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 The statement of cash flow presents the cash inflow and outflow through the year of an enterprise In general, it is clearly observed that that net cash flow from operating activities was positive, and the net cash flow for investing and financing activities were negative, so TRA is developed enterprise and that cash inflow from operating activities can use to pay for long-term investments and paying dividends  As can be seen clearly the cash came in from operating activities increase every year, that is the good signal because the investors always invest in the company that have positive cash flow from operation to anticipate the company’s ability to paid out their dividend or paid borrowing Operating activities of the Company are production and trade of food and cosmetics; export and import of pharmaceutical materials and products; consultancy on manufacturing of medicines and cosmetics; dispensing prescription drugs; production and trade of medicines, chemical and medical supplies and equipment; production and trade of alcohol, beer, soft drinks (not including bar operating); advisory services on medical technology transfer; purchasing, planting, processing pharmaceutical materials  The net cash out flow for investing in fixed assets increase significantly every year because TRA is in the process of expanding their capacity and technology to meet the growing demand of domestic in specific and foreign countries in general An associate is an entity over which the Company has significant influence and that is neither a subsidiary nor an interest in joint venture Significant influence is the power to participate in the financial and operating policy decisions of the investee but not control or joint control over those policies 19 Investment activities » Increased chartered capital of Traphaco Sapa from VND 6.700.000.000 to VND 16.800.000.000 » Increased ownership at Thai Nguyen Pharmaceutical Products and Medical Equipments Company from 49% to 51% » Started construction at Traphaco Hung Yen limited liabilities Company: »Total investment in 2015: VND36.8 billion Started contracts out of the total 14 contracts of the projects All contracts are on track to be completed by 2nd quarter 2016 » The contract to purchase the production equipment has been signed, installation and pilot running expected to commence by July 2016 »Total value of investment deployed in 2015: VND36.8 billion Improved the distribution network Improved distribution management software to meet the increased demand of the increased productivity of the sales staffs and growing sales Invested to purchase land and build offices for branches: Phu Tho, Gia Lai, Tien Giang, Bac GiangAdded transportation vehicles for the sales department to meet the transportation demand of the Company  The net cash flow from financing activities of TRA in general is out going, mostly to paid dividends In 2015, although net cash used in financing activities decreased, the amount was the portion of dividends and profits paid is in highly proportion, nearly times as that in 2014 Therefore, the payment for dividends lead the cash from financing activities is negative amount In brief, it is seen that TRA had experienced a good performances in managing working capital to generate the positive in cash from operating activities, along with the strong in equity’s capital and the suitable invest in fixed assets, so the cash and cash equivalent at the end of each year is quite higher than the others 20 Financial ratios analysis Formula Ratio I Liquidity Current ratio Quick or acid-test ratio Current cash debt coverage II Activity Accounts receivable turnover Inventory turnover Asset turnover III Profitability Profit margin on sales Return on assets Return on common stock equity 10 Earnings per share 11 Price-earnings ratio 12 Payout ratio IV Coverage 13 Debt to asset 14 Times interest earned 15 Cash debt coverage 16 Book value per share 17 Free cash flow 2015 Current assets Current liabilities Cash, short-term investment, and net receivables Current liabilities Net cash provided by operating activities Average current liabilities 2.72 times Net sales Average trade receivables (net) Cost of goods sold Average Inventory Net sales Average total assets 7.8 times Net Income Net sales Net Income Average total assets Net income minus preferred dividends Average common stockholders’ equity Net income minus preferred dividends Weighted- average number of share outstanding Market price of stock Earnings per share Cash dividends Net Income 10.32% Total liabilities Total assets Income before income taxes and interest expense Interest expense Net cash provided by operating activities Average total liabilities Common shareholders’ equity Outstanding shares Net cash provided by operating activities – Capital expenditures – Dividends 25.43% 21 1.74 times 0.72 times 3.9 times 1.52 times 14.35 % 20.73 % 7,335 VND 12.07 times 2,000 VND 178.1 times 58.17% 39,091 VND 147676.74mil VND IV.1 Liquidity ratio Liquidity ratio is the useful tool to measure the ability of TRA to pay out their short-term obligation  The current ratio indicates a company's ability to meet short-term debt obligations It measures whether or not a firm has enough resources to pay its debts over the next 12 months Potential creditors use this ratio in determining whether or not to make short-term loans The current ratio can also give a sense of the efficiency of a company's operating cycle or its ability to turn its product into cash TRA‘s current ratio was 2.72 times If the current ratio is too high (much more than 2), then the company may not be using its current assets or its short-term financing facilities efficiently This may also indicate problems in working capital management  The quick ratio is a measure of a company's ability to meet its short-term obligations using its most liquid assets (near cash or quick assets) Quick assets include those current assets that presumably can be quickly converted to cash at close to their book values Quick ratio is viewed as a sign of a company's financial strength or weakness; it gives information about a company’s short term liquidity The higher the quick ratio, the better the position of the company The ratio of TRA is 1.74 times which is higher than 1, so TRA created the good impression on creditor and that make TRA can easy to raise funds by borrowing in short-term periods  Current cash debt coverage ratio is a liquidity ratio that measures the relationship between net cash provided by operating activities and the average current liabilities of the company It indicates the ability of the business to pay its current liabilities from its operations A higher current cash debt coverage ratio indicates a better liquidity position TRA’s current cash debt coverage is 0.72 times means the business is able to pay all of its current liabilities from the cash flow of its own operations All in all, it can be seen that the liquidation of TRA in short-term is very good, TRA has more cash on hand to pay for their supplier and also investing operational production 22 IV.2 Activity ratio Receivable collection in 2015 improved compared to 2014, especially at the sales department The average receivable days of the sales department was reduced from 35 days in 2014 to 30 days in 2015 As such, the Company is in the strongest financial standing in the past years with a cash balance of VND345 billion As mentioned before, improving financial efficiency was one of Traphaco’s biggest achievements The company’s operational efficiency indicators continued to be improved significantly over the years, especially in receivable turnover Receivable turnover in 2015 was 7.8 times, compared to 7.1 times in 2014 Meanwhile, inventory turnover improved slightly to 3.9 times compared to 3.5 times as in 2014, which was also the highest level over the past years As such, with the new OTC sales policy in 2014, which requires immediate payment after sales, payment and receivable collection activities were very effective, the financial safety was ensured The Company was able to provide financial support to its subsidiaries and affiliated companies, at the same time accumulated VND345 billion in cash and cash equivalent balance as of 31 December 2015 In comparison to the largest listed pharmaceutical companies, Traphaco was among the top companies with the best ratios in terms of receivable days, payable days and inventory days Overall, Traphaco demonstrated superior working management capability through its outperforming cash conversion cycle, calculated as inventory days plus receivable days minus payable days This indicator shows how long a manufacturer takes to convert cash into materials, products and back to cash The lower the cash conversion cycle means higher operational efficiency Traphaco’s cash conversion cycle was the lowest among industry peers This result confirmed the superiority of the new sales policy and Traphaco’s right direction to select OTC as the core market IV.3 Profitability ratio Beside liquidity ratios, efficiency ratios, in order to evaluate a firm’s performance, analysts utilize profitability ratios, which are to tell them how effectively the company’s profitability is being managed All increasing profitability ratios indicated the growing firm’s ability to generate revenue relative to its sales, assets and equity, which, in turn, will attract many investors 23  Profit margin ratio was 10.32% Traphaco’ profit margin ratio quickly increasing in recent years has implied good cost management by focusing on oriental medicines and ensuring its own raw material supply A similar trend was recorded in the company’s net profit margin ratio Although the net profit margin ratio of OPC and industry were both more than Traphaco, the company will more likely to have bright prospect The reason could be explained by a right strategy which continue to increase sales revenue and reduce expenses  Return on asset (ROA) kept increasing and in 2015 is 14.35% In particular, Traphaco’s increasing total asset was partially caused by a huge investment in the establishment of the new branch with the investment amount in fixed assets The company’s higher ROA against OPC pointed out that Traphaco was more effective in generating profit from assets than its comparable firms  Return on equity (ROE) is of great important in profitability ratio As it tells how profitable the company is for its owner, ROE seems to receive the most attention from investors Amongst various Traphaco’s profitability ratios, there was only ROE which performed continuous improve and appeared to be higher than that of OPC and industry average This was due to Traphaco’s strategy to depend on debt rather than equity so as to finance its operating ROE in 2015 was 20.73% Although decreasing ratio owner equity to assets in the company’s balance sheet (increasing ratio liabilities to assets) may bear a potential liquidity problem, the company is still preferable among its peers because of high ROE ratio  Given its market price of VND105,000 and the P/E 2015 of 12.07, higher than the industry average of 12.38, reflecting the potentials for good revenue and profit growth of the company and no expectation for a lift of foreign ownership limit in this industry in near future IV.4 Coverage ratio  The debt to assets ratio indicates the proportion of a company's assets that are being financed with debt, rather than equity The ratio is used to determine the financial risk of a business.  A debt ratio of less than 100% indicates that a company has more assets than debt Used in conjunction with other measures of financial health, the debt ratio can help investors determine a company's risk level The ratio of TRA in 2015 was 25.43% which indicates that TRA was in good condition 24  The times interest earned ratio is considered a solvency ratio because it measures a firm's ability to make interest and debt service payments Since these interest payments are usually made on a long-term basis, they are often treated as an ongoing, fixed expense The ratio indicates how many times a company could pay the interest with its before tax income, so obviously the larger ratios are considered more favorable than smaller ratios The ratio of TRA was 178.1 times means that its was less risky As you can see, creditors would favor a company with a much higher times interest ratio because it shows the company can afford to pay its interest payments when they come due  Cash debt coverage ratio shows how much of the company’s total liabilities can be covered (paid) with net cash from operating activities In other words, this ratio is one of the measures of the company’s financial flexibility and stability This ratio is calculated by dividing net cash provided by operating activities by the average total liabilities Cash debt coverage ratio of 58.17% indicates that for every dollar of total liabilities there were 58 cents of net cash provided by operating activities In other words, TRA can meet (or cover) 58% of its liability obligations with net cash provided by operating activities It is considered to be a reasonably good indicator of the company’s financial stability In general, a high level of this ratio is considered to be favorable by creditors and investors  TRAPHACO’s Book value per share in 2015 was 39,091 VND Book value per share is a measure used by owners of common shares in a firm to determine the level of safety associated with each individual share after all debts are paid accordingly Thus, this measure is a possible indicator of the value of a company's stock; it may be factored into a general investigation of what the market price of a share should be, though other factors concerning cash flows, product sales, and so forth should also be considered The measurement is rarely used internally; instead, it is used by investors who are evaluating the price of a company's stock  Free cash flow (FCF) is a measure of how much cash a business generates after accounting for capital expenditures such as buildings or equipment This cash can be used for expansion, dividends, reducing debt, or other purposes It is important to note that free cash flow relies heavily on the state of a company's cash from operations, which in turn is heavily influenced by the company's net income Thus, when the company has recorded a significant amount of gains or expenses that are not directly related to the company's normal core business (a one-time gain on the sale of an asset, for example), the analyst or investor should carefully exclude those from the free cash flow calculation to get a better 25 picture of the company's normal cash-generating ability The FCF of TRA in 2015 was 147676.74 mil VND Investors should also be aware that companies can influence their free cash flow by lengthening the time they take to pay the bills (thus preserving their cash), shortening the time it takes to collect what's owed to them (accelerating the receipt of cash), and putting off buying inventory (again, preserving cash) It is also important to note that companies have some leeway about what items are or are not considered capital expenditures, and the investor should be aware of this when comparing the free cash flow of different companies 26 RECOMMENDATIONS However, given the above mentioned results, the Company still did not achieve the year revenue target of VND2.300 billion by 2015 The Company missed the year target because of factors, both objective and subjective: » The set year plan took into account the possibility of owning 100% of Traphaco High Technology Company (CNC), hence would consolidate 100% of revenue and net profit of CNC Nonetheless, the plan to increase ownership at CNC to 100% was not approved by the General Shareholders at the annual meeting in 2013 » The decision to completely overhaul the sales policy by end of 2013 and beginning of 2014, during which the Company targeted stabilizing recommended retail price, reducing the portion of revenue sold to wholesalers, and prioritized those objectives over the revenue growth target » The Company’s leadership decided to not expand the trading and non-exclusive distribution activities, which is the segment with low profit margin and potential risks associated with bad debts, especially in a macro-econonmic environment with unfavorable movements SUGGESTIONS » The BOD and management team build specific business plan for the 05 year term 2016-2020 in order to realize the Company’s Vision for 2020 » In terms of Human resource: The Company has a plan in place to build and complete the structure for management positions in line with the scale of the Company’s development for the term 2016-2020 Propose the General Shareholders to delegate the BOD in coordination with the Inspection Board select one auditor among the Big4 auditing firms approved by the State Securities Commission for the fiscal year 2016 » In line with the timetable to develop and apply ERP system in management, the Company has a plan to set up and manage the budget, at the same time monitor on the ERP system to improve the management of expenses according to the annual budget » The Inspection Board proposes the Management team improve the effectiveness of the Risk Management 27 CONCLUSION Financial analysis is very importance to analyze the firm Following step by step of financial statement analysis, the industry that firm the business is analyzed to see the development of this industry and measure how efficient the strategy that analyzed company used to compete with the others peers is appropriated Besides, the financial performance of this company is also evaluate to see the profitability of this analyzed firm and determines how well the firm is managed to give the suitable strategy for the firm in the future Finally, the forecast and valuation process will be defined the intrinsic value of company stock price Traphaco Joint Stock Company has the appropriated strategy to maintain the market position and gets the high growth in the net sales by building the new factories to expand the capacity, invest strongly on material resources both in Domestic and foreign country, widen the distribution channel to approach new customers, by doing that TRA can save the cost of goods sold and take the advantages of economic of scale 28 ... 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