Profitability in Nigerian Pharmaceutical Industry †Free Samples

Question: Discuss about the Profitability in Nigerian Pharmaceutical Industry. Answer: Introduction Kmart is the 1st store under discount department in New Zealand. Though the customers knew very little about Kmart then, it became the new era in New Zealand thereafter. They provide their product to the customers at exceptionally low prices through various stores all over New Zealand. The company works hard to assure the customers that they get the daily required products at lowest possible prices. The company is further committed to improve the customers lives through delivering quality products and services that will enable to build the customers trust and a lifetime relationship with them. Various key factors of their strategies are to reinvent the brand trough innovation and technology and attaining the best in class efficiency and productivity (Kmart.co.nz, 2017). On the other hand, established in 1982, Warehouse NZ is counted among the leading retailers in New Zealand. They believe that the healthy business requires a healthy society in the same way as the healthy society requires the healthy business. The company is strongly focussed on the communities they are operating, the team members and the customers and are committed towards a more sustainable business that can minimize wastes, operates ethically and conserves energy (The Warehouse | Fashion, Homewares, Toys much more, 2017). Ratio 2014 2015 2016 Profitability ratio Gross Margin 14.26 12.34 11.81 Return on assets 3.20 3.24 3.06 Return on Equity 6.00 6.93 7.32 Return on sales 2.22 2.19 2.08 Financial stability ratio Debt to equity ratio 0.88 1.14 1.39 Receivable turnover ratio 9.60 8.53 7.68 Current ratio 1.50 2.22 2.67 Acid test ratio 0.90 1.09 1.25 Financial structure ratio Debt to total asset ratio 0.47 0.53 0.58 Equity ratio 0.08 0.09 0.10 Debt to equity ratio 0.88 1.14 1.39 Interest coverage ratio 2.50 2.17 1.88 Turnover ratio Inventory turnover ratio 15.43 9.05 8.47 Asset turnover ratio 1.44 1.48 8.47 Fixed asset turnover ratio 1.80 2.06 1.47 Working capital turnover ratio 21.60 9.55 7.20 Ratio 2014 2015 2016 Profitability ratio Gross Margin 33.04 33.18 33.24 Return on assets 6.89 4.34 6.28 Return on Equity 15.00 9.59 15.20 Return on sales 2.94 1.87 2.65 Financial stability ratio Debt to equity ratio 1.18 1.21 1.42 Receivable turnover ratio 29.13 32.28 21.04 Current ratio 1.38 1.60 1.56 Acid test ratio 0.27 0.38 0.52 Financial structure ratio Debt to total asset ratio 0.54 0.55 1.05 Equity ratio 0.08 0.06 0.20 Debt to equity ratio 1.18 1.21 1.42 Interest coverage ratio 6.21 4.35 5.50 Turnover ratio Inventory turnover ratio 3.61 3.64 3.92 Asset turnover ratio 2.34 2.32 2.37 Fixed asset turnover ratio 7.87 7.82 10.87 Working capital turnover ratio 15.69 11.02 10.83 Analysis and interpretation Profitability ratio looking at the profitability ratios of the company, it is found that the gross margin as well as return on sales both are in decreasing trend. However, the return on assets has dropped slightly during 2016 and the return on equity is in increasing trend. The reason behind the decreasing gross profit margin was the increasing trend of COGS. However, the profitability ratios indicating that the company is able to generate return on shareholders equity (Kmart.co.nz, 2017). Financial stability ratio it is identified from the ratio calculation that debt to equity ratio is in increasing trend that means the company is increasing its financing through debt instead of equity. Further, the receivable turnover ratio is also increasing that indicates that the companys efficiency with regard to collecting the receivable is reducing. Moreover, the increasing current ratio indicating that though the company is able to pay off its short-term obligation comfortably, chances are there that the company is not utilizing its working capital efficiently. Financial structure ratio as the debt to total asset ratio of the company is in increasing trend, it indicates that the company is becoming more risky for loaning and investing purpose as it is becoming more leveraged. If the equity ratio is considered, it can be identified that the equity ratio of the company is considerably low which means the company is less sustainable and more risky for the purpose of future loans. Further, as it can be seen that for all the years under consideration the interest coverage ratio of the company is more than 1, it indicates that the company is earning enough money to pay off their interest obligation. While considering the company for making a loan, the bank generally prefers the ratio of 1.5 (Kmart.co.nz, 2017). Turnover ratio - if the inventory turnover ratio is considered, it can be seen that Kmart is having quite high inventory turnover and it indicates that the company is not spending more through purchasing large amount of inventories and wasting it through storing the non-saleable inventories. Further, the asset turnover ratio is indicating that for 2014 and 2015, the company is earning more than 1 dollar for sale of each unit. Moreover, for 2016 the company is earning more than 8 dollar for sale of each unit which is a very good sign. Further, the fixed asset turnover ratio as well as the working capital turnover ratio both is indicating that the company has positive turnover. However, the fixed asset turnover ratio is quite low that indicates that the company is not using their fixed assets efficiently. Particulars 2016 2017 2018 Amount ($) Amount ($) Amount ($) Net sales 7,20,000 9,36,000 9,72,000 Less: Cost of goods sold 6,35,000 8,25,500 8,57,250 Gross profit 85,000 1,10,500 1,14,750 Less: Operating expenses 38,000 40,280 41,420 Net profit before interest and tax 47,000 70,220 73,330 Less: Interest 25,000 25,750 26,250 Net profit before tax 22,000 44,470 47,080 Less: Tax 7,000 14,150 14,981 Net profit after tax 15,000 30,320 32,099 Comparison of Kmarts theory with Warehouse Profitability ratio it can be identified that all the ratios under profitability that is the gross margin ratio, return on assets ratio, return on equity ratio and return on sales are better for the Warehouse NZ as compared to Kmart Ltd. Therefore, Kmart shall take necessary steps to increase its profitability. Financial stability ratio if the financial stability ratios are considered, it can be identified that Kmart is considerably at better position as compared to Warehouse NZ. The financial stability indicates that the company is in better position while asking for any loan or when the investor considers the company for investment purpose (The Warehouse | Fashion, Homewares, Toys much more, 2017). Financial structure ratio - if the financial stability ratios are considered, it can be identified that Warehouse NZ is considerably at better position as compared to Kmart as Warehouse NZ is in better position with respect to interest coverage ratio and is in the better position to pay-off its interests. Turnover ratio if the inventory turnover ratio is taken into account, it can be identified that the inventory turnover ratio of Kmart is better as compared to Warehouse NZ; However, the other three ratios under turnover that is the asset turnover ratio, working capital turnover ratio and fixed asset turnover ratio is better for Warehouse NZ is better as compared to that of Kmart. Therefore, it is evidential that the turnover position of Warehouse NZ is far better than Kmart (The Warehouse | Fashion, Homewares, Toys much more, 2017). Conclusion From the above analysis and interpretation of Kmart Ltd. as well as Warehouse NZ, it is found that both the companies are among the leading retailers in New Zealand and hold a large amount of market share. However, from the financial analysis of both the companies it is found that with regard to profitability position warehouse NZ is in better position as compared to that of Kmart Ltd. However, if the financial stability ratios are considered, it can be identified that Kmart is considerably at better position as compared to Warehouse NZ. Further, Warehouse NZ is in better position to pay off their interest. Further, with regard to turnover position Warehouse NZ is in better position as compared to Kmart Ltd. therefore, it can be concluded that with regard to all over financial performance, Warehouse NZ is in better position as compared to Kmart. Recommendation It can be recommended that Kmart shall try to reduce their operating expenses as well as COGS to improve its profitability position. Further, the company shall take necessary steps to increase its sales, so that it can achieve better turnover position. However, if Kiwibank Ltd considers the financial position to extend the loan, it can be identified that considering financial position, as the debt to total asset ratio of the company is in increasing trend, it indicates that the company is becoming more risky for loaning and investing purpose as it is becoming more leveraged. Further, if the equity ratio is considered, it can be identified that the equity ratio of the company is considerably low which means the company is less sustainable and more risky for the purpose of future loans. Therefore, it will not be a wise decision on the part of Kiwibank to extend the loan. Reference Bibliography Bodie, Z. (2013).Investments. McGraw-Hill. Collier, P. M. (2015).Accounting for managers: Interpreting accounting information for decision making. John Wiley Sons. Ecer, F., Boyukaslan, A. (2014). Measuring performances of football clubs using financial ratios: the gray relational analysis approach.American Journal of Economics,4(1), 62-71. Innocent, E. C., Mary, O. I., Matthew, O. M. (2013). Financial ratio analysis as a determinant of profitability in Nigerian pharmaceutical industry.International journal of business and management,8(8), 107. Kmart.co.nz. (2017). Kmart.co.nz. Retrieved 1 October 2017, from https://www.kmart.co.nz/ Ogiela, L. (2013). 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