Your assignment is to analyze Covidien’s operating cash flows and compare it to Johnson & Johnson. Use Covidien’s statement of cash flows and the following information to address these questions:

a. What is Covidien’s net cash provided by operating activities each year? What was the change and percent change in Covidien’s net cash provided by operating activities each year? Compare the changes in net cash provided by operating activities to the changes in net income.

b. What are the major adjustments for noncash expenses and losses? What are the major adjustments for noncash revenues and gains?

c. For each year, compute and comment on the following cash coverage ratios for Covidien:

• Short-term debt coverage

• Debt coverage

• Dividend coverage

• Sales coverage

• OCF to income ratio

d. For each year, compute and comment on Covidien’s free cash flows. Compare Covidien’s free cash flows to its operating cash flows.

e. Using Johnson & Johnson’s information from Example 22.16 in the text, compare Covidien and Johnson & Johnson’s cash coverage ratios and free cash flows. Additional Information:

Covidien Plc

Consolidated Statements of Cash Flows 

Fiscal Years Ended September 27, 2013, September 28, 2012

and September 30, 2011

(in millions)

Transcribed Image Text:

For the Year-Ended, or at the Year-End (in millions) Sales Short-term debt Long-term debt 2012 S10,235 S9,851 $9,607 $ 509 S 11 $ 5,018 4,5 $4,197 2013 2011 2013 2012 2011 Cash Flows from Operating Activities: Net income Adjustments to reconcile net cash provided by operating $1,700 S 1,905 S1,868 activities Depreciation and amortization Equity-based compensation Deferred income taxes Provision for losses on accounts receivable and inventory Gain) loss on investments, net Loss on extinguishment of debt Other noncash items Changes in assets and liabilities, net of the effects of acquisitions and divestiture: 642 633 87 599 105 (51) (54 100 70 73 20 (15) 32 16 Accounts receivable, net Inventories Accounts payable Income taxes Accrued and other liabilities 180) 24 75 (275) (203 (13) 111 423) 69 12 122 7) (32) 215 (62) Net cash provided by operating activities 2,095 2,425 2,182 Cash Flows From Investing Activities: Capital expenditures Acquisitions, net of cash acquired Acquisition of licenses and technology Sale of investments Purchase of investments (492 (526) (467) (248) 1.134) (13) 33) (52 49 31 16 (1 (19 15 (722) 1,678 (480) 17 Net cash used in investing activities Cash Flows From Financing Activities: Net irepaymenti issuance of commercial paper Issuance of debt Repayment of debt Dividends paid Repurchase of shares Proceeds from exercise of share options Transfer of cash and cash equivalents to Mallinckrodt Payment of contingent consideration 95 282 210) 1,629 1240 (545 (557 258) (487) 434)(396 (1.710 955) 176 228 241 (180) 95 (4771) 15 1.328 3(1,771) 7 62) 1866 1503 1565 $1,868 $1,866 $1,503 Net cash used in financing activities Effect of currency rate changes on cash Net increase (decreasel in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 2 363