Becton Dickinson Financial Model

For historical modelling and transition purposes, the model must track the legacy FY2025 segments before applying the FY2026 pro-forma adjustments.

• BD Medical
• *Revenue Driver Formula:* Hospital Admissions x Consumable Usage per Admission + Capital Equipment Placements.
• *Historical Growth Rate:* 4% to 6% currency-neutral CAGR.
• *Key Levers:* Integration of the $4.2 billion Advanced Patient Monitoring (APM) acquisition, adoption of BD Alaris infusion pumps, and demand for prefillable syringes.
• *Pricing Dynamics:* Largely contractual with group purchasing organisations (GPOs) and hospital networks.
• *Seasonality:* Relatively stable, with slight upticks in the winter months due to flu season hospitalisations.

• BD Interventional
• *Revenue Driver Formula:* Procedure Volumes x Average Selling Price (ASP) per Device.
• *Historical Growth Rate:* 5% to 7% currency-neutral CAGR.
• *Key Levers:* Growth in the PureWick franchise (Urology), Rotarex Atherectomy System, and hernia repair products. Headwinds include volume-based procurement (VBP) pricing pressures in China.
• *Pricing Dynamics:* Competitive pricing in surgical tools, offset by premium pricing for innovative proprietary devices.
• *Seasonality:* Q4 (September quarter) is typically strong as hospitals exhaust annual capital budgets.

• BD Life Sciences
• *Revenue Driver Formula:* Testing Volumes x Price per Test / Consumable.
• *Historical Growth Rate:* 1% to 3% (heavily distorted by the roll-off of COVID-19 testing revenues).
• *Key Levers:* BD Vacutainer demand and lab automation upgrades. Note that Biosciences and Diagnostic Solutions are being spun off in FY2026.
• *Pricing Dynamics:* Highly competitive in basic specimen collection; higher pricing power in advanced flow cytometry and molecular diagnostics.
• *Seasonality:* Diagnostic testing peaks during the Northern Hemisphere respiratory season (Q1 and Q2).

• *Total Assets:* Approximately $55.3 billion.
• *Goodwill & Intangibles:* Approximately $33 billion, representing nearly 60% of total assets. This is a direct result of BD's history as a serial acquirer.
• *Working Capital Profile:*
• *Days Sales Outstanding (DSO):* 55 to 65 days.
• *Days Inventory Outstanding (DIO):* 90 to 110 days (inventory balances are high, approx. $3.9 billion, to ensure supply chain resilience).
• *Days Payable Outstanding (DPO):* 45 to 55 days.
• *Net Working Capital:* Positive and a moderate use of cash during growth periods.
• *PP&E:* Approximately $7.0 billion, consisting of global manufacturing facilities and sterilisation plants.

• *Capex as % of Revenue:* Consistently runs at 3.0% to 3.5% (approx. $760 million in FY2025).
• *Split:* Heavily weighted towards maintenance and capacity expansion for high-volume consumables (e.g., syringe manufacturing lines).
• *M&A Pattern:* Historically a transformational acquirer (CareFusion, Bard). Recently shifted to a "tuck-in" strategy (over 20 deals since 2021) and portfolio pruning (spinning off Diabetes Care previously, and now Biosciences/Diagnostics).

• *Total Debt:* Approximately $19.3 billion as of late 2025.
• *Net Leverage Ratio:* 2.9x Net Debt / Adjusted EBITDA at the end of FY2025. Management's long-term target is 2.5x.
• *Credit Rating:* BBB / Stable (Fitch/S&P).
• *Key Instruments:* $17.5 billion in long-term bonds and a $2.75 billion senior unsecured revolving credit facility expiring in 2030.
• *Interest Rate Profile:* Weighted average cost of debt is approximately 3.4%, largely fixed-rate bonds.
• *Share Repurchases:* Active programme. BD repurchased $1 billion in FY2025 and plans to use at least half of the $4 billion Waters RMT proceeds for further buybacks in FY2026.
• *Dividend Policy:* Long history of dividend growth. Payout ratio is typically 25% to 30% of adjusted earnings, yielding around 1.5% to 2.0%.

• *OCF Conversion:* Operating cash flow is typically $3.0 billion to $3.4 billion. Conversion from GAAP net income is very high (often >150%) because GAAP net income is depressed by massive non-cash amortisation charges.
• *Free Cash Flow Margin:* 10% to 13% of revenue (approx. $2.67 billion in FY2025).
• *Non-Cash Items:* Depreciation and amortisation ($2.46 billion in FY2025) is the largest bridge item between net income and OCF.
• *Cash Taxes:* Often differ materially from the GAAP effective tax rate due to the tax deductibility of certain acquired intangibles and R&D tax credits.

1. Assumptions: Hardcoded drivers for macroeconomic factors, segment growth rates, margin targets, and capital allocation policies.
2. Pro-Forma Adjustments: A dedicated sheet to model the removal of the Biosciences and Diagnostic Solutions revenues/costs and the injection of the $4 billion cash proceeds from the Waters RMT transaction.
3. Revenue Build: Forecasts revenue by the three legacy segments (Medical, Interventional, Life Sciences) with a toggle to transition to the new five-segment reporting structure for FY2026 onwards.
4. Income Statement: GAAP to Adjusted bridge, detailing COGS, SG&A, R&D, and the heavy amortisation line items.
5. Balance Sheet: Assets, liabilities, and equity, with specific breakouts for Goodwill, Intangibles, and Inventory.
6. Cash Flow Statement: Indirect method starting from GAAP Net Income, adding back D&A, and tracking working capital changes.
7. Debt Schedule: Tranches of long-term debt, revolver drawdowns, interest expense calculations, and the application of the $2 billion debt paydown from the Waters transaction.
8. Working Capital & Capex: DSO, DIO, DPO schedules and PP&E roll-forward.
9. Valuation (DCF & Multiples): Unlevered free cash flow build, WACC calculation, terminal value, and implied share price.

1. `Medical Revenue = Prior Year Medical Revenue * (1 + Medical Organic Growth Rate) + APM Acquisition Revenue`
2. `Interventional Revenue = Prior Year Interventional Revenue * (1 + Interventional Organic Growth Rate)`
3. `Life Sciences Revenue = Prior Year Life Sciences Revenue * (1 + Life Sciences Organic Growth Rate) * Spin-Off Flag (0 if post-Q1 FY26)`
4. `Adjusted Gross Profit = Total Revenue - Adjusted COGS (excluding amortisation of acquired intangibles)`
5. `GAAP Operating Income = Adjusted Gross Profit - SG&A - R&D - Amortisation of Intangibles - Restructuring Charges`
6. `DSO = (Accounts Receivable / Total Revenue) * 365`
7. `DIO = (Inventory / GAAP COGS) * 365`
8. `Interest Expense = Average Total Debt * Weighted Average Interest Rate (3.4%)`
9. `Net Debt = Total Short-Term Debt + Total Long-Term Debt - Cash & Cash Equivalents`
10. `Net Leverage Ratio = Net Debt / Adjusted EBITDA`
11. `Free Cash Flow = Cash from Operations - Capital Expenditures`
12. `Share Count = Prior Year Shares - (Share Repurchase Spend / Average Share Price)`

• The Pro-Forma Adjustments sheet acts as a master toggle. When activated for FY2026, it reduces the Revenue Build (Life Sciences segment) and adjusts the Debt Schedule (applying $2 billion to debt reduction) and Assumptions (applying $2 billion to share repurchases).
• The Revenue Build feeds the top line of the Income Statement.
• The Working Capital & Capex sheet calculates changes in NWC, which feeds the Cash Flow Statement, and D&A, which feeds both the Income Statement and Cash Flow Statement.
• The Debt Schedule calculates interest expense for the Income Statement and ending debt balances for the Balance Sheet.
• Circularity risk exists between the Debt Schedule (interest expense reduces net income), the Cash Flow Statement (lower net income reduces cash), and the Balance Sheet (lower cash requires revolver drawdowns, increasing debt and interest expense). A circularity breaker toggle must be included.

• Revenue, Assets, and Equity are entered as positive numbers.
• Expenses (COGS, SG&A, R&D, Interest) are entered as positive numbers in their specific build schedules but subtracted in the Income Statement totals.
• Liabilities and Debt balances are positive on the Balance Sheet.
• On the Cash Flow Statement, cash inflows are positive, and cash outflows (Capex, Dividends, Debt Repayments, Share Repurchases) are negative.

• GAAP vs. Adjusted Confusion: BD's GAAP operating margin is roughly 11.8%, while its adjusted operating margin is 25.0%. The model must explicitly bridge these two, as valuation is based on adjusted cash flows, but the balance sheet relies on GAAP accounting.
• The Waters RMT Spin-Off: Failing to remove the ~$3.4 billion in revenue and associated costs for the Biosciences and Diagnostic Solutions business in FY2026 will drastically overstate future cash flows.
• Segment Restatement: The company is moving from three segments to five segments in FY2026. The model must handle this transition cleanly without double-counting revenue.
• FX Translation: BD reports heavily on an "FX-neutral" basis. The model should forecast in constant currency and apply a separate FX overlay if required.
• Intangible Amortisation: This is a massive non-cash charge ($2.4+ billion). If it is not added back correctly in the cash flow statement, operating cash flow will be severely understated.
• China VBP Headwinds: Volume-based procurement in China is a specific headwind for the Interventional segment; aggressive growth assumptions here will fail validation.
• Capital Allocation Proceeds: The $4 billion from the Waters deal must be split correctly ($2 billion to debt, $2 billion to buybacks) to accurately forecast FY2026 EPS and leverage.
• Inventory Levels: BD carries unusually high inventory (over 100 DIO) for supply chain security. Assuming standard MedTech DIO (60-70 days) will artificially inflate projected free cash flow.

• "Adjusted Operating Margin must remain between 24.0% and 26.0%; flag if outside this band."
• "Net Leverage Ratio should trend down from 2.9x towards the management target of 2.5x by FY2027."
• "Capex as a % of Revenue must be between 3.0% and 4.0%."
• "Goodwill and Intangibles should represent >50% of Total Assets unless a major impairment is triggered."
• "Free Cash Flow conversion (FCF / Adjusted Net Income) should remain above 80%."
• "Balance sheet must balance: Total Assets = Total Liabilities + Equity in every period."
• "Dividend payout ratio should remain between 25% and 30% of Adjusted EPS."
• "Total Debt must decrease by at least $2 billion in FY2026 due to the Waters RMT proceeds."

• Filings: SEC EDGAR (BDX 10-K for FY2025 ended September 30, 2025; Q1 FY2026 8-K earnings release).
• Investor Relations: BD Investor Relations website (investors.bd.com) for the "BD 2025" and "New BD" strategy presentations.
• Direct Peers: Medtronic (MDT), Abbott Laboratories (ABT), Stryker (SYK), Boston Scientific (BSX).
• Industry Data: Evaluate hospital admission volumes via HCA Healthcare (HCA) or Tenet Healthcare (THC) earnings reports as a leading indicator for BD Medical consumable volumes.
• Consensus Estimates: FactSet or Bloomberg for forward-looking EPS estimates (especially critical for tracking the FY2026 EPS rebasing post-Waters spin-off).

• BD FY2025 Annual Report (Form 10-K)
• BD Q1 FY2026 Earnings Release and Call Transcript
• BD Q4 FY2025 Earnings Release
• BD Investor Relations: Waters RMT Transaction Announcements
• Financial data aggregators (Investing.com, Simply Wall St, Finbox) for historical EBITDA, debt, and margin trends