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) Name : Nguyen Tuyet Anh Student code : 11140358 Class : Auditing EEP K56 HaNoi, 2016 Table of Contents ABSTRACT .1 I Introduction .2 GENERAL INFORMATION DEVELOPMENT HISTORY SCOPE OF BUSINESS II Financial Statement Analysis Income Statement Analysis .4 1.1.Revenue Structure 1.2.Gross Profit 1.3.Expenses 1.4.Common size Income Statement Analysis 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 Statement of Cash Flow analysis 18 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 ABSTRACT 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 measuring the intrinsic value of stock price of that firm and determine how well the firm performance In our thesis, we analyze the consolidated balance sheet of Traphaco Joint Stock Company in 2014 and 2015 and the financial statement to determine how efficient Traphaco performed it in all aspect about: capital structure, financing activities and operating activities Moreover, in our analysis, we focus on analyze financial ratio of Traphaco to indicates relationships between the financial statement accounts help investors, creditors, and internal company management understand how well a business is performing and areas of needing improvement I Introduction GENERAL INFORMATION Trading name TRAPHACO Joint Stock Company Stocks TRA Charter capital 246,764,330,000 VNĐ Headquarters address No 75 Yen Ninh, Ba Dinh District, Hanoi Phone number (+84-4) 3683 0751 Fax (+84-4) 3681 5097 Email info@traphaco.com.vn Website http://www.traphaco.com.vn DEVELOPMENT HISTORY 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 Transport 05/07/2001 2006 2009 2013 2015 Name of the Company has changed into TRAPHACO Joint Stock Company Set up Traphaco High-Technology Joint Stock Company (Traphaco CNC) Traphaco was recognized as the No pharmaceutical brand in Vietnam Named :TOP 10 Vietnam’s Gold Star, TOP 10 Corporate with Social Responsibilities Asia-Pacific’s Global Performance Excellence Award Top 10 outstanding Vietnamese Award from Ministry of Industries and Trade for Boganic Top 10 Vietnam’s Gold Star Award for Corporate Social Responsibilities Gold prize National Quality 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 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 1.1 No Revenue Structure Indicator Resolution Actual Total revenue VND 1,860 billion Compared Compared to target to 2014 VND 1,974 billion 106% 120% VND 1,330 billion VND 1,339 billion 101% 123% » Revenue from trading: VND 230 billion VND 332 billion 144% 130% » Consolidated revenue from subsidiaries: VND 303 billion 101% 99.3% » Revenue from manufactured products: VND 330 billion Net Profit After Tax: VND 190 billion VND 180 billion 95% 123.3% In terms of revenue, over the 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%, respectively In 2015, Traphaco launched 03 new products to the market Unlike the previous years, the strategy to launch new products since 2014 has been more focused in terms of number of products In addition to completely new products, the Company also developed a strategy to launch to market existing products with great potentials but have not achieved the expected revenue size These products and completely new products are called “opportunity product group” 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 of products, 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 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 1.3 Expenses In the cost structure, there are two main expense items, which needed to be reviewed and analyzed carefully, including general administrative and selling expenses » In terms of administrative expense, except for 2014 when there was a slight improvement and the administrative expense as percentage of revenue at 7.8%, this expense item had the tendency to increase throughout the term We need to review and break down this cost item further since revenue was growing but administrative expense as percentage of revenue also increased As such, we have not solved the problem of improving management efficiency as the enterprise scaled up In 2015, administrative expense amounted to VND161.5 billion, accounting for 8.2% of revenue » 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 II.2 Common Size Balance Sheet Analysis Normal Balance Sheet 2014 Assets CURRENT ASSETS Cash Account Receivables Inventories Other short-term assets Total current assets NON-CURRENT ASSETS Long-term receivables Fixed assets Long-term assets in progress Long-term financial investments Other long-term assets Total non-current assets TOTAL ASSETS Liabilities and Owners’ Equity CURRENT LIABILITIES Accounts Payable Short-term borrowings Other short-term liabilities Total current liabilities Long-term liabilities TOTAL LIABILITIES Owners' equity Owners’ contributed capital Share premium Treasury shares Foreign exchange reserve Investment and development fund Retained earnings Non-controlling interests Other resources and funds Total Equity TOTAL LIABILITIES AND OWNERS’ EQUITY 2015 Common size Balance Sheet Change 2014 2015 2014-2015 292,169,010,449 237,605,619,449 264,740,415,866 8,660,117,951 803,175,163,715 345,097,768,053 283,277,688,871 312,487,370,179 8,693,138,914 949,555,966,017 25.81% 20.99% 23.39% 0.76% 70.95% 26.62% 21.85% 24.10% 0.67% 73.24% 0.81% 0.86% 0.72% -0.09% 2.29% 1,182,314,110 235,670,315,227 47,529,006,140 19,712,928,837 24,779,703,891 328,874,268,205 1,132,049,431,920 16,991,157,110 235,312,746,043 57,379,298,895 5,122,476,148 32,161,768,919 346,967,447,115 1,296,523,413,132 0.10% 20.82% 4.20% 1.74% 2.19% 29.05% 100.00% 1.31% 18.15% 4.43% 0.40% 2.48% 26.76% 100.00% 1.21% -2.67% 0.23% -1.35% 0.29% -2.29% 0.00% 126,292,508,292 1,343,068,441 133,651,425,888 261,287,002,621 261,287,002,621 869,447,995,421 246,764,330,000 153,747,160,000 -3,593,000 179,264 203,655,173,212 564,818,018 125,037,426,637 329,257,417,867 410,000,000 329,667,417,867 964,499,646,230 246,764,330,000 153,747,160,000 -3,593,000 179,264 11.16% 0.12% 11.81% 23.08% 0.00% 23.08% 76.80% 21.80% 13.58% 0.00% 0.00% 15.71% 0.04% 9.64% 25.40% 0.03% 25.43% 74.39% 19.03% 11.86% 0.00% 0.00% 4.55% -0.08% -2.16% 2.31% 0.03% 2.35% -2.41% -2.77% -1.72% 0.00% 0.00% 257,064,405,248 312,296,798,152 22.71% 24.09% 129,713,730,991 82,161,782,918 1,314,433,878 870,762,429,299 166,416,575,824 85,278,195,990 2,356,349,035 966,855,995,265 11.46% 7.26% 0.12% 76.92% 12.84% 6.58% 0.18% 74.57% 1.38% 1.38% -0.68% 0.07% -2.35% 1,132,049,431,920 1,296,523,413,132 100.00% 100.00% 0.00% 14 II.2.1 Asset Structure TRA’s Assets structure in expectation will have significantly fluctuation from 2014 to 2016 while TRA has now speed up the construction process to bring new factory into operation in reality Current Assets in common size reaches 73.24% of total assets in 2015  Cash and cash equivalents have a significant percentage of total assets of TRA And it trend to increase, from 25.81% (in 2014) to 26.62% (in 2015)  The TRA’s proportion of receivable to total assets is slightly increased from 20.99% to 21.85%, however, the value of provision for doubtful debts was very small that is a good sign It indicates that’s the firm has low bad debts percentage (so the high provision was unnecessary) But it may also indicate that the firm carries out the tightening collection policies that affect sales quantity (because customers will buy from competitors with more appropriate collection policy)  Look deep into detail of inventory It has a significant percentage of TRA’s total assets As can be seen, TRA has high growth rate on inventory because in that time TRA reserve more raw materials to deal with the increase in price of inputs However, it is only 0.72% change in inventory may indicate that the sale quantity increased over years  Fixed assets have a significant percentage of TRA’s total assets, above 18% And TRA’s intangibles consisted mainly of land using right The reason is that the firm has many branches across the company  Construction in progress increased over year, because TRA established The Company established Traphaco Hung Yen One Member Limited Company (Traphaco Joint Stock Company’s ownership interest was 100%) to implement the project of investing and building hi- tech pharmaceutical, and the balance of construction in progress regarding the project represents site clearance expenses and construction expense for some items which have been paid up to 31 December 2015 15 2.2.2 Liabilities Structure  As at 31 December 2015, borrowings from individuals represent borrowings from employees of Traphaco CNC (the Company’s subsidiary) to supplement working capital for production and business activities These unsecured loans bear interest at the rate of 8% p.a  As at 31 December 2015, the outstanding balance of the long-term borrowings represents the loan granted by Vietnam Joint Stock Commercial Bank for Industry and Trade - Yen Bai Branch to Traphacosapa The loan has a term of 84 months from the first withdrawal and is used to finance the project of pharmaceutical materials, medicines and functional food processing and production factory in Dong Pho Moi Industrial Park The loan bears a preferential interest rate of 7.5% p.a for the first 12 months; the interest rates for subsequent periods are adjustable on a monthly basis The loan is secured by future assets acquired under the project of pharmaceutical materials, medicines and functional food processing and production factory and a pharmaceutical material extraction assembly-line At the end of the accounting year 2014, TRA had no long-term debt on their balance sheet that mean TRA borrowed and paid out all short term debt within a year, so TRA is high solvency in spite of being expanded and built more factories in recent years Thus, TRA has had a high owners’ capital The growth rate in account payable fluctuates during 2014 to 2015, but this ratio is quite high and moved the same trend with the growth rate in receivable which can be analyzed above, so it is implied that TRA need to have the strategy to reduce the sale on credit to have more money paying back to supplier and invest more in others activities 16 2.2.3 Owner’s Equity Structure In owner’s equity, the share capital covered the big amount of total resources From 2014, the owners’ contributed capital, share premium, treasury shares and foreign exchange receive was stable  The percentage of retained earnings tends to increase over year from 11.46% to 12.84% in 2014 and 2015, respectively  Besides, funds (include fund for investment and development, subsidized funds and funds for fixed assets acquisition) has a significant percentage of total equity, about 33% In 19 January 2015, the Company’s Board of Management decided to increase the proportion of its ownership interest in Thai Nguyen Pharmaceutical and Medical Equipment Joint Stock Company from 49% to 51% of the investee’s charter capital by additionally acquiring 870 shares of Thai Nguyen Pharma Therefore, it has officially become a subsidiary of the Company and is no longer its associate  The minority interest is the proportion of a subsidiary corporation’s stock that is no owned by the parent corporation In situation of TRA, its minority is light increase over years It may indicate that TRA carry out divestment from its subsidiary or sell its stock in subsidiary company to mobilization of capital Generally, total equity has a significant percentage of total equity and liability and increased over year Therefore, TRA can strengthen their powerful in financial resources that helps TRA create more competitiveness in the market 17 Statement of Cash Flow analysis 18 ... 2015 Name of the Company has changed into TRAPHACO Joint Stock Company Set up Traphaco High-Technology Joint Stock Company (Traphaco CNC) Traphaco was recognized as the No pharmaceutical brand... pharmaceutical fields II Financial Statement Analysis Income Statement Analysis In 2015, Traphaco Joint Stock Company had a year of outstanding business results Traphaco became one of the companies with the... consolidated balance sheet of Traphaco Joint Stock Company in 2014 and 2015 and the financial statement to determine how efficient Traphaco performed it in all aspect about: capital structure, financing