Analysis of financial statements of Sanofi Aventis.

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ANALYSIS OF FINANCIAL STATEMENTS

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TERM REPORT

Submitted to: Sir Maqbool Ur Rehman

Submitted by: Lauzina Ghazaali

ID: 12706

Submission Date: May 8, 2014

TABLE OF CONTENTS

PREFACE        

EXECUTIVE SUMMARY        

PAKISTAN PHARMACEUTICAL INDUSTRY        

Introduction        

Factors affecting Pharmaceutical Industry        

Problems associated with Pharmaceutical Industry        

INTRODUCTION TO SANOFI AVENTIS        

SWOT ANALYSIS        

PEST ANALYSIS        

COMMON SIZE        

VERTICAL COMMON SIZE        

HORIZONTAL COMMONSIZE        

COMMONSIZE ANALYSIS        

Income Statement Analysis        

Balance Sheet Analysis        

RATIO ANALYSIS        

LIQUIDITY RATIOS        

ACTIVITY RATIOS        

LEVERAGE RATIOS        

PROFITABILITY RATIOS        

MARKET VALUE        

DU PONT ANALYSIS        

CONCLUSION        

PREFACE

The report has been prepared in order to analyze the financial statements of Sanofi Aventis. It incorporates the information for the period of ten years regarding the pharmaceutical industry along with the company’s information, its SWOT and PEST analysis, common size, DuPont analysis and ratio analysis.

The report will help in order to better understand the financial statements of Sanofi and to apply the concepts that have been learned in this course “Analysis of Financial Statement”.

EXECUTIVE SUMMARY

The Pharmaceutical Industry has grown over the past few years and today Pakistan has a total of 400 pharmaceutical units including those operated by 25 multinationals present in the country. 80% of the domestic demand of finished medicines is being met from the local production whereas 20% through the imports. The industry manufactures a variety of products ranging from pills to insulin, Oncology and Value added Generic compounds. Few of the pharmaceutical companies in Pakistan are Abbott, Sanofi, GSK, Sandoz, Reckitt Benckiser etc. In Pakistan the market for pharmaceutical has been expanding at the rate of 10 to 15% since the last few years due to the increasing demand for the medicines.

There are many factors that have affected the pharmaceutical industry such as population growth, economic growth rate, exchange rate, interest rate, government regulations and import duties. However, few challenges that are mainly faced by the Pharma industry are numerous. The problems include uncertainty in Prices, uncertainty of quota allocation, reliance on the third party, productivity of counterfeit products, product liability claims, and risk of nonpayment.

Sanofi is ranked as the seventh largest pharmaceutical company and fourth largest by prescription in sales in 2014 with its head quarters located in Paris, France. Through their strong presence they make sure that benefits are delivered to people through their quality medicine that caters to different age groups. Today Sanofi has a market share and growth rate of 4% and it offers a wide range of treatment and prevention solutions to fulfill the patients’ needs. In 2013 the company’s production was mainly of Consumer healthcare products and vaccines that registered a sales growth of 1.89% as compared to the previous year.

There were some major fluctuations in Sanofi’s net profit in ten years time but in 2009 as it was able to sell more of its vaccines and made a huge profit before tax. On the other hand decrease in net profit in 2013 indicates that it needs to curtail its expenses along with the interest payments which were mainly rising over the period of time.

 Sanofi’s liquidity position was satisfactory but its working capital management was below par as operating cycle days increased. The company should focus on improving its working capital management by strengthening credit control to expedite recoveries from retailers and distributors and speeding up stock rotation (e.g. by offering  discounts) to ensure that less cash is tied in inventory.

Moreover, the return on equity in 2013 came down due to the fact that Sanofi’s profits were decreasing and the assets were not utilized effectively. This is supported by low sales growth and worsening of total asset turnover.  In addition the operating expenses were rising indicating that the company needs to manage its expenses efficiently.

As the company is highly geared due to the debt ratio of 65.9% in 2013 it might face problems in paying off its interest expenses in future if profits decrease in future.  Sanofi should concentrate on keeping an appropriate level of debt and equity to achieve a well-balanced capital structure.

Sanofi should improve its net profit margins by controlling its expenses and stimulating sales. This, combined with better working capital management, will have a positive impact on the profitability and cash flow position of the company; thus translating into a stronger market standing.

PAKISTAN PHARMACEUTICAL INDUSTRY

Introduction

The Pharmaceutical Industry has grown over the past few years and today Pakistan has a total of 400 pharmaceutical units including those operated by 25 multinationals present in the country. 80% of the domestic demand of finished medicines is being met from the local production whereas 20% through the imports. Domestically the Pharma market is divided equally between the Nationals and the Multinationals in terms of market share.

There has been a growth in National Pharma over the years and this industry has invested considerably to upgrade in accordance to GMP (Good Manufacturing Practices). The industry manufactures a variety of products ranging from pills to insulin, Oncology and Value added Generic compounds. Moreover, the main focus of the industry is to exceed the export of USD 800 Million dollars by 2012 so as to create new global and regional opportunities.

In Pakistan the market for pharmaceutical has been expanding at the rate of 10 to 15% since the last few years due to the increasing demand for the medicines.

Few of the pharmaceutical companies in Pakistan are:

• Abbott Pakistan
• Sanofi Aventis
• GSK
• Allergan
• Getz Pharma
• Sandoz
• Reckitt Benckiser
• Wyeth
• Maple Pharma
• Hilton Pharma

Factors affecting Pharmaceutical Industry

• Population Growth

This is an important factor that affects the production of pharmaceutical industry because if there is a growth in population due to higher birth rates, more antibiotic, anti malaria or other medicines will be consumed in the country.

• Economic Growth Rate

The future growth of pharmaceutical industry relies heavily on the growth of the economy. If there is a slowdown of economic growth then this decline will have an adverse affect on the pharmaceutical industry.

• Exchange Rates

Most of the pharmaceutical firms import raw material and other ingredients used in medicines. Therefore, if the exchange rate depreciates, then imports would become expensive resulting in an increase in the cost of businesses.

• Interest Rates

Interest rate is one of the most important economic factors that influence the pharmaceutical industry. For a leveraged firm, an increase in the interest rate would add up to the cost of borrowing of that firm and will adversely affect the net profits.

• Government Regulation

Given the link between the pharmaceutical industry and public welfare and to prevent exploitation of consumers by unscrupulous businesses charging unfairly high prices, the pharmaceutical industries in most countries are heavily regulated by governments through various price control measures. Such controls (e.g. maximum prices) have repercussions for the revenue and bottom line of the industry.