Financial statement analysis a case of traphaco joint stock company tra

NATIONAL ECONOMICS UNIVERSITY CENTER FOR ADVANCED EDUCATIONAL PROGRAMS ---FINANCIAL STATEMENT ANALYSIS A case of TRAPHACO JOINT STOCK COMPANY TRA Student code : 11140358 HaNoi, 2016...

NATIONAL ECONOMICS UNIVERSITY CENTER FOR ADVANCED EDUCATIONAL PROGRAMS

-FINANCIAL STATEMENT ANALYSIS

A case of TRAPHACO JOINT STOCK COMPANY (TRA)

Student code : 11140358

HaNoi, 2016

Table of Contents

ABSTRACT 1

I Introduction 2

GENERAL INFORMATION 2

DEVELOPMENT HISTORY 2

SCOPE OF BUSINESS 3

II Financial Statement Analysis 4

1 Income Statement Analysis 4

1.1.Revenue Structure 5

1.2.Gross Profit 8

1.3.Expenses 8

1.4.Common size Income Statement Analysis 9

2 Balance sheet analysis 11

2.1 Capital Structure 13

2.2.Common Size Balance Sheet Analysis 14

2.2.1.Asset Structure 15

2.2.2 Liabilities Structure 16

2.2.3 Owner’s Equity Structure 17

3 Statement of Cash Flow analysis 18

4 Financial ratios analysis 21

4.1.Liquidity ratio 22

4.2.Activity ratio 23

4.3.Profitability ratio 23

4.4.Coverage ratio 24

RECOMMENDATIONS 27

CONCLUSION 28

Financial Statement analysis and valuation is used to analyze the performance of

an enterprise in the past along with the economic and industry situation to measuringthe intrinsic value of stock price of that firm and determine how well the firmperformance

In our thesis, we analyze the consolidated balance sheet of Traphaco Joint StockCompany in 2014 and 2015 and the financial statement to determine how efficientTraphaco performed it in all aspect about: capital structure, financing activities andoperating activities

Moreover, in our analysis, we focus on analyze financial ratio of Traphaco toindicates relationships between the financial statement accounts help investors,creditors, and internal company management understand how well a business isperforming and areas of needing improvement

28/11/1972 Medicines production Group belonging to the Railway Health Service

16/05/1994 Pharmaceutical and medical material and equipments Company - Ministry of Communications and Transport

27/09/1999 Equitized into Pharmaceutical and medical material and equipments Joint Stock Company - Ministry of Communications and Transport05/07/2001 Name of the Company has changed into TRAPHACO Joint Stock

Company.

2006 Set up Traphaco High-Technology Joint Stock Company (Traphaco CNC).

2009 Traphaco was recognized as the No 1 pharmaceutical brand in Vietnam.

2013 Named :TOP 10 Vietnam’s Gold Star,TOP 10 Corporate with Social Responsibilities.

Asia-Pacific’s Global Performance Excellence Award

SCOPE OF BUSINESS

» Producing and trading of pharmaceutical products, chemicals and medical equipment, liquors, beers and beverages (excluding bar operation)

» Purchasing, cultivating and processing pharmaceutical herbal ingredients

» Manufacturing of prescription medicines

» Importing and exporting pharmaceutical materials and products

» Producing and trading cosmetics and foods

» Providing consulting services and technology transfer in medical and pharmaceutical fields

II Financial Statement Analysis

1 Income Statement Analysis

In 2015, Traphaco Joint Stock Company had a year of outstanding business results Traphaco became one of the companies with the highest growth rate in the industry

Total revenue VND 1,860 billion

» Revenue from manufactured products:

VND 1,330 billion

» Revenue from trading: VND 230 billion

» Consolidated revenue from subsidiaries:

VND 330 billion

VND 1,974 billion

VND 1,339 billion VND 332 billion VND 303 billion

2 Net Profit After Tax: VND 190 billion VND 180 billion 95% 123.3%

In terms of revenue, over the 5 year period from 2011-2015, the Company grew from VND860 billion to VND1.974 billion in 2015, equivalent to an average growth rate of 18.1% per year In which, revenue from manufactured products, the revenue with highest profit margin, increased from VND798 billion to 1,339 billion,

equivalent to an average growth rate of 16.7% per year

 Revenue from manufactured products

Revenue from manufactured products plays a more and more important role in the Company’s revenue structure with the growth rate higher than the growth rate of total revenue This is also the product line with the highest profit margin

Within the breakdown of manufactured products, top 10 products accounted for 76% The two flagship products Hoat Huyet Duong Nao and Boganic accounted for 48% According to IMS, by end of 4th quarter 2015, market share of Boganic and Hoat Huyet Duong Nao was maintained at a stable level of 22.3% and 13.4%,

Revenue from “opportunity products” reached VND353 billion, accounting for 26% of revenue from manufactured products and exceeding target by 1% This result was achieved because the sales team had been aggressive in maintaining coveragae ofproducts, closely monitoring the list of customers who buy new products, improving the role of sales representatives in selling products since they are now selling directly

to pharmacies and able to convey the consistent messages of the Company to the sales staffs at the pharmacies nationwide.

 Revenue from trading activities

Revenue from imports and trading activities exceeded target by 44% and grew 30% from 2014 Revenue from this segment mostly came from milk powder import activities and achieved spectacular growth compared to 2014 and compared to target

as the imported milk powder distributors took advantage of the favorable conditions

to push sales and capture market share

2015 marked a new direction for the development of Traphaco when the

Company signed exclusive distribution partnership with Sandoz The partnership with Sandoz only commenced since September 2015, contribution to total revenue of this activitiy was insignificant in 2015 In addition to the bright business prospect in the coming years, cooperation with Sandoz once again confirmed the superior

distribution capability of Traphaco with a nationwide distribution network,

outstanding sales policy and the largest number of direct retail customers in the

country

 Consolidated revenue from subsidiaries

Consolidated revenue from subsidiaries reached VND303 billion in 2015 and exceeded target by 1% The most notable achievement is that the subsidiaries,

particularly Dak Lak and Thai Nguyen, had made great efforts in reforming their sales activities tobe in line with the parent Company’s policy, to adapt with the

changing environment of the pharmaceutical sector, when ETC market is getting more and more competitive Both Dak Lak and Thai Nguyen faced great difficulties when their main line of business, which is supplying to the ETC channel, declined in

2015 but they achieved the set targets by growing sales in the OTC market

 Revenue breakdown by regions

The revenue structure by regions changed significantly compared to 2014 as the North achieved high growth (35%) while the Central and the South maintained

moderate growth of 10% and 17%, respectively The growth rates were different across the regions mainly because the North was faster in successfully implementing the new sales policy, while the Central and the South were 6 months behind in

completing the KPIs of the new sales policy The North still accounted for the largest portion of revenue, 63.8% of total revenue, the Central accounted for 12.2% of total revenue while the South currently contributed 24.0% of total revenue

1.2 Gross Profit

The Company’s gross profit came to 714 billion, or 43.3% of revenue, which is the highest gross profit margin to date

This result was achieved mainly because:

» The Company focused on selling manufactured products and maintained an appropriate balance of product mix with high profit margin;

» Traphaco’s brand reputation and product quality allowed the sales team to assert differentiation, and focus on service quality, rather than price competition;

» Increasing ownership at CNC to over 51% was the right decision which

contributed to increased profit margin and increased efficiency in coordinating

production between the two factories

The Company’s gross profit in 2015 reached VND909 billion, or 46.1% of

revenue, which is the highest gross profit margin to date

» In terms of selling expense, selling expense as percentage of revenue was

increasing over the years, currently is at 20% In comparison with other listed

pharmaceutical companies, Traphaco’s selling expense ratio was at a low level, only higher than Domesco, which is a company specializing in Generics Nonetheless, rising selling expense is an issue to be paid attention to, especially since we have taken many years to build out the distribution network, reform the sales policy with the intention to improve the efficiency of the sales system

1.4 Common size Income Statement Analysis

Normal Income Statement Common size

Income Statement Change

Revenues 1,650,721,821,614 1,974,001,838,183 100.00% 100.00% 0.00% Cost of goods sold 936,340,734,687 1,064,756,821,256 56.72% 53.94% -2.78% Gross profit 714,381,086,927 909,245,016,927 43.28% 46.06% 2.78% Financial income 5,495,740,891 9,007,106,749 0.33% 0.46% 0.12% Financial expenses 45,283,528,203 76,776,388,131 2.74% 3.89% 1.15% Interest expense 3,913,566,637 1,437,751,011 0.24% 0.07% -0.16% Share of net profit of joint

ventures, associates 590,330,534 218,299,325 0.04% 0.01% -0.02%Selling expenses 331,656,848,718 429,904,857,118 20.09% 21.78% 1.69% General and administration

expenses 128,310,104,599 161,494,043,845 7.77% 8.18% 0.41%

Operating profit 215,216,676,832 250,295,133,907 13.04% 12.68% -0.36% Other income 2,981,870,874 6,918,481,328 0.18% 0.35% 0.17% Other expenses 7,037,771,068 2,585,860,540 0.43% 0.13% -0.30% Profit/(Loss) from other

activities -4,055,900,194 4,332,620,788 -0.25% 0.22% 0.47%

Profit before tax 211,160,776,638 254,627,754,695 12.79% 12.90% 0.11% Corporate income tax 48,124,062,116 51,153,500,149 2.92% 2.59% -0.32% Deferred corporate tax (income) -327,944,724 -193,167,476 -0.02% -0.01% 0.01%

Net profit 163,364,659,246 203,667,422,022 9.90% 10.32% 0.42% Basic earnings per share 5,367 6,612

Common size income statement analysis is the express all items in income

statement as a percentage of net sales It is used to determine the percentage of each account in sales changing each year and compare it with those of others firms to see how well the TRA performance

 Cost of goods sold made up the large majority in total revenue This percentagedecreased from 56.72% in 2014 to 53.94% in 2015.However, the total revenues has increased Consolidated revenue in 2015 reached 106% of target, growth by 20% compared to 2014, in which revenue from manufactured products increased by 23% and reached 101% of target In addition to achieve high growth in the main product line and main market, successful implementation of the new sales policy also opened

a new, very promising direction which is to become the exclusive distribution partner

of global leading pharmaceutical companies

 2015 was also the first year of distribution partnership between Traphaco and Sandoz, the second largest generic manufacturer in the World It shows that the enterprise has used some accurate policies to encourage costumers so it has grown over years It’s clearly to see that selling expenses and administrative expenses used

to get large proportion of revenues This situation might due to the enterprise

maintained the higher discount than rivals to gain market shares target In spite of the operating profit has grown up year after year, the density of this item has still fell down

 The next point on the common size income statement that we want to analyze

is the operating profit or earnings before interest and taxes (EBIT) Operating profit isone of the most important numbers you can analyze because it shows the health of thebusiness firm's core business The income from selling their products or services willshow up in operating profit If it is declining, which it is in the case of TRA thatmeans there is less money for the shareholders and for any other goals that firmmanagement wants to achieve .In the case of TRA, operating profit has droppedfrom 13.04% in 2014 to 12.68% in 2015 We can see the reasons for the decrease.First, cost of goods sold dropped Both selling and administrative expenses anddepreciation rose The firm may have bought some new fixed assets

 Next, we look at the firm's net profit Net profit increased from 9.90 % of sales

to 10.32% of sales A higher net profit means that a company is more efficient atconverting sales into actual profit Thus, TRA need to continuously promote strategy

in saving material cost and other expenditure to have higher increase in net income

2 Balance sheet analysis

2.1 Capital Structure

The Company manages its capital to ensure that the Company will be able to continue as a going concern while maximizing the return to shareholders through the optimization of the debt and equity balance

The capital structure of the Company consists of net debt (comprising

borrowings less cash and cash equivalents) and owners’ equity of the parent company(comprising capital contributed, reserves and retained earnings)

As a whole, the capital structure of TRA was nearly stable The Owner’s equitymade up nearly 77% of total resources As the result, TRA is self-control their capitaland not depend too much on liabilities

From the stacked column chart, TRA’s current assets was bigger than current liabilities which illustrated that it was safe, less at risk for short- term debts payments.Another good point was that the current asset constituted approximately 74% of total assets; meanwhile the current liabilities covered nearly 26% of total resources, so TRA’s solvency has been strong

II.2 Common Size Balance Sheet Analysis

Balance Sheet Change

Assets

CURRENT ASSETS

Cash 292,169,010,449 345,097,768,053 25.81% 26.62% 0.81% Account Receivables 237,605,619,449 283,277,688,871 20.99% 21.85% 0.86% Inventories 264,740,415,866 312,487,370,179 23.39% 24.10% 0.72% Other short-term assets 8,660,117,951 8,693,138,914 0.76% 0.67% -0.09%

Total current assets 803,175,163,715 949,555,966,017 70.95% 73.24% 2.29%NON-CURRENT ASSETS

Long-term receivables 1,182,314,110 16,991,157,110 0.10% 1.31% 1.21% Fixed assets 235,670,315,227 235,312,746,043 20.82% 18.15% -2.67% Long-term assets in progress 47,529,006,140 57,379,298,895 4.20% 4.43% 0.23% Long-term financial investments 19,712,928,837 5,122,476,148 1.74% 0.40% -1.35% Other long-term assets 24,779,703,891 32,161,768,919 2.19% 2.48% 0.29%

Total non-current assets 328,874,268,205 346,967,447,115 29.05% 26.76% -2.29%

TOTAL ASSETS 1,132,049,431,920 1,296,523,413,132 100.00% 100.00% 0.00%Liabilities and Owners’ Equity

CURRENT LIABILITIES

Accounts Payable 126,292,508,292 203,655,173,212 11.16% 15.71% 4.55% Short-term borrowings 1,343,068,441 564,818,018 0.12% 0.04% -0.08% Other short-term liabilities 133,651,425,888 125,037,426,637 11.81% 9.64% -2.16%

Total current liabilities 261,287,002,621 329,257,417,867 23.08% 25.40% 2.31%

TOTAL LIABILITIES 261,287,002,621 329,667,417,867 23.08% 25.43% 2.35%

Owners' equity 869,447,995,421 964,499,646,230 76.80% 74.39% -2.41% Owners’ contributed capital 246,764,330,000 246,764,330,000 21.80% 19.03% -2.77% Share premium 153,747,160,000 153,747,160,000 13.58% 11.86% -1.72% Treasury shares -3,593,000 -3,593,000 0.00% 0.00% 0.00% Foreign exchange reserve 179,264 179,264 0.00% 0.00% 0.00% Investment and development

fund 257,064,405,248 312,296,798,152 22.71% 24.09% 1.38% Retained earnings 129,713,730,991 166,416,575,824 11.46% 12.84% 1.38% Non-controlling interests 82,161,782,918 85,278,195,990 7.26% 6.58% -0.68%Other resources and funds 1,314,433,878 2,356,349,035 0.12% 0.18% 0.07%

Total Equity 870,762,429,299 966,855,995,265 76.92% 74.57% -2.35%TOTAL LIABILITIES AND

OWNERS’ EQUITY 1,132,049,431,920 1,296,523,413,132 100.00% 100.00% 0.00%