and horizontal analysis to quantify changes in asset, liability, and equity composition compared to the prior year. Recalculate leverage metrics-including debt-to-equity, net debt-to-EBITDA, and interest-bearing debt-to-total capital-integrating off-balance-sheet commitments if disclosed in the notes. Evaluate how shifts in working capital, intangible asset valuations, and long-term financing structures could affect covenant compliance, refinancing risk, and the company's weighted average cost of capital (WACC).

Expected points in a correct answer:
State that Covenant headroom appears solid on leverage (net debt-to-EBITDA 1.22x)
State that Covenant headroom appears solid on capital sources (debt/total capital 25.6%).
State that the increase is mainly on account of decrease in financial debt ( moved from non current to current portion)
State that no information has been included in the document for off balance sheet commitments ( Leases etc.)
State that Total assets for 2024 is €51,566.6 m
State that Total assets for 2023 is € 48,495.4 m
State that total assets increased by 6.3% YoY 2023 to 2024
State that current assets for 2024 is €13,450.4 m
State that current assets for  2023 is €12,393.2 m
State that current assets increased by 8.5% YoY
State that non current assets for 2024 is €38,116.1 m
State that non current assets for 2023 is €36,102.3 m
State that non current assets increased by 5.6% YoY
State that the current assets composition to the total assets for 2024 is 26.1%
State that the non current assets composition to the total assets for 2024 is 73.9%
State that the current assets composition to the total assets for 2023 is 25.6%
State that the non current assets composition to the total assets for 2023 is 74.4%
State that Total non current liabilities for 2024 is €10,284.9 m
State that total non current liabilities for 2023 is € 13,041.7 m
State that total non current liabilities decreased by 21.1% YoY 2023 to 2024 (( Total non current liabilities of 2024 / Total non current liabilities of 2023)*100).
State that Total current liabilities for 2024 is €11,294.2 m
State that total current liabilities for 2023 is € 8,699.4 m
State that total current liabilities increased by 29.8% YoY 2023 to 2024 (( Total current liabilities of 2024 / Total current liabilities of 2023)*100).
State that working capital for 2024 is €2,156.2 m ( Current assets - current liabilities)
State that working capital for 2023 is €3,693.8 m (Current assets - current liabilities)
State that there has been decrease in working capital by €1,537.6 m ,41.6% decrease from 2023
State that total debt is €10,301.0 m for 2024
State that total equity is €29,987.5 m for 2024
State that debt to equity for 2024 is 0.34x
State that net financial debt is €7,155.1 m for 2024
State that EBITDA pre is €5,878.9 m for 2024
State that net financial debt to EBITDA pre is 1.22x
State that total capital for 2024 is €40,288.5 m
State that Total debt to total capital is 25.6% for 2024
State that total capital =total equity+ total debt
State that total assets YoY 2023 to 2024 = ((Total Assets of 2024 / Total assets of 2023)*100)
State that the composition of current improved from 2023 to 2024
State that the composition of non current assets improved from 2023 to 2024
State that the reason for increase in current assets composition (YoY) is mainly on account of increase in cash and cash equivalents.
State that the reason for increase in current assets composition (YoY) is mainly on account of increase in assets held for sale.
State that the reason for increase in non current assets composition (YoY)is mainly on account of decrease in other Intangible assets
State that the decrease is mainly on account of decrease in non current financial debt ( moved from non current to current portion)
State that the reason for decrease in working capital is on account of current portion of debt, the debt repayment for next one year is higher compared to 2023 current debt portion.
State that the working capital has decreased YoY, mainly due to payment obligation of debt in the next 12 months, though there is enough operating cash flows to pay off the debt, the Company may need to think on refinancing the debt, if the interest rates are favorable to the Company to maintain the leverage.
State that the presence of goodwill on the balance sheet will require annual assessment of Impairment testing, more often if there are indicators for impairment as per IAS 36
State that if there is any impairment, the total equity will decrease and the debt to total equity will increase, which may impact covenants compliance
State that there are no WACC data provided in the source document
Further state that, if there is refinancing at the higher interest rates, the WACC will increase in the future.
State that based on above ratio analysis, there has been decrease in working capital, however the Company can refinance the debt to spread the maturities favorable to Company's cash reserves.
Further state that, the Company should monitor the WACC when refinancing the debt
State that Company should take other working capital measures, to improve the working capital ( Lower Days sales outstanding, improved Gross Margin Return on Inventory Investment etc.)
Further state that, impairment indicators should be closely monitored for the goodwill impairment assessment in order to avoid impact on the total equity and covenants.
State further that the working capital reduction elevate near-term liquidity management demands.
State further that the maturity profile shift from non current to current elevate near-term liquidity management.
State that from WACC perspective moderate leverage supports a balanced structure
State further that from WACC perspective strong equity capitalization supports a balanced structure