Analyzing financial performance of united pharma vietnam co , ltd for a period of 2008 2009

TR NG IH CM TP.HCM UNIVERSITE LIBRE DE BRUXELLES HO CHI MINH CITY OPEN UNIVERSITY SOLVAY BRUSSELS SCHOOL MBAVB PHONG QUOC HOANG ANALYZING FINANCIAL PERFORMANCE OF UNITED PHARMA VIETNAM Co., Ltd FOR A PERIOD OF 2008-2009 PROJECT MASTER IN BUSINESS ADMINISTRATION (Part-time) Ho Chi Minh City 2010 Name: Phong Quoc Hoang Course: MBAVB1 DECLARATION I hereby enclose eight hard copies of my final project “Analyzing Financial Performance and Financial Position of United Pharma Vietnam for a period of 2008-2009” to Solvay Business School and Ho Chi Minh City Open University I confirm this final project is my own work And I certify that all datas and references using in this project are legal Name: Phong Quoc Hoang Course: MBAVB1 ACKNOWLEDGEMENTS I gratefully thank my Supervisor Dr Nguyen Tan Binh for his valuable advices and hearted guidance throughout the process of developing this study, especially how empirical findings should be analyzed I would like to thank and appreciate Financial Division of United Pharm Vietnam Co Ltd for great opportunity to work with them and for providing me with access to internal record and data With their kind help, I can optimize application to this real case study Special thanks to Mr Renan Sabino Danganan for his hospitality and readiness to support at all time Least but not last, I would like to acknowledge and thank to all professors, coordinators Mr Serge and Ms Tran and my classmates of MBAVB1 program who have provided me with practical and helpful insights, comments and assistance Name: Phong Quoc Hoang Course: MBAVB1 COMPANY’S COMMENTS Mr Hoang presented a detailed and in-depth analysis of the financial performance of United Pharma Vietnam He displayed a thorough knowledge of the financial terms and concepts and was able to apply this in his analysis We were impressed with the details of his presentation, how he was able to go “deep down to the heart” of our operation He was able to present the financial information in a way that will be useful to management in making strategic decision knowing full well the relationship of the financial ratios with the financial performance We appreciate his practical suggestions and we sincerely thank him for this work Renan Sabino Danganan Finance and Admin Director Name: Phong Quoc Hoang Course: MBAVB1 SUPERVISOR’S COMMENTS Hoang applied a thorough knowledge of financial term and concepts to present a detailed and in-depth analysis financial performance of United Pharma Vietnam He made great effort to collect data and benchmark financial ratios of Company against those of its rivals He was able to find out areas that need improvement and proposed practical solutions Dr NGUYEN TAN BINH Name: Phong Quoc Hoang Course: MBAVB1 TABLE OF CONTENTS EXECUTIVE SUMMARY CHAPTER 01: INTRODUCTION 1  1.1 Problem Context 1  1.2 Objectives of Research Study 2  1.3 Methodology 2  1.3.1 Research Approach 2  1.3.2 Research Method 3  1.3.3 Data Collection 3  1.3.4 Limitation 4  CHAPTER 02: LITERATURE REVIEW 5  2.1 Financial Statement Analysis 5  2.1.1 Three Primary Business Activities 5  2.1.2 Users of Financial Statement 6  2.1.3 Balance Sheet 6  2.1.4 Profit/Loss Statement 7  2.1.5 Cash Flow Statement 7  2.2 Financial Ratio Analysis of Financial Statement 8  2.2.1 Interpretation of financial ratios 9  2.2.2 Liquidity Ratios 10  2.2.2.1 Current Ratio 10  2.2.2.2 Quick Ratio 11  2.2.2.3 Cash Ratio 11  2.2.3 Profitability Ratios 11  2.2.3.1 Net profit to Net sales Ratio 12  2.2.3.2 Return on assets (ROA) 12  2.2.3.3 Return on equity (ROE) 13  Name: Phong Quoc Hoang Course: MBAVB1 2.2.4 Efficiency Ratios 13  2.2.4.1 Days Inventory Held (DIH) 13  2.2.4.2 Days Sales Outstanding (DSO) 14  2.2.4.3 Days Payable Outstanding (DPO) 14  2.2.4.4 Cash Conversion Cycle 15  2.2.4.5 Total Assets Turnover 15  2.2.5 Leverage Ratios 15  2.2.5.1 Debt to Assets Ratio 16  2.2.5.2 Debt to Equity Ratio 17  2.2.5.3 Interest Coverage Ratio 17  CHAPTER 03: INFORMATION ABOUT COMPANY 19  3.1 Company profile 19  3.2 Organization chart 20  3.3 Company’s Products 20  3.3.1 Consumer channel 20  3.3.2 Pharmacy channel 21  3.3.3 Medical Doctor Channel 21  CHAPTER 04: ANALYSIS OF FINANCIAL PERFORMANCE FOR 02 YEARS (2008 – 2009) 22  4.1 Analyzing Business Performance for Years (2008-2009) 22  4.2 Analyzing Assets and Source of Capital for Years (2008-2009) 29  4.2.1 Analyzing Net Assets 29  4.2.2 Analyzing Total Assets 30  4.2.3 Analyzing Sources of Capital 33  4.3 Cash Flow Analysis for Years (2008-2009) 37  4.4 Financial Analysis Through Financial Ratios 40  4.4.1 Net Working capital 40  4.4.2 Analyzing Liquidity Ratios 40  Name: Phong Quoc Hoang Course: MBAVB1 4.4.2.1 Current Ratio 40  4.4.2.2 Quick Ratio 41  4.4.2.3 Cash Ratio 42  4.4.3 Analyzing Leverage Ratios 42  4.4.3.1 Debt to Asset Ratio 42  4.4.3.2 Debt to Equity Ratio 43  4.4.3.3 Interest Coverage ratio 43  4.4.4 Profitability ratios 44  4.4.4.1 Net Profit to Net Sales Ratio 44  4.4.4.2 Return on Assets 44  4.4.4.3 Return on equity 45  4.4.5 Operational Efficiency ratios 45  4.4.5.1 Days Inventory Held (DIH) 45  4.4.5.2 Days sales outstanding (DSO) 46  4.4.5.3 Days Payable Outstanding (DPO) 47  4.4.5.4 Cash Conversion Cycle 48  4.4.5.5 Assets Turnover Ratio 48  4.4.5.6 Current Asset turnover 49  4.4.5.7 Fixed assets ratio 49  4.4.6 Analysis of Financial Ratios Across Pharmaceutical Companies 50  CHAPTER 05: CONCLUSION AND SUGGESTIONS 54  5.1 Conclusion 54  5.1.1 United Pharma Vietnam - Year to Year Comparison 54  5.1.2 United Pharma Vietnam vs Its Rivals 56  5.2 Suggestion 57  Name: Phong Quoc Hoang Course: MBAVB1 REFERNCES 60  APPENDIXES 61  Appendix 01: 2007-2009 Financial Statement of United Pharma Vietnam 62  Appendix 02: 2009 Financial Statement of HauGiang Pharmaceutical 66  Appendix 03: 2009 Financial Statement of Domesco Pharmaceutical 68  Appendix 04: 2009 Financial Statement of Imexpharm Pharmaceutical 70  Appendix 05: 2007-2009 Historical Exchange Rate – VND vs USD 72  Appendix 06: 2007-2009 Consumer Price Index 72  Name: Phong Quoc Hoang Course: MBAVB1 EXECUTIVE SUMMARY In financial perspective, to not only United Pharma Vietnam but also all business entities, financial position and financial performance become important to survival and development of today’s company They have a two way relationship where financial position and financial performance influence each other Financial performance of United Pharma Vietnam for year 2008 and 2009 draw out two attentions Firstly, its performance in 2008 was strong with growth rate 22% for net sales and growth rate of 12% for net profit Moving toward 2009, its performance was continuously improved with net sales increased by 26% and net profit increased by 57% Total assets increased by 3% and 7% in 2008 and 2009 respectively However, cash flow was deficit of VND 5.2 billion and VND 1.5 billion in the same two periods respectively Secondly, its profitability ratios remained lowest compared to its rivals; specially in 2009, Net profit ratio was 4%, ROA was 6% and ROE was 10% whereas intervals of those ratios of studied Pharmaceutical Companies in VND showed Net profit to net sales interval (4%, 21%), ROA interval (10%, 35%) and ROE (6%, 24%) Therefore Management of United Pharma Vietnam wants to clearly understand and address two following concerns: How did its financial performance impact its financial position How good was its financial performance and efficiency against its rivals; Hau Giang Pharmaceutical Company and Domesco Pharmaceutical Company and Imexpharm Pharmaceutical Company Name: Phong Quoc Hoang Course: MBAVB1 • Implementation of Price Increase for Products: Implementation of price increase must be maintained However, to develop more effectively, the company should set up functional teams to take product costing analysis by product vs product price by product seriously and regularly Functional team should include Accounting & Finance, Purchasing, Production, Marketing and Sales By this way, we are able to correctly identify what products are increased in cost and how much should we increase prices for products accordingly Selling expenses as percent to net sales was 29% in 2007, increased to 32% in 2008 and 2009 whereas this ratio in 2009 belongs to interval (11%, 32%) among studied Pharmaceutical Companies So the company’s ratio in 2009 was highest, this means the company paid the most resources to achieve its business operation among studied Pharmaceutical Companies As result, it had unfavorable impact on profitability and financial position of the company Therefore, the company should improve utilization of these spending, especially personnel cost, advertising, public medical education programs, traveling General expenses as percent to net sales were 18%, decreased to 15% in 2008 and 2009 There was improvement, but remained highest among those of its rivals We observed that this ratio belonged to interval (5%,15%) The company should study and improve productivity of employees as it made up 60% of total general administrative expenses Furthermore, additional headcount will result in not only an increase in personnel cost but also an increase in series of others spending like traveling, office supplies, training, depreciation … etc 58 Name: Phong Quoc Hoang Course: MBAVB1 Analysis of profit/loss statement by product should be internally conducted By this way, we are able to understand what products incur loss and what products make profits, and find out reasons to improve 59 Name: Phong Quoc Hoang Course: MBAVB1 REFERNCES A BOOKs Robert C Higgins, Analysis for Financial Management, McGraw Hill, International Edition 2003 Aswath Damodaran, Corporate Finance, Joln Wiley & Sons, 1997 Jay M.Smith, K.Fred Skousen, Earl K.Stice and James D.Stice, Intermediate Accounting, Twelfth Edition, South Western Publishing, 1995 Floyd A.Beams, John A Brozovsky and Graig D Shoulders, Advanced Accounting, Prentice Hall International, 2000 Ministry of Finance – Department of Accounting Policies, Vietnamese Accounting System, English Version, translated by Coopers Lybrand – AISC, 1996 Ronald W Hilton, Managerial Accounting, McGraw Hill, International Edition 1994 60 Name: Phong Quoc Hoang Course: MBAVB1 APPENDIXES List of Appendixes: 2007-2009 Financial Statements of United Pharma Vietnam 2009 Financial Statements of Hau Giang Pharmaceutical 2009 Financial Statements of Domesco Pharmaceutical 2009 Financial Statements of Imexpharm Pharmaceutical 61 Name: Phong Quoc Hoang Course: MBAVB1 Appendix 01: 2007-2009 Financial Statement of United Pharma Vietnam 2007- 2009 Balance Sheet Unit: VNDMillion Particulars ASSETS A Current Assets Cash Receivables Inventories Other current assets B Non Current Assets Fixed Assets Cost Accumulated Depreciation TOTALASSETS LIABILITIES &OWNER'S EQUITY A Liabilities Current liabilities Account payable trade Accrued expense payable Other payables Long termliabilities Loans Provision for severance allowance A Owner's Equity Capital RetainedEarnings TOTALLIABILITIES &OWNER'SEQUITY Act Act Act 2008 vs 2007 2009 vs 2008 2007 2008 2009 Amt Amt % 5,096 6% (5,220) (12%) 6,308 60% 567 2% 3,440 72% (572) (1%) (572) (1%) 2,040 1% (2,611) 2% 9,007 (1,479) 4,219 6,299 (32) 1,615 1,615 4,680 (3,066) 9% (4%) 25% 19% (0%) 3% 3% 3% 3% 4,524 10,622 7% 91,117 96,213 105,221 43,544 38,324 36,845 10,496 16,804 21,023 32,320 32,887 39,187 4,758 8,198 8,165 55,092 54,520 56,135 55,092 54,520 56,135 165,441 167,480 172,160 (110,349) (112,960) (116,026) 146,209 150,733 161,355 60,269 24,611 8,796 7,773 8,041 35,659 23,332 12,326 85,940 49,327 36,613 58,503 33,855 15,977 10,500 7,378 24,648 12,467 12,181 92,230 49,327 42,903 59,253 46,408 23,967 14,213 8,228 12,845 12,845 102,102 49,327 52,775 146,209 150,733 161,355 62 % 3% (1,766) (3%) 750 1% 9,245 38% 12,553 37% 7,180 82% 7,990 50% 2,727 35% 3,713 35% (663) (8%) 849 12% (11,011) (31%) (11,802) (48%) (10,866) (47%) (12,467) 100% (145) (1%) 664 5% 6,290 7% 9,872 11% 0% 0% 6,290 17% 9,872 23% 4,524 3% 10,622 7% Name: Phong Quoc Hoang Course: MBAVB1 2007-2009 Financial Statements of United Pharma Vietnam Profit/Loss Statement Presented in Amount VNDMillion Net Sales Cost of Goods Sold Gross Margin 2008vs 2007 2009 vs 2008 Act Act Act 2007 2008 2009 AMT % 160,191 194,787 245,777 34,596 22% 50,990 26% (78,375) (95,920) (120,468) (17,546) 22% (24,547) 26% 17,050 21% 26,443 27% % 81,816 98,867 Selling Expenses (46,413) (62,811) (77,623) (16,398) 35% (14,812) 24% General Admin Financial Income (28,448) 3,874 (29,605) 2,907 (37,207) (1,157) 2,011 (967) 4% (7,602) (25%) (896) 26% (31%) Financial Expenses (3,873) (2,133) (231) 1,740 (45%) 1,902 (89%) 6,956 7,225 12,259 269 4% 5,035 70% Other Income 42 1,363 88 1,321 3,169% (1,275) (94%) Other Expenses (5) (725) (7) (720) 13,581% 718 (99%) 6,992 7,863 12,340 870 12% 4,477 57% (1,398) (1,573) (2,468) (174) 12% (895) 57% 5,594 6,290 9,872 696 12% 3,582 57% Operating Profit Profit Before Tax Enterprise Income Tax Net Profit After tax 63 125,309 AMT Name: Phong Quoc Hoang Course: MBAVB1 2007-2009 Financial Statements of United Pharma Vietnam Profit/Loss Statement Presented in Percentage to Net Sales 2008 2009 vs vs 2007 2008 Act Act Act 2007 2008 2009 100.0% 100.0% 100.0% 0.0% 0.0% (48.9%) (49.2%) (49.0%) (0.3%) 0.2% 51.1% 50.8% 51.0% (0.3%) 0.2% Selling Expenses (29.0%) (32.2%) (31.6%) (3.3%) 0.7% General Admin (17.8%) (15.2%) (15.1%) 2.6% 0.1% Financial Income 2.4% 1.5% 0.8% (0.9%) (0.7%) Financial Expenses (2.4%) (1.1%) (0.1%) 1.3% 1.0% Operating Profit 4.3% 3.7% 5.0% (0.6%) 1.3% Other Income 0.0% 0.7% 0.0% 0.7% (0.7%) Other Expenses (0.0%) (0.4%) (0.0%) (0.4%) 0.4% Profit Before Tax 4.4% 4.0% 5.0% (0.3%) 1.0% (0.9%) (0.8%) (1.0%) 0.1% (0.2%) 3.5% 3.2% 4.0% (0.3%) 0.8% Particulars Net Sales Cost of Goods Sold Gross Margin Enterprise Income Tax Net Profit After tax 64 Name: Phong Quoc Hoang Course: MBAVB1 2007-2009 Financial Statements of United Pharma Vietnam 2008 – 2009 Cash Flow Act 2008 In Million of VND Act 2009 I CASH FLOWS FROM OPERATING ACTIVITIES Profit before tax Adjustments for: Add: Depreciation and amortisation Add: Provision for inventory obsolescence Add: Interest income Cash generated form operating profit after adjustment 6,290 9,872 2,611 (4,906) (2,907) 1,089 3,066 948 (2,011) 11,875 Cash generated from changes in working capital (Increase)/decrease in receivables (Increase)/decrease in inventories (Increase)/decrease in other current assets Increase/(decrease) in trade payables Increase/(decrease) in accrued expense payables Increase/(decrease) in other payables Changes in working capital (6,308) 4,339 (3,440) 7,180 2,727 (808) 3,690 (4,219) (7,247) 32 7,990 3,713 1,513 1,782 4,779 13,657 (2,040) 2,907 (4,680) 2,011 867 (2,669) III CASH FLOWS FROM FINANCING ACTIVITIES Loan repayment (10,866) (12,467) Net cash outflows from financing activities (10,866) (12,467) Net increase/(decrease) in cash (5,220) (1,479) Cash at the beginning of the year 43,544 38,324 Cash the at end of the year 38,324 36,845 Net cash inflows from operating activities II CASH FLOWS FROM INVESTING ACTIVITIES Purchase of fixed assets Interest received Net cash outflows from investing activities 65 Name: Phong Quoc Hoang Course: MBAVB1 Appendix 02: 2009 Financial Statement of HauGiang Pharmaceutical Balance Sheet As at 31st December 2009 In Million of VND CURRENT ASSETS Amount 1,212,468 Cash 584,129 Short term investment 16,037 Receivables - Trade 296,978 Inventory 306,732 Other current assets 8,593 NON - CURRENT ASSETS 309,504 Fixed assets (Net) 237,015 Long term financial investment 31,255 Other long term assets 41,234 TOTAL ASSETS 1,521,973 LIABILITIES 496,198 Current Liabilities 481,916 Short Term Borrowing 73,980 Payables to suppliers 71,353 Other Payables 336,584 Long Term Liabilities 14,282 Long Term Borrowing - Other long term liabilities 14,282 OWNER'S EQUITY 1,025,775 Capital 1,010,336 Other funds 15,439 TOTAL RESOURCES 1,521,973 66 Name: Phong Quoc Hoang Course: MBAVB1 2009 Financial Statement of HauGiang Pharmaceutical Inc om e S tate m e nt Y ea r 2009 In M illio n o f V N D A m ou nt N e t Sa les 1,7 46 ,0 22 C ost o f G o od S ales (8 2,44 ) G ross M a rgin 23 ,5 76 Fin an c ia l in c om e 1,29 Fin an c ia l ex p en ses (2 3,59 ) Se llin g e xp e nse s (4 9,53 ) G e n eral e x pe n ses (1 3,70 ) O p e rat in g Pro fit 08 ,0 40 O th er in c om e 4,22 O th er e x pe n ses (1 2,67 ) P ro fit be fore t ax 09 ,5 90 E nte rp rise in co m e tax 7,24 N e t Pro fit A fte r Ta x 62 ,3 40 67 Name: Phong Quoc Hoang Course: MBAVB1 Appendix 03: 2009 Financial Statement of Domesco Pharmaceutical Balance Sheet As at 31st December 2009 In Million of VND CURRENT ASSETS Amount 404,659 Cash 22,822 Short term investment - Receivables - Trade 200,921 Inventory 167,377 Other current assets 13,539 NO N - CURRENT ASSETS 305,311 Fixed assets (Net) 222,070 Long term financial investment 78,214 Other long term assets 5,027 TOTAL ASSETS 709,970 LIABILITIES 208,065 Current Liabilities 192,916 Short Term Borrowing 70,820 Payables to suppliers 72,397 Other Payables 49,699 Long Term Liabilities 15,149 Long Term Borrowing 11,541 Other long term liabilities 3,608 OWN ER'S EQUITY 501,905 Capital 497,253 Other funds 4,652 TOTAL RESOURCES 709,970 68 Name: Phong Quoc Hoang Course: MBAVB1 2009 Financial Statement of Domesco Pharmaceutical Incom e Statement Ye ar 2009 In M illion of V ND A mount Net Sales 1,067,897 C ost of Good Sales (750,296) G ross M argin 317,601 Financia l incom e 7,410 Financia l expenses (6,715) Selling expenses (120,152) General expenses (93,891) Op erat in g Profit 104,253 Other incom e 12,973 Other expenses (5,039) P rofit before t ax 112,187 E nterprise income tax 35,826 Net Profit After Tax 76,361 69 Name: Phong Quoc Hoang Course: MBAVB1 Appendix 04: 2009 Financial Statement of Imexpharm Pharmaceutical B ala nce Sh e et As at 31st D ec em be r 2009 In M illio n o f V N D C U R RE N T AS SE TS Am o un t 52 7,19 C ash 35 ,0 12 ,8 Sh o rt te rm in ve stm e nt R ec eiv ab les - T rad e 75 ,8 Inv e nto ry 95 ,9 O th er c u rre n t asse ts ,5 N O N - C U RR E N T ASS E T S Fix e d a sse ts (N e t) 20 4,27 52 ,3 L on g te rm fin an cial in ve stm e nt 37 ,6 O th er lo n g te rm a sse ts 14 ,2 T O TA L A SSE T S 73 1,47 L IA B IL IT IE S 18 8,18 C urre nt L ia bilitie s 77 ,3 Sh o rt Te rm B orro w ing 30 ,7 Pa ya ble s to su p pliers 56 ,3 O th er P ay ab les 90 ,2 L on g Te rm Lia bilitie s 0,80 L on g Te rm B o rro w in g ,0 O th er lo n g te rm liab ilitie s ,7 O W N E R'S E Q U IT Y 54 3,28 C ap ital 37 ,7 O th er fu n ds ,5 T O TA L R E SO U R C ES 73 1,47 70 Name: Phong Quoc Hoang Course: MBAVB1 2009 Financial Statement of Imexpharm Pharmaceutical Incom e Statem ent Y ear 2009 In M illion of VND A mount Net Sales 660,076 C ost of Good Sales (366,643) G ross M argin 293,433 Financial incom e 11,246 Financial expenses (9,685) Selling expenses (181,877) General expenses (29,965) Op erating Profit 83,152 Other incom e 37,139 Other expenses (39,763) Profit before tax 80,528 Enterprise income tax 14,822 Net Profit After Tax 65,706 71 Name: Phong Quoc Hoang Course: MBAVB1 Appendix 05: 2007-2009 Historical Exchange Rate – VND vs USD Month Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Annual Average Rate 2006 2007 15,921 15,906 15,935 15,936 15,955 15,992 16,003 16,010 16,051 16,079 16,081 16,091 15,997 % Increase/Decrease - Average 2008 2009 16,049 16,004 16,053 16,058 16,087 16,325 16,064 16,241 16,069 16,090 16,054 16,023 16,093 15,985 15,938 16,060 16,114 16,229 16,316 16,755 16,500 16,598 16,810 16,940 17,443 16,474 17,470 17,465 17,726 17,742 17,765 17,786 17,810 17,818 17,836 17,857 18,490 18,474 17,853 1% 2% 8% Sourced from Citi Bank Appendix 06: 2007-2009 Consumer Price Index Items Unit Consumer Price Index - Average Percent Sourced from Vietnam Statistic Office 72 2007 8.3% 2008 23.0% 2009 6.9% ... Giang Pharmaceutical Company, Domesco Pharmaceutical Company and Imexpharm Pharmaceutical Company Financial ratios are computed mainly by weighted average method I am unable to obtain financial. .. Pharmaceutical Company and Imexpharm Pharmaceutical Company I believe that the existing topic ? ?Analyzing financial performance and financial position of United Pharma Vietnam for a period of 2008- 2009? ?? is... where financial position and financial performance influence each other Financial performance of United Pharma Vietnam for year 2008 and 2009 draw out two attentions Firstly, its performance in 2008