Week 4 Summative Assessment: McKesson

Economic Conditions that Influence Company Performance

McKesson’s financial performance is significantly shaped by various economic conditions. As a company operating in the highly regulated pharmaceutical industry, changes in government policies can directly affect the company’s business. For instance, reforms in healthcare policy, such as the Affordable Care Act or changes to Medicare and Medicaid healthcare reimbursements made by the government of the U.S. can impact the company’s income streams (Liu, 2023). Notably, this can capture the attention of investors either positively or negatively. If the income stream is influenced positively, then more investors will buy into the company and thus a positive impact on financial performance. Further, pharmaceutical pricing regulations, tariffs, and trade agreements within the industry are likely to shape the global supply chain and distribution costs. On the political front, any political instability in regions where McKesson operates can potentially introduce risks, and inconveniences in supply chain disruptions. Additionally, the imposition of new trade barriers is another economic condition that may influence the company’s performance in making profits from cross-border transactions.

At the international level, global economic conditions and currency fluctuations are major factors for McKesson’s financial performance. It is worth noting that the company almost all major international markets. Notably, this exposes it to currency exchange rate fluctuation. For example, the amount remitted to the company’s home country will be influenced negatively when the U.S. dollar is strong in comparison to foreign currencies. Furthermore, macroeconomic conditions such as inflation, fluctuating interest rates, and economic recessions have the potential to reduce the demand for healthcare products and services. Essentially, periods of economic downturn are characterized by low expenditure levels, and this can have a toll on McKesson’s revenues. Regarding the natural environment, regulatory pressures to reduce carbon emissions and increase sustainability in the supply chain are high in the industry. Notably, this prompts the company to invest in greener technologies. However, this has a negative impact on finances and may reduce the financial performance reported by the company.

Market Conditions Comparison

The market conditions have changed across 2022 and 2023 which is the last fiscal period considered for McKesson. Across the two years, there was a decline in the production of cough-related drugs which had an impact on the revenues of companies operating in the pharmaceutical industry. According to Yang (2024), the reduced production can be attributed to declining incidences of COVID-19, influenza, colds, coughs, and RSV across the world. The need for vaccines along this line reduced thus the market for the company for these products reduced. In the US, over 700 pharmacies closed across the two years indicating difficult operating conditions in the market. The trend is worrying for companies like McKesson because the same trend was recorded in the UK. Despite this, there is a market that is promising in the Generics and Biosimilars from products. Essentially, this category of products saw an 8.5% increase in revenue across the two years in the market. The Federal Reserve maintained stable interest rates across the two years, and this is expected to persist into the future. However, the case of inflation worsened prices as it made products unaffordable.

Year-to-Year Performance Comparison

The metrics highlighted in the table above provide insight into McKesson’s financial performance regarding marketing performance and earning capability. The PE ratio indicates that the performance of the company reduced which could be attributed to reduced profits across the two years. However, this is not the same case with the return on assets ratio which indicates that the company maintained a stable performance regarding generating revenue for every asset unit. A reduced performance is observed with the return on equity, attributable to less profits generated across the two years. Overall, the company has a huge future prospect that investors can consider.

References

Liu, H. (2023). Invest Value Analysis Based on Risk, Profit, and Market. Highlights in Business,

Economics and Management, 13, 186-191. https://doi.org/10.54097/hbem.v13i.8813

Yang, R. (2024). A Financial Analysis and Valuation of Elevance Health, Inc. Journal of

Education, Humanities and Social Sciences, 30, 83-90. https://doi.org/10.54097/p8f0wb18

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A company’s financial reports are used for a variety of reasons, including determining how the company is doing in the financial market. You decide to evaluate the effects of economic and market conditions on your company’s financial performance. Completing this exercise provides you with financial market research to present to your management team to inspire new KPIs and policies.

Week 4 Summative Assessment McKesson