Sepracor Inc. a US Drug Company reported the following information (answer attached)

Sepracor Inc. a US Drug Company reported the following information. The comapny prepares its financial statements in the accordance with US GAAP

Current liabilites 554,114

Convertible subordinated debt 648,020

Total Liabilites 1,228,313

Stockholders equity 176,413

Net income 58,333

Analysts attempting to compare Sepracor to international drug companies may face a challenge due to differences in accounting for convertible debt under IGAAP. Under IAS 32 “Financial Instruments


” convertible bonds at issuance must be classified separately into debt and equity components based on estimated fair value. A. compute the following ratios for Sepracor INC Assume that year-end balance approximate annual averages.

1. Return on assets

2. Return on stockholders equity

3. Debt to assets ratios

B. Briefly discuss the operating performance and financial position of Sepracor. Industry averages for these ratios in 2007 were ROA 3.5%, Return on equity 16% and debt to assets 75%. Based on this analysis would make an investment in the company 5% convertible bonds? Explain

C. Assume you want to compare Sepracor to an international company like Bayer ( which prepares financial statements


in accordance with IGAAP) Assuming that the fair value of the equity component of Sepracor converitible bonds

is 150,000 how would adjust the analysis above to make valid comparisons between Sepracor and Bayer?

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