Panacea Biotec Limited (PANACEABIO.NS)

Kevin Cardoza

Westcliff University

BUS 550: Financial Management

Dr. John Knight

Nov 7, 2021

Financial Analysis- Panacea Biotec Limited (PANACEABIO.NS)

Financial Statements

Income Statement

Income Statement -All numbers in thousands

Breakdown

TTM

3/30/2021

3/30/2020

3/30/2019

3/30/2018

Total Revenue

6,173,390

6,176,490

5,371,860

4,523,360

5,860,300

Cost of Revenue

2,317,230

2,285,330

1,745,740

2,027,090

2,103,640

Gross Profit

3,856,160

3,891,160

3,626,120

2,496,270

3,756,660

Operating Expense

3,727,160

3,523,960

3,205,520

3,543,980

3,374,700

Operating Income

129,000

367,200

420,600

-1,047,710

381,960

Net Non Operating Interest Income Expense

-1,847,270

-1,820,670

-1,691,920

-1,041,510

-994,140

Pretax Income

-1,687,460

-1,442,460

-1,712,200

486,150

-661,390

Tax Provision

16,970

19,570

166,400

77,070

98,580

Net Income Common Stockholders

-1,709,160

-1,476,960

-1,942,670

377,270

-759,970

Diluted NI Available to Com Stockholders

-1,709,160

-1,476,960

-1,942,670

377,270

-759,970

Basic EPS

–

-24.11

-31.72

6.15

-12.41

Diluted EPS

–

-24.11

-31.72

6.15

-12.41

Basic Average Shares

–

61,251

Diluted Average Shares

–

61,251

Rent Expense Supplemental

–

28,670

16,240

12,950

14,440

Total Expenses

6,044,390

5,809,290

4,951,260

5,571,070

5,478,340

Net Income from Continuing & Discontinued Operation

-1,709,160

-1,476,960

-1,942,670

377,270

-759,970

Normalized Income

-1,702,986

-1,460,586

-1,567,167

-1,871,744

-759,970

Interest Income

–

32,680

47,880

6,780

11,650

Interest Expense

1,873,500

1,846,900

1,731,100

849,690

963,520

Net Interest Income

-1,847,270

-1,820,670

-1,691,920

-1,041,510

-994,140

EBIT

186,040

404,440

18,900

1,335,840

302,130

EBITDA

639,280

–

Reconciled Cost of Revenue

2,317,230

2,285,330

1,745,740

2,027,090

2,103,640

Reconciled Depreciation

453,240

460,740

441,350

550,320

585,330

Net Income from Continuing Operation Net Minority Interest

-1,704,810

-1,462,410

-1,878,310

409,680

-759,970

Total Unusual Items Excluding Goodwill

-3,040

-444,490

2,711,240

Total Unusual Items

-3,040

-444,490

2,711,240

Normalized EBITDA

642,320

868,220

904,740

-825,080

887,460

Tax Rate for Calcs

Tax Effect of Unusual Items

-1,216

-133,347

429,816

(Yahoo Finance, 2021)

Balance Sheet

Balance Sheet (All numbers in thousand)

Breakdown

3/30/2021

3/30/2020

3/30/2019

3/30/2018

Total Assets

11,788,160

13,903,000

13,755,200

16,075,560

Total Liabilities Net Minority Interest

14,105,090

11,945,510

10,281,320

13,018,200

Total Equity Gross Minority Interest

-2,316,930

1,957,490

3,473,880

3,057,360

Total Capitalization

5,063,870

8,119,150

3,965,190

8,793,930

Common Stock Equity

-2,286,930

1,987,870

3,503,970

3,086,850

Net Tangible Assets

-2,439,140

1,824,240

3,338,270

2,701,840

Working Capital

853,090

2,280,600

-4,303,750

-1,306,790

Invested Capital

5,908,330

9,409,740

9,968,920

12,494,310

Tangible Book Value

-2,439,140

1,824,240

3,338,270

2,701,840

Total Debt

8,195,260

7,421,870

6,464,950

9,407,460

Net Debt

7,674,470

7,019,690

6,320,290

9,243,090

Share Issued

61,251

Ordinary Shares Number

61,251

Vertical Financial Analysis

Debt Ratio

The debt ratio indicates the percentage of the companys assets that is covered by the debt. Generally, a debt ratio that is lower than 0.6 is preferable while that above 0.6 means that the company is highly risky which makes it hard for it to borrow money. Therefore;

Debt ratio= Total debt/ Total Assets

2021= 8,195,260/ 11,788160= 0.695

Debt to Equity Ratio

This is a liquidity ratio that compares the total debt to the companys total equity to indicate the percentage of the financing that comes from investors and creditors. Generally, a higher ratio means that more credit financing is used by the company compared to investor financing from shareholders (Franklin et al., 2019).

Debt to Equity= Total Liability/ Total Equity

2021= 14,105,090/ -2,316,930= -6.09

Return on Assets (ROA)

It is a profitability ratio that determines the net incomes that is developed from the total assets by comparing the net income to the companys average total assets. Therefore;

ROA= Net income/ Average total assets

2021= -1,462,410/ (11,788,160/ 13,903,000)/2

-1,462,410/ 12,845,580= -0.11

Return on Equity (ROE)

ROE is a profitability ratio that determines the companys ability to generate profits from the shareholders investments. Therefore;

ROE= Net Income/ Shareholders Equity

2021= -1,462,410/1,987,870= -0.736

Current Ratio

The current ratio is an efficiency and liquidity ratio that determines the companys ability to pay off its short-term liabilities using its current assets. Generally, the higher the ratio the higher the companys ability to pay the current liability using the current assets. In this case, the company has 1.2 more current assets compared to the current liabilities.

Current ratio= Current assets/ Current liabilities

2021= 5,109,720/4,256,630= 1.2

Quick Ratio

The quick ratio, also regarded as the acid ratio is a liquidity ratio that indicates the companys ability to pay its current liabilities when they are due using the quick assets. The higher the ratio the better for the company because it indicates a higher ability for the company to pay its current liabilities using its quick assets (Franklin et al., 2019).

Current ratio= (Current assets- Inventory)/ Current liabilities

2021= (5,109,720-1,741,370) /4,256,630= 0.79

Inventory Turnover

It is an efficiency ratio that indicates the effective management of inventory by comparing the cost of goods sold and the average inventory during the period.

Inventory turnover= Cost of goods sold/ Average inventory

2021= 2,285,330/ ((1,741,370 + 1,476,910)/2)

= 2,285,330/ 1,609,140= 1.42 of the inventory were sold during the year

Days in Inventory

The days in inventory, also known as the days sales in inventory measure the days that a company takes to sell its inventory. It indicates the days that the stock of inventory would last. Therefore;

Days in inventory= (Ending inventory/ Cost of goods sold) x 365 days

2021= (1,741,370/ 2,285,330) x 365 days

= 278 days

Accounts Receivable Turnover

Accounts receivable turnover is an activity ratio that analyzes the number of times that a business can turn its account receivable into cash within a specific period (Robinson et al., 2015). It measures the number of times that a business can collect the average account receivable within a year. Therefore;

Accounts receivable turnover= Net credit sales/ Average account receivable

2021= 6,176,490/ 847,000= 7.29

Accounts Receivable Cycle in Days

Accounts receivable is the number of days that the customers invoices remain outstanding.

Accounts receivable turnover= (Net credit sales/ Average account receivable) x 365 days

2021= 6,176,490/ 847,000= 7.29 x 365= 2,661

Accounts Payable Turnover

Accounts payable turnover is a liquidity measure that indicates the rate at which the company can pay the suppliers. It shows the number of times that the company can pay the accounts payable within the period.

Accounts payable turnover= Total Purchases/ Average accounts Payable

2021= (Cost of goods sold + (ending inventory-beginning inventory)/ Average accounts payable

=2,285,330+ (1,741,370- 1,476,910)/ (235,080 +(496,890.0))/2

=2,549,790/-130905= -19.5

It means that this is a decreasing turnover because either the companys financial health is in distress or it has negotiated a different payment option with the suppliers.

Accounts Payable Cycle in Days

The ratio indicates the average number of days that the payables are unpaid. Therefore;

Accounts payable cycle in days in 2021= 365 days/ -19.5= -18.72 days

The negative outcome means that the companys working capital is not tied for a long time and that the company has high liquidity.

Earnings per Share (EPS)

EPS measures the amount of net income for every share of stock outstanding. Therefore,

EPS= (Net Income Preferred Dividends)/ Weighted average common stock outstanding

2021= -1,462,410 /-1,476,960= -0.99

Price to Earnings Ratio (P/E)

The PE ratio indicates what the market is willing to pay for the companys stock based on the current earnings. In this case,

P/E= Market value price per share/ EPS

2021= 213.05/-0.99= -215.2

Cash Conversion Cycle (CCC)

The CCC determines the efficiency of the company in managing the working capital. Therefore,

CCC= Days in inventory + Days of sales Outstanding – Days payable outstanding

=278 + 2,661- -18.72= 2,958 days which is dangerous for the company. However, considering that it is not small, this may not mean insolvency.

Working Capital

The working capital is concentrated on determining the short-term financial health of the company to determine if there is enough money to meet the short-term financial obligations. Therefore;

Working capital= Current assets- Current liabilities

2021= 5,109,720-4,256,630= 853,090

DuPont Identity

The DuPont Identity aims at showing that the companys return on equity (ROE) can be represented as an outcome of three ratios that include the total asset turnover, the profit margin, and the equity multiplier (Franklin et al., 2019). Therefore;

ROE = profit margin x asset turnover x equity multiplier

ROE = (net income / sales) x (revenue / total assets) x (total assets / shareholder equity)

= (-1,476,960/6,176,490) x (6,176,490/11,788,160) x (11,788,160/ -2,286,930)

=-0.239 x 0.524 x -5.155

=0.646

=64.60%

The DuPont identity for the company indicates that the return on equity is at 64.60%. It further indicates the factors that contribute to the high ROE. From this, it is clear that the companys profit margin and equity multiplier are negative and thus are not the reason for its performance. The healthy ROE performance is attributable to its positive asset turnover. Therefore, the company needs to implement strategies towards dealing with its weak performance indicators in terms of the profit margin and the equity multiplier (Robinson et al., 2015).

Reflection on the Findings

From the analysis above and the current financial statements of the company, its financial performance is worrying. More specifically, its income statements show a negative income that has affected most of its financial outcomes. For example, its ROA and ROE are -0.11 and -0.736 respectively. It means that the company is not utilizing its assets and shareholders equity to generate net income and profit. The debt ratio is 0.695 which is more than the generally recommended ratio of 0.6 which means that the company is becoming riskier as it is highly dependent on debt financing as opposed to equity financing that is often considered to be less risky (Franklin et al., 2019). The risky nature of the company is evident from the negative shareholder equity indicated in the financial statement that also affects the equity multiplier in the ROE calculation. However, the current ratio and quick ratio of the company indicate that it has healthy liquidity. In conclusion, considering that this is Panacea Biotec is a giant company that is expected to provide good performance, it is crucial to further understand the performance of the company for informed decision making. It is crucial to compare its performance with those it competes within the industry and with its historical performance. The comparison would provide a better indication of if it has improved in its performance or if it is performing better than its peers.

References

Franklin, M. Graybeal. P. & Cooper, D. (2019). Principles of accounting volume 1 – financial accounting. Place of publication not identified: 12th Media Services.

Robinson, T. R., Henry, E., & Pirie, W. L. (2015). International Financial Statement Analysis. John Wiley & Sons.

Yahoo Finance. (2021, 11 07). Panacea Biotec Limited (PANACEABIO.NS). Retrieved from Yahoo.com: https://finance.yahoo.com/quote/PANACEABIO.NS/financials?p=PANACEABIO.NS

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