Financial Performance of Hikma Pharmaceuticals

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1.0 EXECUTIVE SUMMARY

Hikma pharmaceutical company is an international pharmaceutical corporation which is found in London. This company usually manufactures the non- branded and branded generic and the licensed products of pharmaceuticals. This company was started in Amman, Jordan in the year 1978 pioneered by Samih Darwazah. It is also listed on the stock exchange of London which is termed as London Stock Exchange. It is also a component of the FTSE of 250 index. In the month of August, in the year 1996 the company became the first of the Arab company to engage in the act of exporting the products of pharmaceutical to the United States. In the year 2005, it was listed on the London Stock Exchange. There were some recent acquisitions which include institution Biochimica and the Pavese pharma in the year 2005. In the year 2007, the company went on and bought the APM in Jordan and the Alkan Pharma in Egypt. Also, the company acquired the multi-source of the injectable in the USA in October in the year 2010. In the month of May, in 2011 the Hikma Pharmaceuticals PLC later completed the Baxter acquisition of the corporations of the healthcare. In the US generic business injectable.

2.0 INTRODUCTION

In the month of October, in the year 2011, the Hikma Pharmaceuticals entered in the market of Morocco through the promo pharm acquisition. This was ranked as the ninth largest manufacturer of pharmaceutical in Morocco. There was also an inauguration by Hikma of the Al Dar Al Arabia manufacturing pharmaceutical corporation in Algeria in the year 2011. The pharmaceutical company in Algeria is the second venture in Hikma in the Algerian country after the Algeria Hikma Pharma. The company later won the ICSA in the year 2011 of the governance award transparency for the very best disclosure of audit for the FTSE 250 Company. Hikma also prolonged the current presence of the market in Egypt through the Egyptian company acquisition for the pharmaceuticals and the chemicals found in industries. In the year 2013 in the month of September, Hikma later announced that there is an expansion into the sub- Saharan Africa with a joint venture of a contract which is 50:50 with the pharmaceuticals limited. As the CFO of the Hikma pharmaceutical limited I will ensure that all the financial ratios of the companies are projected in such a way that they contribute towards the performance of the company. The company's financial performance indicates that either the company operates at a loss or at a profit. The downwards shows a negative trend and the upward trend indicates usually indicates a positive trend. At the end, as the CFO of the company, a report will be written to the board of directors indicating the overall performance of the company. This assignment contains the report of the Hikma pharmaceuticals company. It shows the overall financial performance by analyzing all the financial statements including the income statements. The board of directors will at the end be in a position of to determine the decision to be made.

3.0 Performance evaluation

Most of the organizations are usually in companies so that they can thrive and also survive. It is very significant for the company’s management to acquire the needed information and the necessary knowledge so as to make good final decisions for the prolonged existence of the long term strategies. The porter of the year 2009 has this fact by clearly stating by selecting so as to complete the activities from different competitors which is a very significant strategy. For such an example where one has knowledge of various ratios of the business they will allow the overall performance and end up understanding their financial performance over the given period of time. The management will be in a position to make the strategies of the organization to be in line with all the necessary information that is provided by the ratios. Hence, it is very likely for the Hikam pharmaceuticals firm to get their team of management with all the financial instruments so that the can all perform the financial analysis (El-Walily and Gazy 2012). They are also notified about the various ratios which affects the market place operations and finally make the company’s decisions for profitability and continuity.

The ratio analysis should not be very complex and vague. As in the case of Parry by getting into some of the evaluated variables with the possibility of arriving at an in depth considerate of all the facts which are shared amongst the ratio denominator. There are other types of ratios such as the liquidity and profitability ratios. These are the chosen one for Hikam Pharmaceuticals financial performance.

3.1 Profitability ratios

The company’s ability to get loan or the financing equity is termed as a subject to the ratio of profitability which is amongst some other things since they usually show a very strong indicator of the efficiency of the company or its failure. This is where there is an agreement when a suggestion is made of monitoring and measuring the efficiency of the operating company by the use of the ratio of profitability. There is a good example the creditors of Hikma pharmaceuticals will be notified on their full earnings by getting a clear look at the profitability ratio and if the corporation is able to appeal some funding or not able.

3.1.1 Return_on employed_capital

This quotient will be of much aid to the Hikma pharmaceuticals company since it will give a clear meaning of the expected yield which is obtained since the capital installed into the business per the needed phase.

3.1.2 Gross_margin

There is a requirement for the Hikma Pharmaceuticals to perform an analysis of the professional performance which is done prior to removing all the expenses which are incurred in the daily operations of the business. The gross margin is computed as follows: gross profit/ revenue*100.

3.2 Liquidity ratio

One of the very significant ratios of the short term creditors will perform an analysis of considering the Hikma pharmaceuticals facility which is the liquidity ratio. According to the report made by Tarun, there will be availability of all the necessary resources for the company so as to offset the short term loans which is determined by the liquidity ratio.

3.2.1 Current ratio (C.R)

Hikam pharmaceuticals limited position of the working capital has been made to be very explicit throughout the current ratio. It is also indicated that the current ratio of 1 is equal between the short term liabilities and short term assets of the company. This makes the ratio of 1.5 to be 2 for all the companies. Hence, the assertions of the academic usually implies that a current ratio which is beyond 1 will put the Hikam pharmaceuticals limited to be in the creditor’s books.

Formula of the C.R=C.A / C.L.

3.3 Evaluation of the Hikma Pharmaceutical limited profitability ratio

3.3.1 Profitability Ratio – Return on Capital Employed:

Fig 1: ROCE for Hikam Pharmaceutical limited

In performing the analysis of the Hikam Pharmaceuticals of some of the variables requires to be taken into consideration. Some of the things like those of the ROCE ratios usually meets the annual targets of how the findings always perform through the following years are taken into consideration. Hence, the $74 which is employed in the year 2012 for the nationwide acquisition which is a very big boost of the company that led to an increase in the year 2013. In the year 2014, Hikam Pharmaceutical limited also acquired the bikes ltd for a certain amount which was not made in public. Profit has been increasing drastically in this year since it has resulted to a 17% ROCE increase. In the year 2015, there was a decrease in the capital which was employed to the overall profit of the whole year since it led to a very high ROCE. In the year 2016, ROCE had an increasing factor since it had increased in the turnover and the less long term servicing debt.

3.3.2 Profitability Ratio – Gross Profit Margin:

Fig 2: Gross Margin for Hikam Pharmaceutical limited

The ratios of the gross margin for the Hikam Pharmaceutical limited were affected partially due to the turnover rate and also the stock in the years that were compared after that. When we look backwards, the turnover ratio in the year 2017 was found to be $1094000 with an average stock of 191101. There is also a decrease in the stock of 157890 in the year 2016 and also a turnover of $1102672 which affected the year GMR. Also in the year 2015, the stock decreased by a variance of 150000 but there was also an increase of 151000 in the year 2014 that led to GMR increase. However, there is a decrease in the turnover and the stock of 880000 and the 132210 in respective that led to a rise in the year of 2013 GMR.

3.3.3 C R

Fig 3: Current Ratio for Hikam Pharmaceutical limited

The current ratio of Hikam Pharmaceuticals for the last five years always indicates a financial position which is very healthy since all the current ratios in the five year period under the whole review are beyond 1. Due to this, it indicates that there is a very fair performance since the ratios are 1 and would indicate the equality of the short-term liabilities and short-term assets. Also, anything which is below the value 1 shows that the short-term liabilities are very high than the short-term assets. Hence the Hikam pharmaceutical limited is very safe in terms of the financial growth. In the year 2017, it is found to be the greatest of the variable which is 1.1 between the years which are under the review made with a stock increase of 192000 with no rules for the long-term debt. The rest of the years' current ratios has been fluctuating with a very small variable of 0.32 which results in fewer fluctuations in all the finished products with a very small serving of the long-term debt.

3.3.4 Liquidity (Acid Test)

Fig 4: Liquidity for Hikam Pharmaceutical limited

Therefore, the acid test formula is current assets- inventories/ current liabilities the best time of conducting the Hikam Pharmaceuticals acid test is monthly. The liquidity ratios which are above for Hikam Pharmaceuticals is found in the years which is under the review and shows a very healthy position with fewer debt services.

3.3.5 The financial ratios limitations

There are some very few factors such as those of the unrevealed variables, data, and items that have very distinct laws of accounting. They show the possibility of comparing the information of the financial analysis that undermines the tools ratios.

4.0 Investment opportunity appraisal

The growth and profitability of the Hikam Pharmaceutical limited are usually influenced by the ability to make the right decisions of investments and business. In most cases, an investment usually occurs when there is some dormant cash which is set aside by the whole entity for a certain venture with the hope of a future yield. The anticipation made for a long re-compensation by ensuring that the current costs are all entailed in the investment details. Hence for the Hikam Pharmaceuticals limited to be in a position to have a very good chance of the return on the investment made in future so as to have accurate investment opportunities. Due to this, all the investment appraisal is based on that. The investment appraisal usually occurs when there is very significant data so that all the investment opportunities are well collected so as to guide all the decisions in the value of the financial statements. The purpose of this study is to ensure that all the investment appraisal methods will be adopted. They include the IRR and NPV.

4.1 The net present value:

For any projected investment by the Hikam Pharmaceutical limited will always require a certain cash outflow and inflow. Hence, the company comes up with a certain value of the excess cash that is to be invested and the NPV discovers that. The NPV is the net value of the excess currency that is reduced at capital cost and also clarifies the spending of the investment.

Therefore: N.P.V = [FV 1 divided by (r+1) ^1]+ [FV 2 divided by ( r+1) ^2]

The initials stand for:

FV= investment for the future value

N= duration of investment in years

R= the return rate which is accessible on the correspondent of the security risk in the marketplace

I0= the primary investment

4.2 Internal rate of return

When Hikam Pharmaceutical limited made a decision of adopting the method of the net present value there will be a benchmark of the whole investment. The financial instruments always make a balance of the PV of the cash outflows into expected cash _flow statement.

Therefore: IRR = A%+NPV @A% *( B%- A%) / ( NPV @ A%- NPV @ B%)

4.3 The net present value computation of the Hikam Pharmaceuticals

Timing of investment

Estimated cash flow

Discounted factor (15%)

Present value

Present

(70000000)

1.00

(70,000,000)

1st year

5,800,000

0.870

5046000

2nd year

2,100,000

0.756

1587600

3rd year

6,000,000

0.658

39480000

4th year

5100000

0.572

2917200

5th year

1000000

0.497

497000

6th year

2000000

0.432

864000

7th year

500000

0.376

188000

8th year

990000

0.327

323730

9th year

1200000

0.284

340800

10th year

3000000

0.247

741000

=53,000,000-51,985,330

Net present value= 1,014,670

4.4 Consequences for the investment of Hikam pharmaceuticals

From the calculation, it is easily comprehended that there is a rate of discount of 15% which is used and also has a positive PV that was easily attained. Although the Hikam Pharmaceuticals administration has to be built in a different method of investment since all the rate of discount add up to a zero value for a period of 10 years. As it was later suggested that the discounted rate is usually zero and it shows that there is an additional investment with potential returns which are similar. Hence, from the management thought of Hikam Pharmaceuticals they were advised to be very different about the opportunity of investment.

4.5 The uncertainty and the risks associated with investment appraisal

Since most of the companies do not usually have some of the crystal balls, there are some shortcomings in the needs of the investment. This is due to the fact that they require being notified through performing an evaluation of the linked risk types.

4.6 Recommendation

Hikam Pharmaceutical limited should ensure that they disburse their funds with the least given period of time for the whole investment since it is very profitable with all the potential returns.

5.0 The target company for Hikam pharmaceutical

The company chose as a target company is Target Pharma solution which is found to be a clinical company in the real world.

5.1 The gains and rationale for selecting Target Pharma for Hikam Pharmaceuticals

By obtaining a certain portion of Target Pharma will be considered as a good deal since the company will grow very fast and end up increasing the financial status of the company.

5.2 The option for the financing of the acquisition

By taking into account the liabilities of the Target Pharma it is very fair to place all the values of the acquisition to an amount of $29 million. The options of financing are given below:

5.2.1 The loan of long-term financing

Given the revenue of operation as that of $160000 and also a net income of $65000. Then Hikam Pharmaceuticals is found to have acquired a very long-term loan from the bank to assist in financing the acquisition.

5.2.2 The shares offered on the London Stock Exchange Market

A better way for the Hikam Pharmaceutical limited to obtain some funds for the whole acquisition is by getting a very new way of funding so that it can give back to the public in return. This is seen as a very recommendable funding method and it can also end up reducing all the value of the shareholder’s dividend.

5.3 The analysis of the acquisition challenges

5.3.1 Very poor organization structure

There is a drawback which comes in the whole acquisition process that comes from the manager's form the middle level and also the both sides’ employees.

5.3.2 Inadequate professionalism

Lack of the necessary skills in operating the business can be a major problem for Hikam in the process of acquisition.

5.4 The uncertainties and risks in the acquisition process

5.4.1 Complexity of acquisition process

The process of the acquisition has very many complexities that act as a representation of all the risks associated with Hikam Pharmaceutical limited.

5.4.2 Irregularity

The risks which are associated with the Hikam Pharmaceutical limited investment is known as the uncertain nature of all the acquisitions.

5.5 The possible effects of the Hikam Pharmaceuticals

The possible effects of the investment are due to the fact that it is a positive venture for the Hikam Pharmaceutical limited. This is due to the fact the calculated IRR shows that all the investments made have very good potential since it equalizes the least return rate expected. The whole valuation of possible purchase clearly indicates that there is an upward return by the corporation.

6.0_Conclusion

The information shows a report of the financial performance that is completed by Hikam Pharmaceutical limited the report was made by the introduction of a very brief company's description and also the report's structure. In the subsequent part of the whole report, there are the financial ratios which are the financial analysis instrument (Khdou and N 2017). These ratios are known as the profitability and the liquidity ratios. They were chosen for the whole analysis of the Hikam Pharmaceutical limited financial data. In addition, the techniques of NPV and IRR were computed and also a sample was evaluated for the Hikam Pharmaceutical limited to that of the appraisal of investment which is budgeted for a certain period of 10 years at 15.0% discount rate. To be in a position of computing IRR, there is a second rate that is used which is 20%. Also, the IRR is seen to be 18% while that of the NPA is found to be $1967789 and that of NPV (B) which is (2413098). In addition, the acquisition and merger process were computed for Hikam Pharmaceutical limited along with Target Pharma solutions which are seen as the selected company for the whole process of acquisition. On the basis of the results of IRR and NPV of Hikam Pharmaceutical and should end up making the whole investment since it is a very great opportunity with the least return expected.

References

El-Walily, A. F. M., Gazy, A. A., Belal, S. F., & Khamis, E. F. (2012). Quantitative determination of some thiazole cephalosporins through complexation with palladium (II) chloride. Journal of pharmaceutical and biomedical analysis, 22(2), 385-392.

Lebon, C., Suplie, P., Leboeuf, F., Jung, J. and Deschamps, F., Debregeas Et Associes Pharma, 2017. Process for obtaining a modafinil-based pharmaceutical composition, resulting pharmaceutical composition and use thereof. U.S. Patent 9,782,367.

Khdour, N. J. (2017). A Qualitative Investigation of Workplace Bullying Construction: A Case Study on Hikma Pharmaceutical Company in Jordan. Journal of Management Research, 9(2), 31-52.

January 19, 2024
Category:

Business Economics

Subcategory:

Corporations Finance

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Company

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