Julphar Gulf Pharmaceutical Industries: Financial Analysis

Introduction

Julphar Gulf Pharmaceutical Industries is a leading pharmaceutical company based in the U.A.E. that carries research, development, and distribution of medicines. The company currently has 12 units of production in the U.A.E. and sells medicines in 40 countries. The current paper investigates the company’s performance in the period 2012-15 using financial ratio analysis, common size financial statements, and DuPont analysis.

Ratio Analysis

The ratio analysis is carried out in the following to evaluate the company’s performance using different categories of ratios.

Profitability Ratios

The gross profit margin of the company improved in 2015 after it slightly declined in 2014. It could be due to better control of input cost by the company. The return on assets declined in 2013 and 2014. However, its value did not change much during the four-year period. Furthermore, the return on equity declined in 2014 due to the decline in the company’s net profit. The income statement indicated that the company’s selling and distribution expense significantly increased in 2014.

2012 2013 2014 2015
Profitability Ratios
Gross Profit Margin 59% 60% 59% 62%
Gross Profit 697,419 820,701 818,427 908,924
Sales Revenue 1,180,555 1,362,071 1,387,955 1,470,204
Return on Assets 8% 7% 6% 7%
Profit 200,195 228,085 202,075 226,649
Assets 2,544,433 3,051,302 3,169,923 3,455,834
Return on Equity 12% 12% 9% 10%
Profit 200,195 228,085 202,075 226,649
Equity 1,708,789 1,886,662 2,128,607 2,292,789

Table 1: Profitability Ratios.

Liquidity Ratios

The company’s liquidity position remained strong in the four-year period. It could be noted that the value of the current ratio increased to 2.34 in 2015, which was well above the benchmark value of one. Moreover, the value of the acid test ratio also improved in that period. However, it could be highlighted that the company’s cash position was weak. The company’s current liabilities were much more than its cash. It could create problems for the company in the coming periods as it has a significant amount of external debt that could deplete its cash quickly.

2012 2013 2014 2015
Liquidity Ratios
Current Ratio 1.85 2.27 2.34 2.34
CA 1,180,778 1,636,931 1,727,678 1,905,226
CL 636,951 720,355 738,556 813,496
Acid Test Ratio 1.34 1.72 1.71 1.74
Quick Assets 855,404 1,238,219 1,262,247 1,413,684
CL 636,951 720,355 738,556 813,496
Cash Ratio 0.13 0.30 0.16 0.19
Cash & Cash Equivalents 82,686 214,614 120,925 151,521
CL 636,951 720,355 738,556 813,496

Table 2: Liquidity Ratios.

Efficiency Ratios

The company’s efficiency remained strong in terms of high values of total asset turnover and fixed asset turnover. However, it could be noted that the company’s account receivables turnover and inventory turnover remained very low during the four-year period. It could affect the company’s liquidity and create financial problems. The company’s expansion plans are dependent on its ability to generate cash quickly. Therefore, the management should take measures to improve the company’s efficiency.

2012 2013 2014 2015
Efficiency Ratios
Total Asset Turnover 46% 45% 44% 43%
Sales Revenue 1,180,555 1,362,071 1,387,955 1,470,204
Assets 2,544,433 3,051,302 3,169,923 3,455,834
Account Receivables Turnover 1.55 1.38 1.26 1.19
Sales Revenue 1,180,555 1,362,071 1,387,955 1,470,204
Account Receivables 763,049 985,644 1,105,385 1,239,812
Fixed Asset Turnover 111% 124% 126% 126%
Sales Revenue 1,180,555 1,362,071 1,387,955 1,470,204
Fixed Asset 1,063,582 1,099,879 1,103,813 1,163,375
Inventory Turnover 1.48 1.36 1.22 1.14
COGS 483,136 541,370 569,528 561,280
Inventory 325,374 398,712 465,431 491,542

Table 3: Efficiency Ratios.

Gearing Ratios

The company’s solvency position was very strong during the four-year period. The company used its internal equity to finance its operations and expansion programs. It could be indicated the company is unlikely to face any major problem as it generated strong operating profit and managed its capital structure effectively.

2012 2013 2014 2015
Gearing Ratios
Debt-to-Equity Ratio 0.33 0.42 0.33 0.35
Debt 567,760 796,638 703,297 810,463
Equity 1,708,789 1,886,662 2,128,607 2,292,789
Times Interest Earned 970.1% 968.6% 778.9% 1084%
EBIT 223,203 254,344 231,842 249,679
Interest 23,008 26,259 29,767 23,030
Equity Ratio 67.2% 61.8% 67.2% 66.3%
Equity 1,708,789 1,886,662 2,128,607 2292789
Assets 2,544,433 3,051,302 3,169,923 3,455,834
Debt Ratio 22.3% 26.1% 22.2% 23.5%
Debt 567,760 796,638 703,297 810,463
Assets 2,544,433 3,051,302 3,169,923 3,455,834

Table 4: Gearing Ratios.

Vertical Analysis

The vertical analysis (see Appendix A) indicates that the company’s property, plant, and equipment, and trade receivables were major components of its total assets in the four-year period. The equity attributed to owners remained substantially high in that period. Furthermore, it could be noted that the company had short-term borrowings which were settled during the year.

Horizontal Analysis

The horizontal analysis (see Appendix B) indicates that the company made significant short-term investments. Furthermore, it could be noted that the company’s investment lost value in 2014 and 2015, and it also incurred liabilities related to foreign currency transactions. The company’s cash position weakened in 2014 and then improved in 2015. The company’s sales declined in 2014 and then improved in 2015. It affected the company’s net profit, which also declined by 11.40% in 2014.

DuPont Analysis

DuPont analysis considers different elements of return on equity and uses values of three ratios, including net profit margin, asset turnover, and equity multiplier, to calculate the calculate of return on equity.

The following table provides calculations of the three ratios included in DuPont analysis along with the values of return on equity from 2012 to 2015.

2012 2013 2014 2015
Asset Turnover 0.464 0.446 0.438 0.425
Sales Revenue 1,180,555 1,362,071 1,387,955 1,470,204
Assets 2,544,433 3,051,302 3,169,923 3,455,834
Equity Multiplier 1.49 1.62 1.49 1.51
Assets 2,544,433 3,051,302 3,169,923 3,455,834
Total Equity 1,708,789 1,886,662 2,128,607 2,292,789
Net Profit Margin 0.17 0.17 0.15 0.15
Net Profit 200,195 228,085 202,075 226,649
Sales Revenue 1,180,555 1,362,071 1,387,955 1,470,204
Du Pont Analysis
Asset Turnover x Equity Multiplier x Net Profit Margin 11.7% 12.1% 9.5% 9.9%

Table 5: DuPont Analysis.

From the table provided above, it could be noted that the company’s asset turnover gradually declined in the four-year period. The equity multiplier, which indicates the proportion of assets financed by the company’s equity, first improved and then declined. The net profit margin of the company was 17% in 2012 and 2013 and then declined to 15% in 2014. Its value was 15% in 2015 as well. The product of the three ratios indicates that the return on equity improved in 2013. However, its values were 9.5% and 9.9% in 2014 and 2015. The main reason for the decline in its value was inefficient asset management by the company, as it could be noted that despite an increase in the company’s assets, its sales did not increase in the same manner.

Appendix A

Balance Sheet

Balance Sheet Statement as 31 December
AED in thousands 2012 2013 2014 2015
Assets
Non-current assets
Property, plant and equipment 1,063,582 42% 1,099,879 36% 1,103,813 35% 1,163,375 34%
Investment property 8,585 0% 8,585 0%
Intangible assets 72,298 2%
Net investment in an associate 260,054 10% 263,316 9% 277,822 9% 241,573 7%
Available for sale investment 31,434 1% 42,591 1% 60,610 2% 73,362 2%
Total non-current assets 1,363,655 54% 1,414,371 46% 1,442,245 45% 1,550,608 45%
Current assets
Assets of discounted operations 4,045 0% 4,075 0% 0% 0%
Inventories 325,374 13% 398,712 13% 465,431 15% 491,542 14%
Financial assets at fair value 35,937 1% 22,351 1%
Investments held for trading 5,624 0% 33,886 1%
Trade and other receivables 763,049 30% 985,644 32% 1,105,385 35% 1,239,812 36%
Bank balance and cash 82,686 3% 214,614 7% 120,925 4% 151,521 4%
Total current assets 1,180,778 46% 1,636,931 54% 1,727,678 55% 1,905,226 55%
Total Assets 2,544,433 100% 3,051,302 100% 3,169,923 100% 3,455,834 100%
Equity and Liabilities
Capital and reserve
Share Capital 784,687 31% 863,156 28% 1,000,000 32% 1,050,000 30%
Statutory reserve 382,701 15% 405,737 13% 531,954 17% 531,954 15%
Voluntary reserve 138,254 5% 161,290 5% 184,819 6% 184,819 5%
Foreign currency translation reserve 801 0% 534 0% 793- 0% 3,290- 0%
Cumulative changes on revaluation of investment 6,934- 0% 8,604 0% 8,308- 0% 16,603 0%
Retained Earning 406,092 16% 431,443 14% 391,075 12% 421,497 12%
Equity attributed to owners 1,705,601 67% 1,870,764 61% 2,098,747 66% 2,201,583 64%
Non-controlling interest 3,188 0% 15,898 1% 29,860 1% 91,206 3%
Total Equity 1,708,789 67% 1,886,662 62% 2,128,607 67% 2,292,789 66%
Non-current liabilities
Provision for employees’ end of service 28,997 1% 32,019 1% 39,697 1% 42,400 1%
Bank borrowings 169,696 7% 412,266 14% 263,063 8% 307,149 9%
Total non-current liabilities 198,693 8% 444,285 15% 302,760 10% 349,549 10%
Current liabilities
liabilities of discounted operations 146 0% 247 0% 0% 0%
Unclaimed dividends 22,720 1% 18,519 1% 0% 0%
Trade payables and accruals 216,021 8% 317,217 10% 298,322 9% 310,182 9%
Bank borrowings 398,064 16% 384,372 13% 440,234 14% 503,314 15%
Total current liabilities 636,951 25% 720,355 24% 738,556 23% 813,496 24%
Total liabilities 835,644 33% 1,164,640 38% 1,041,316 33% 1,163,045 34%
Total equity and liabilities 2,544,433 100% 3,051,302 100% 3,169,923 100% 3,455,834 100%

Income Statement

Income Statement as 31 December
AED in thousands 2012 2013 2014 2015
Sales 1,180,555 100% 1,362,071 100% 1,387,955 100% 1,470,204 100%
Cost of Sales 483,136 41% 541,370 40% 569,528 41% 561,280 38%
Gross profit 697,419 59% 820,701 60% 818,427 59% 908,924 62%
Selling and distribution expense 415,517 35% 529,163 39% 565,067 41% 571,338 39%
General and administrative expense 70,327 6% 67,619 5% 69,531 5% 108,700 7%
Other income 5,599 0% 11,920 1% 19,784 1% 16,549 1%
Gain / (loss) from investment and other 6,029 1% 18,505 1% 9,155 1% 3,507 0%
Share of profit from investment 19,074 1% 7,751 1%
Finance cost 23,008 2% 26,259 2% 29,767 2% 23,030 2%
Profit for the year 200,195 17% 228,085 17% 202,075 15% 226,649 15%

Appendix B – Horizontal Analysis

Balance Sheet Statement as 31 December
AED in thousands 2012 2013 % Change 2014 % Change 2015 % Change
Assets
Non-current assets
Property, plant and equipment 1,063,582 1,099,879 3.30% 1,103,813 0.36% 1,163,375 5.40%
Investment property 8,585 8,585 0.00%
Intangible assets 72,298 #DIV/0!
Net investment in an associate 260,054 263,316 1.24% 277,822 5.51% 241,573 -13.05%
Available for sale investment 31,434 42,591 26.20% 60,610 42.31% 73,362 21.04%
Total non-current assets 1,363,655 1,414,371 3.59% 1,442,245 1.97% 1,550,608 7.51%
Current assets
Assets of discounted operations 4,045 4,075 0.74% -100.00% #DIV/0!
Inventories 325,374 398,712 18.39% 465,431 16.73% 491,542 5.61%
Financial assets at fair value 35,937 #DIV/0! 22,351 -37.81%
Investments held for trading 5,624 33,886 83.40%
Trade and other receivables 763,049 985,644 22.58% 1,105,385 12.15% 1,239,812 12.16%
Bank balance and cash 82,686 214,614 61.47% 120,925 -43.65% 151,521 25.30%
Total current assets 1,180,778 1,636,931 27.87% 1,727,678 5.54% 1,905,226 10.28%
Total Assets 2,544,433 3,051,302 16.61% 3,169,923 3.89% 3,455,834 9.02%
Equity and Liabilities
Capital and reserve
Share Capital 784,687 863,156 9.09% 1,000,000 15.85% 1,050,000 5.00%
Statutory reserve 382,701 405,737 5.68% 531,954 31.11% 531,954 0.00%
Voluntary reserve 138,254 161,290 14.28% 184,819 14.59% 184,819 0.00%
Foreign currency translation reserve 801 534 -50.00% 793- -248.50% 3,290- 314.88%
Cumulative changes on revaluation of investment 6,934- 8,604 180.59% 8,308- -196.56% 16,603 -299.84%
Retained Earning 406,092 431,443 5.88% 391,075 -9.36% 421,497 7.78%
Equity attributed to owners 1,705,601 1,870,764 8.83% 2,098,747 12.19% 2,201,583 4.90%
Non-controlling interest 3,188 15,898 79.95% 29,860 87.82% 91,206 205.45%
Total Equity 1,708,789 1,886,662 9.43% 2,128,607 12.82% 2,292,789 7.71%
Non-current liabilities
Provision for employees’ end of service 28,997 32,019 9.44% 39,697 23.98% 42,400 6.81%
Bank borrowings 169,696 412,266 58.84% 263,063 -36.19% 307,149 16.76%
Total non-current liabilities 198,693 444,285 55.28% 302,760 -31.85% 349,549 15.45%
Current liabilities
liabilities of discounted operations 146 247 40.89% -100.00% #DIV/0!
Unclaimed dividends 22,720 18,519 -22.68% -100.00% #DIV/0!
Trade payables and accruals 216,021 317,217 31.90% 298,322 -5.96% 310,182 3.98%
Bank borrowings 398,064 384,372 -3.56% 440,234 14.53% 503,314 14.33%
Total current liabilities 636,951 720,355 11.58% 738,556 2.53% 813,496 10.15%
Total liabilities 835,644 1,164,640 28.25% 1,041,316 -10.59% 1,163,045 11.69%
Total equity and liabilities 2,544,433 3,051,302 16.61% 3,169,923 3.89% 3,455,834 9.02%

Income Statement

Income Statement as 31 December
AED in thousands 2012 2013 % Change 2014 % Change 2015 % Change
Sales 1,180,555 1,362,071 13.33% 1,387,955 1.90% 1,470,204 5.93%
Cost of Sales 483,136 541,370 10.76% 569,528 5.20% 561,280 -1.45%
Gross profit 697,419 820,701 15.02% 818,427 -0.28% 908,924 11.06%
Selling and distribution expense 415,517 529,163 21.48% 565,067 6.79% 571,338 1.11%
General and administrative expense 70,327 67,619 -4.00% 69,531 2.83% 108,700 56.33%
Other income 5,599 11,920 53.03% 19,784 65.97% 16,549 -16.35%
Gain / (loss) from investment and other 6,029 18,505 67.42% 9,155 -50.53% 3,507 -61.69%
Share of profit from investment 19,074 #DIV/0! 7,751 -59.36%
Finance cost 23,008 26,259 12.38% 29,767 13.36% 23,030 -22.63%
Profit for the year 200,195 228,085 12.23% 202,075 -11.40% 226,649 12.16%

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