MID Pharma Company Evaluation

Corporate Finance Project

Supervised by:
Dr. Hisham Gharaibeh

Prepared by:
 Nada Hawi

Asmaa Frieht

Company Overview:

MIDPHARMA MIDDLE EAST PHARMACEUTICAL & CHEMICAL INDUSTRIES COMPANY

Midpharma is Public Shareholding Company founded in 1993 and commenced

production by the end of 1997 in Amman .

MIDPHARMA is specialized in the production and packaging of generics in many

pharmaceutical forms. The unit produces proprietary products and conducts contract
manufacturing for third parties.

In 2005, Midpharma has acquired new product lines consisting of deramatologicals,

local analgesics, topical nasal decongestants, topical anti-hemorrhoidals,
gynaecological anti-infectives, and laxatives.

Midpharmas production site is spread over 35,000 m2 consisting of a general plant

and a cephalosporins plant with production lines consisting of tablet, capsule,
aerosol, suppository, ointment, liquid, dry-suspension, and
counting. Midpharma holds European Good Manufacturing Practice (GMP) for solid
dosage form in general formulation as well as Jordanian GMP for both plants.

Midpharmas products are registered and actively sold in all the major Middle East
and North African markets, within a relatively short time has been able to offer one of
the broadest product portfolios and pipline in the jordanian industry, having over
than 200 medicines available and about 50 in the development area.
Products:

MIDPHARMA manufactures a wide range of pharmaceutical lines:

Antiulcerants
Antibiotics
Antihypertensives
Hypolipidimics
Erectile Dysfunction Medications
Antidiabetics
Analgesics & Anti-inflammatory Agents
Multivitamins & Minerals
Benign Prostatic Hyperplasia Medications
Antifungals
CNS Preparations
Antihistamines
Antianaemics
Oral Antivirals
Antilice & Scabicides
Disinfectants & Cleansing Agents
Nasal Decongestants
Laxatives
Antithesis & Cough Suppressants
Antiseptic Oropharyngeals
Gynaecology Anti-Infectives
Contraceptive Spermicidals
Dermatological Preparations
Topical Plain Steroids
 Topical Steroids & Anti-Infectives
Topical Plain Anti-Infectives
Topical Antifungals
Topical Steroids & Antifungals
Topical Antivirals
Topical Antipsoriasis
Topical Antipruritics
Local Anaesthetics & Antiseptics
Bby Care
Antihemorrhoidals
Local Analgesics, Rubefacients & Counterirritants
Keratolytics
Antiseptics
Leave a comment

BUSINESS DEVELOPMENT:

MIDPHARMA is a multi-specialty branded-generics company, offering the generics

industry a complete service range from product development and registration
through to sourcing, manufacturing, packaging and logistics.

MIDPHARMAs Business Development identifies market opportunities based on

marketing analysis and forthcoming patent expiries, develops pharmaceutical
formulations, advances projects to market approval stage, and assembles complete
drug regulatory dossiers and licenses to be registered in countries where
MIDPHARMA is active.

Competitors in Amman Stock Exchange:

COMPANY'S NAME COMPANY'S SHORT NAME SYMBOL

THE JORDANIAN PHARMACEUTICAL JORDAN PHARMA JPHM

MANUFACTURING
HAYAT PHARMACEUTICAL INDUSTRIES HAYAT PHAR. IND. HPIC
CO.

PHILADELPHIA PHARMACEUTICALS PHILADELPHIAPHARMA PHIL

DAR AL DAWA DEVELOPMENT & DAR ALDAWA DV/IV DADI

INVESTMENT

ARAB CENTER FOR PHARM.& ARAB PHARMA CHEM APHC

CHEMICALS

Financial Results 2014-2016:

The financial results for the last three years show a huge loss which reflect bad the
performance of the company, the sales dropped 61.4% from 2012 to 2014. This
declination in sales was also reflected in the same way in the net income. But what
we can notice here is that there is a big difference between sales and net income in
the three years which was caused by the high expenses in the company.

The Assets of MID PHARMA has decreased from 21 million in 2014 to 16.6 million in
2016. About 24% of the assets of the company has been sold.

On the other hand, the debts increased between 2014 and 2015 almost 4.2m and
then recover in 2016 and drop shrink this number to 1.8m but even that the liabilities
of the company still in high rates.

Regarding the equity we can notice an decrement in equity by about 7.3m with
minus net at the end which means that the owners of the company does not have
any capital and even they have to pay 2.6m to cover their losses. These results
mainly caused by the cumulated losses through the past years.

In total, MID PHARMA is facing a crisis and an probability of solvency, but some
recommendations and action should be taken into considerations to recover and
achieve better results, which will be discussed at the end.

Ratio Analysis:

A. Liquidity Ratios:

1. Current Ratio:
In the fiscal year 2016 current ratio was .4 , which means that current
assets which were equal to JD 7,902,751 are sufficient to cover for
approximately .4 times the amount of a company's short term liabilities
(liabilities due to be settled within 12 months) which were equal to JD
17,068,884. This ratio dropped .28 times from the fiscal year 2014 as
the current assets decreased by 4,753,414 to be JD 16,595,278 while
the current liabilities increased by 2,238,822 to be JD17,068,884 . this
declination through the years indicates that the current asset are
declining and not sufficient to cover the current liabilities which are
increasing rapidly

Year Current Ratio

2016 0.462991664
2015 0.587140507
2014 0.746009491

Current Ratio
0.8

0.7

0.6

0.5

0.4

0.3

0.2

0.1

0
1 2 3
 2. Quick Ratio:
In the fiscal year 2014, quick ratio was equal to .05 , which means that for
each JD 1 in current liabilities, there was JD .05 in current assets to pay for
them after deducting the inventory. This ratio is too low which indicates that
the inventory level JD10,291,266 is high compared the current assets level JD
11,063,367.
But this ratio rose up to .38 in 2015, which means that for each JD 1.00 in
current liabilities, there was JD .38 in current assets to pay for them after we
excluded the inventory which was the inventory at acceptable level JD
3,376,830 compared to the total current assets JD 9,651,802 for the same
year, which means that the company had sold the inventory and convert it
into cash which resulted an increment in the ratio.
In 2016, there was a decrease in the inventory as it was JD3,155,723 as well
as a rise in the current liabilities JD17,068,884 and the quick ratio decrease
to .278 that means that for each JD 1.00 in current liabilities, there was JD .27
in current assets to pay for them after we excluded the inventory.

Quick
Ratio
0.2781100
39
0.3817204
54
0.0520632
35
 Quick Ratio
0.45
0.4
0.35
0.3
0.25
0.2
0.15
0.1
0.05
0
1 2 3

3. Cash Ratio:
When we measured the firm's ability to pay off its current liabilities with only
cash and cash equivalents by the cash ratio, we found that in 2012 it was
0.03, as it means that for each JD 1 in current liabilities, there was JD 0.03 in
cash to pay for those current obligations. In 2013, the cash ratio increased to
be 0.10 which means that for each JD 1 in current liabilities; there was JD 0.11
in cash to pay for those current obligations. This increase was a result of the
cash increase from JD 1,046,594 in 2012 to JD 3,991,838 in 2013. In 2014, the
cash account decreased to JD 2,914,719 as well as the current liabilities
decreased to be JD 37,059,943 that is the reason behind the decrease in the
cash ratio which was 0.08.
 Cash Ratio
0.02
0.02
0.02
0.01
0.01
0.01
0.01
0.01
0
0
0
1 2 3
B. Long-term Solvency ( Leverage ) Ratios:

1. Total Debt Ratio:

In 2012, total debt for DAD was equal to JD 37,722,313 compared to JD
86,367,258 in total assets, which results in 47.27% debt ratio, which means
that for each JD 1 invested in assets, 47.27% was financed by debts. This
ratio increase a little to 49.43% as the total assets increased to be JD
101,303,769 while the total debt increased to be JD 46,520,206. In 2014,
this ratio was 48.03% as the total debts decreased to be JD 44,764,885
while the total assets decreased to be JD 100,290,031 Which means that
the company became less leveraged and the proportion of a companys
assets that are financed by debt decreased to be 48.03%.

Total Debt Ratio

150.00%

100.00%

50.00%

0.00%
1 2 3
-50.00%

-100.00%

-150.00%

-200.00%

2. Debt/Equity Ratio:
The debt to equity ratio shows the percentage of company financing that
comes from creditors and investors, when we calculated it for 2012, it was
82.83%. In 2013, this ratio increased to be 90.80% as a result of increasing
the total assets by about JD 15m while increasing equity by about JD 5.7m,
therefore a higher debt/equity ratio. In 2014, this ratio went up to 85.89%.
This decrease was a result of a decrease in the total debt by JD 1,755,321 as
well as the total equity increased by JD 886,899.
 Debt/Equity
2500.00%

2000.00%

1500.00%

1000.00%

500.00%

0.00%
1 2 3
-500.00%

-1000.00%

3. Equity Multiplier Ratio:

The equity multiplier shows the percentage of assets that are financed or
owed by the shareholders. In 2012, it was equal to 1.90 which meant that for
each JD 1 in equity we have JD 1.90 in assets. For the years 2013 and 2014,
it was equal to 1.98 and 1.92 respectively which means that the company's
equity financing strategy has not changed. Also, those higher ratios means
that DAD is dependent on debt financing and it have high debt servicing
costs.
 Equity Multiplier
25.00

20.00

15.00

10.00

5.00

-
1 2 3
(5.00)

(10.00)

4. Times Interest Earned (TIE) Ratio:

The times interest earned ratio, is a coverage ratio that measures the
proportionate amount of income that can be used to cover interest
expenses in the future. In 2012, this ratio was equal to -1.02 which
means that the company doesnt make enough income to pay for its
total interest expense 1.02 times. In another way, this company's
income is 1.02 times lower than its interest expense for that year. In
2013, this ratio increased to 3.67 as the interest expense increased to
1,833,428 while the earnings before interest and tax increased to be
JD 6,737,186 for the same year. The ratio decreased to 3.43 in 2014,
as a result of increase in the interest expense to be JD 2,605,983 and
the earnings before interest and tax increased to be JD 8,950,329 for
the same year.
C. Turnover Ratios:

1. Inventory Turnover Ratio:

This ratio indicates the number of times the inventory is turned over
annually. The inventory turnover ratio for DAD was 2.48 in 2012, then
decreased in 2013 to 1.85 and after that increased again to 2.72 in 2014. If
transformed into days we will get the following number of days required to
sell the whole inventory: 147,197 and 134 days for the years 2012, 2013 and
2014 respectively. The pharmaceutical industry usually produces large
quantities of medicines which make the turnover of inventory take a longer
time and most global pharmaceutical companies hardly reach to inventory
turnover ratio with a value of 5. However, the numbers in the three studied
years for DAD indicate a low inventory turnover rate compared with other
pharmaceutical companies, taking into consideration that most of the
medicines have a shelf life that may not exceed two or three years. So, when
the inventory takes 197 to be turned over, that consumes about quarter of
the shelf life of some products which is not good for the company and
increases the risk of expiry. Making more precise anticipations and
forecasting can improve the duration within which the inventory is turned
over.
 Inventory turnover
1.4

1.2

0.8

0.6

0.4

0.2

0
1 2 3

2. Accounts Receivables Turnover:

This ratio indicates the number of times the A/R is collected annually. The
A/R turnover ratio was making a slight improvement in the company from
2012 till 2014, rising from 1.53 in 2012, 1.79 in 2013 to 2.51 in 2014. These
numbers are reflected by the days needed to collect the A/R as follows: 238,
203 and 145 for the years 2012, 2013 and 2014 respectively. For most of the
pharmaceutical companies, medicines are sold as A/R rather than cash to the
pharmacies and warehouses and it takes some time to collect the money,
but still DAD needs to improve these numbers and collect the money more
quickly to catch up with other companies and improve its ratio. That could be
achieved by giving some incentives for early payment to encourage
pharmacies to pay their debts earlier.

A.R turnover
1.6

1.4

1.2

0.8

0.6

0.4

0.2

0
1 2 3
 3. Assets Turnover Ratio:
This ratio reflects the sales generated from each 1 JD of Assets. The ratios
were almost the same between the years 2012, 2013 with the respective
values 0.49 and 0.487 and increased in 2014 with the respective value
0.688. The company is able to make sales with a value equal to two thirds of
its assets every year which can be healthy and indicates a good utilization of
the assets to generate the maximal sales especially in such an industry that
needs high levels of assets.

D. Profitability Ratios:

1. Return on Equity:
The figure shows the return on equity from 2012 till 2014 for DAD
company as it started in 2012 (-7.9%) increasing to (11.54%) in 2014,
that tells about the companys performance blossom in the past two
years analyzed. This means that for each JD 1 invested in equity, we
make 11.54% profit in 2014.

2. Return on Assets:

We note that the return on assets rose from -4.16% in 2012 to be 4.6% in
2013 then to reach 6.0% in 2014, which means that for each JD 1 invested
in assets we will generate 6.0% net income which indicates that there is an
improvement in the last year compared to the previous 2 years.

ROA
8.00%
0.06
6.00% 0.05
4.00%
Total
2.00%
0.00%
-2.00% 2012 2013 2014

-4.00%
-0.04
-6.00%

3. Profit margin:

We note that profit margin in 2012 was -8.4% and start increasing in 2013
to 9.3%. In 2014 the profit margin ratio was decreased to 8.7% (for each
one JD 1 of sales DAD made 8.7% net income).

Profit Margin
15.00%
0.09 0.09
10.00%
Total
5.00%

0.00%
2012 2013 2014
-5.00%

-10.00% -0.08
 4. Gross Profit Margin:

Gross profit margin also increased in the last three years. In 2012, for each
JD 1 in sales we made 40.27% gross profit, while in 2013, for each JD 1 in
sales we made 51.68% gross profit which indicates an increase compared
to 2012. We note also that the profit margin decreased a little bit in 2014 to
be 51.20% compared with 2013.

Gross Profit Margin

60.00% 0.52 0.51
50.00%
0.4
40.00% Total
30.00%
20.00%
10.00%
0.00%
2012 2013 2014

E. Market Ratios:
 1. Earn Per Share ( EPS ) Ratio:
The portion of a company's profit allocated to each outstanding share of common
stock. It serves as an indicator of a company's profitability. It is calculated by
dividing the companys net income by the number of its outstanding shares For
DAD. The EPS increased from -0.144 JDs in 2012 to 0.185 JDs in 2013 and
increased more in 2014 with 0.241 JDs, which means that the net income for the
company is increasing as there number of outstanding shares remains constant.
This is an indicator that the company is increasing its profit year after another.

EPS
0.3 0.24
0.18
0.2
Total
0.1
0
-0.1 2012 2013 2014

-0.2 -0.14

2. Price/Earnings ( P/E ) Ratio:

P/E Ratio tells us how much investor is willing to pay per JD of earnings. It is
calculated by dividing the current stock price of a company by its earnings per
share (EPS). A better interpretation of the P/E ratio is to see it as a reflection of
the market's optimism concerning a firm's growth prospects. So to evaluate PE
Ratio for DAD, we should compare it to Amman Market which is 10, in 2012 the
P/E of the company was -8.69 times and it was doing badly. This number is an
outcome of dividing the companys price/share (1.25 JDs in 2012) to EPS. In 2013,
P/E increased to 10.12. This increase was due to the increase in the companies
price/share in 2013 (1.87 JDs) the EPS was increasing. The company improved its
price/share in 2014 (3.22 JDs) which increased its P/E ratio to 13.37 times, its still
underestimated as the companys EPS is increasing each year.

P/E
15 13.37
10.13
10 Total
5
-8.69
0
-5 2012 2013 2014
-10
 3. Market to Book Ratio:
Its a ratio used to compare a stock's market value to its book value. It is
calculated by dividing the current closing price of the stock by the latest quarter's
book value per share. As long as the ratio is more than 1, then the company is
healthy and its market value is more than its book value. In 2012 market to book
value was 0.687. This ratio increased in 2013 due to the increase in the
companys price/share to have a ratio of 0.912, and improved in 2014 with a ratio
of 1.548, its due to the increase in the companys price/share.

Market to Book Value

2
1.55
1.5
Total
0.91
1 0.69
0.5
0
2012 2013 2014
Conclusions and Recommendations:

There is a continuous loss in the profit in the last few years. We justify this
declination to drop of the sales.

The difference between the profit margin ratio and the gross profit margin
ratio is too high, which means that the expenses of the company are too high,
it is recommended that the company tries to cut its cost and reduce its
expanses.

DAD should improve the forecasting of its sales in order to make the amount
of produced medicines close to the amount of sold medicines and
consequently increase the inventory turnover ratio which will be reflected as
lower days sales in inventory.

DAD should also improve the A/R turnover by decreasing the duration of the
debts. That could be achieved by giving some incentives for early payment to
encourage pharmacies and warehouses to pay their debts earlier.

DAD should think of some investments such as producing and launching new
products, expanding their market to other countries or making joint venture
with international companies to produce under-licensed products. In this case
they can utilize the cash they have and in the same time the profit will also be
increased much more.
References:

Midfarmaind.wordpess.com

http://www.ase.com.jo/en

Corporate Finance ( Ross/Westerfield/Jordan/Bley Middle East Edition)

Appendix:

The financial ratio - We calculated it.

 Part 1: General Information
Current
Year Current Assets Total Assets Liabilities Total Debts Equity
2016 7,902,751 16,595,278 17,068,884 16,595,278 -2,566,904
2015 9,651,802 19,061,971 16,438,658 19,061,972 920,192
2014 11,063,367 21,348,692 14,830,062 14,830,362 4,714,819
Year Inventory Cash Interest CGS A/R
2016 3,155,723 160,388 677,717 2,943,644 2,677,057
2015 3,376,830 85,619 740,462 4,093,272 4,194,280
2014 10,291,266 277,912 1,008,741 4,398,216 4,748,984

Depreciatio
Year Net Income Sales Gross profit n EBIT
-2,809,479
2016 -3,487,096 2,073,037 -870,607 174,808
-3,054,165
2015 -3,794,627 5,413,501 1,320,229 308,392
 -1,303,374
2014 -23,312,115 6,634,330 2,236,114 401,039

# of outstanding
Year Shares Market Price Book Value
2016 1,000,000 0.83 -2.566904
2015 1,000,000 1.27 0.920192
2014 1,000,000 1.74 1.82153628

A. Liquidity Ratios
Year Current Ratio Quick Ratio Cash Ratio
2016 0.462991664 0.278110039 0.009396514
2015 0.587140507 0.381720454 0.005208394
2014 0.746009491 0.052063235 0.018739773

B. Long-term Solvency ( Leverage ) Ratios

Total Debt Equity
Year Ratio Debt/Equity Multiplier TIE
2016 115.47% -646.51% (6.47) 3.434530847
2015 95.17% 2071.52% 20.72 3.434530847
2014 -151.37% 31.46% 0.45 3.434530847

C. Turnover Ratios

D.Profitability Ratios
 E. Market Ratios

Earn Per Share Market to

Year (EPS) (P/E) Book
2016 -3.487096 1.548076923
2015 -3.794627 10.12830779 0.912195122
2014 -23.312115 -8.690286262 0.686813187