FRAMEWORK

1. Introduction
1.1 Context of topic chosen
From 20 project topics listed by Oxford Brookes University for research and analysis project, I decided to
choose Topic 8 with an analysis and evaluation of business and financial performance of DHG Pharma. I
undertake this project topic based on the companys Annual Report for the recent three years, calculation
and interpretation of financial ratios will be carried out, hence providing information on the financial
position of the company.

1.2 Reasons for choosing topic

First of all, the acquiring of Fundamental level in ACCA Papers provides the tools in analysing and
interpreting financial position and business environment of the company. Choosing this topic grants me an
opportunity to apply my knowledge in Vietnam market segment. Furthermore, the scope in study case is
small so this topic project could provide me a wider scope in practice. With the future career path that I
stated as business analyst, it is appropriate to undertake the topic for linking the gap between studies and
practices.Consequentky, performing an analysis of an actual company is the best condition for me to
expand my sight on this field of the work with the challenges.
Besides, financial statements are important to the company. The objective of general purpose financial
statements is to provide information about the financial position, financial performance, and cash flows of
an entity that is useful to a wide range of users in making economic decisions (IAS 1). Accordingly,
finanacial statements are helpful in determining the financial health of an organisation. Assessing the
financial statements of an organisation could accommodate me with a full of learning technical skills.
Vietnams pharmaceutical industry is emerging as one of the most attractive prizes for foreign investors
as Vietnams stock market opens up more to attract foreign investment (Bloomberg, 2016). This must be
an interesting reason for my exploration on the research in this lucrative industry.

1.3 Reasons for choosing organisation

In Vietnam, DHG is the largest pharmaceutical companies listed on the stock market. If we add foreign
companies, DHG will enter top three company with the biggest economic of scale following two big
corporations Sanofi and GlaxoSmithKline (GSK) (Vietnam Stock Market Industry Note, 2015). A local
pharmacetical company as DHG Pharma could rival with the other companies including global and local
companies toward that position. Not surprisingly, DHG Pharma seems to be successful in Vietnam
pharmceutical industry and I would like to inquire into the reasons why DHG Pharma could enhance the
performance in the fiercely competitive market.
Hau Giang Pharmaceutical has built a large distribution channel with 12 subsidiaries, 24 branches and 68
pharmacies in nationwide hospitals (Vietnam Stock Market Industry Note, 2015).The export markets of
DHG Pharma currently include 13 countries.
In addition, DHGs primary business line is production and trading of pharmaceuticals, dietary
supplement, and cosmeceuticals.DHG currently has 279 product registration numbers in Vietnam.
Product has a vital role on the development of an enterprise (Annual Report, 2015).

1.4 About the pharmaceutical industry

Global pharmaceutical industry:

Vietnamese manufacturers can only make drugs from imported raw materials and still far from selfreliance in producing raw medicinal materials and inventing a new drug (Pharmaceutical Sector
Report, 2014).
More than 51% of raw medicinal materials are imported from China, followed by India with 18%
(Pharmaceutical Sector Report, 2014).
The development scheme for domestic pharmaceutical industry is gloomy. Popular drugs production
is the top priority while specialized drugs, with higher value, are under controlled by foreign
companies (Pharmaceutical Sector Report, 2014).
Management policies are being adjusted to support the domestic pharmaceutical industry
(Pharmaceutical Sector Report, 2014).
Outsourcing production and franchised production is the shortest and most effective way to keep up
with the world pharmaceutical industry (Pharmaceutical Sector Report, 2014).

1.5 The organisation background

-

Establishment: Precursor of DHG Pharma was 2/9 Pharmaceutical Factory and was founded on
September 02nd 1974 at Khanh Lam Commune (Khanh Hoa Commune now), Ca Mau Province.
Equitization: On 02 September 1974, the Company was changed into a Joint-stock Company with
the initial charter capital was 80 billion VND. DHG being listed on HOSE: December 21st 2006,
8,000,000 shares of DHG Pharma posted on Ho Chi Minh Stock Exchange (HOSE) under the
securities code DHG.
For more than 30 years of formation and development, DHG Pharma is now recognized as a leading
company of Vietmam Pharmaceutical industry. These are essential factors that help DHG Pharma
having a steady position in the path of integration.
Vision: For a more beautiful and healthier life
Mission: DHG Pharma always provides high quality products and services to satisfy the aspiration
for a more beautiful and healthier life.

1.6 Project Objectives and Research Questions

Project Objectives
-

To conduct a business analysis of the company using SWOT and Porters Five Forces models to find
the effect environment in which DHG Pharma is operating.
To analyze financial performance by comparison of DHG Pharma with its competitor Sanofi Vietnam
Ltd over last three year period.
To offer recommendations for improving DHG Pharma performance including financial and business
performance.

Research Questions
-

How the business environment influence on the operating performance of DHG Pharma?
What is financial position of DHG Pharma in the pharmaceutical industry and in comparision with its
competitive, Sanofi Vietnam Ltd?
How DHG Pharma could improve its financial and business performance?

1.7 Overall Research Approach

-

As previous mentioned the research was carried out to analysize an organisation with the
combination of financial and business performance analysis.
This indicates both the quantitative and qualitative approach for evaluating financial and business
performance:

Quantitative data usually deals with numbers (ACCA F5, 2014). This approach was aided by the
use of excel spreadsheets and financial ratios calculation.

Qualitative research has as its specific purpose the uncovering and understanding of thought and
opinion. It is carried out on relatively small samples and unstructured or semi-structured
techniques (ACCA F5, 2014). This is vital insight into the business performance of the
organisation using SWOT and Porters five forces model in order to assess both internal and
external environment affecting the organisation.

The industry analysis laid down a foundation and provided empirical evidence about the nature of
the pharmaceutical sector.
The financial and business analysis of DHG Pharma could answer the stated project goal.
Besides,Sanofi Aventis Vietnam Limited financial performance have to be used in comparison
with DHG Pharma in order to achieve meaningful analysis.

2. Information Gathering and Accounting Business Techniques

Information Gathering
2.1 Primary research
Primary research (field research) involves gathering new data that has not been collected before. For
example, surveys using questionnaires or interviews with groups of people in a focus group (BBC, n.d).

Limitations of primary research:

-

The major disadvantage of primary research is the huge cost involved in gathering information.
Similarly, it consumes a lot of time since a researcher has to prepare for the study, gather details,
and process the information into coherent and logical results .

2.2 Secondary research

Secondary research (desk research) involves gathering existing data that has already been produced.For
example, researching the internet, newspapers and company reports (BBC, n.d). Cost savings can be
substantial because secondary data sources are a great deal cheaper than those for primary research.

The official website of DHG Pharma www.dhgpharma.com.vn is a vital source. It contains

valuable information about the company products, financial performance, history, Research and
development activities and contribution towards CSR etc.

Annual Reports are formal financial statements that are published yearly and sent to company
shareholders and various other interested parties. The reports assess the year's operations and
discuss the companies' view of the upcoming year and the companies' place and prospects.

Annual Reports must be an important resource collecting both quantitative and qualitative
characteristics for financial information user. Throughout these resources I could calculate and
interpret the financial ratios, togther with the extracts of financial statements.

Academic Study Texts are study materials written by our in-house authors
with industry and teaching experience and reviewed by ACCA examining
team.

Due to the studying purpose, Study Texts are highly recommend for providing
the analysis techniques and accessing understanding of theories that is the
basis of the analysis and evaluation on financial and business performance.

Available News

Together with above sources, daily times and business recorder were helpful
and a lot of official information about DHG Pharma was extracted from their
official website updates. Any updates about Pharmaceutical sector and the
general economy are usually highlighted in the news.

Online Research

There is a wide range of available resources in the online websites.

Information collecting from online resources should be filter and selected for
specific purpose due to the reality and relevant characteristics.
Limitations of secondary research (ACCA P5, 2014):
-

Relevance. The data may not be relevant to the research objectives in terms of the data content
itself, classifications used or units of measurement.

Cost. Although secondary data is usually cheaper than primary data, some specialist reports can
cost large amounts of money. A cost benefit analysis will determine whether such secondary data
should be used or whether primary research would be more economical.

Availability. Secondary data may not exist in the specific product or market area.

Bias. The secondary data may be biased, depending on who originally carried it out and for what
purpose. Attempts should be made to obtain the most original source of the data, to assess it for
such bias.

Accuracy. The accuracy of the data should be questioned.

2.3 Ethical issues faced in information gathering

The behaviour of professionals who work with information should be guided by a regard for the
interests and needs of information users (Code of Professional Practice for Library and

Information Professionals).
There are several issues that should be avoided.

It is essential to respect the integrity of information sources, and cite sources

used, as appropriate.

Carry out and use research involving users (e.g. surveys of needs) in a
responsible manner, ensuring that best practice is followed as set out in law
or in codes of conduct recommended by research organisations (e.g.
universities) or professional bodies.

2.4 Accounting and Business Techniques

Accounting and Business Techniques are the tools that could be to analyse and evaluate not only the
financial performance but also business performance.

Accounting Techniques Ratios Analysis (HOCK International LLC, 2014)

Financial ratio analysis is used to analyze a companys financial statements. Ratio analysis is the process
of looking at the relationships between different numbers in the financial statements to see if they indicate
positive or negative trends developing within a company.
A firms equity investors, potential equity investors and stock analysts as well as its creditors use ratios
calculated from the firms financial statements to make investment and credit decisions. While the ultimate
purpose of ratio analysis is to enable evaluation of risk and return, different users need different
information. Short-term creditors, such as banks and trade creditors, use ratios to determine the firms
immediate liquidity. Longer-term creditors such as bondholders use ratios to determine a firms long-term
solvency. Both short-term and long-term creditors use financial statement analysis to gain assurance that
the firm has the necessary resources to be able to pay its interest and principal obligations. Equity
investors use ratios to determine the firms long-term earning power. The equity investors analysis needs
to be more in-depth than the creditors analysis, because equity investors bear the residual risk of the
company. The equity investors claims on the companys funds are settled only after the claims of
suppliers and lenders are settled.
Ratios are based on accounting data. Because of the fact that the accounting system uses historical
costs rather than current fair market values, ratios often do not reflect the current values of the items they
are measuring.

Limitations of Ratio Analysis

Although ratio analysis provides useful information pertaining to the efficiency of operations and the
stability of financial condition, it has inherent limitations (HOCK International LLC, 2014)
-

A ratio by itself is not significant. It must be interpreted in comparison with prior periods ratios,
predetermined benchmarks, or ratios of competitors.
The ability to make use of ratios is dependent upon the analysts ability to adjust the reported
numbers before calculating the ratios and then to interpret the results.

Financial statement analysis cannot give definite answers. It can point out where further
investigation is warranted; but it is a mistake to place too much importance on a simple analysis
of financial statement numbers.
Accounting and the preparation of financial statements require judgment in making assumptions
and estimates. The more frequent the publication of financial statements, the more frequent will
be the need to make these estimates, and the greater will be the uncertainty inherent in the
financial statements and thus the ratios calculated from them, because many transactions require
several quarters or several years for completion. The longer the time it takes to complete a
transaction, the more tentative will be the estimates relating to it that affect the financial
statements. The short-term incentives, agendas, and personal interests of those who prepare
them may affect these estimates relating to long-term events.
Ratios usefulness depends on the quality of the numbers used in their calculation. If a companys
financial statements are not credible because of poor internal controls or fraudulent finan-cial
reporting, then the resulting ratios will be just as unreliable and misleading as the financial
statements. However, a critical analysis of ratios can alert an analyst to the possibility of problems
in the financial reporting, because he or she may see that the ratios do not make sense.
The numbers constitute only one part of the information that should be considered when
evaluating a company. Qualitative aspects such as employee morale, new products under
development, the companys reputation, customer loyalty, or the companys approach to its social
responsibilities are also important.
When we compare a company with other companies, the various companies financial statements
will probably classify items differently. To the extent possible, we should make adjustments in
order to make the statements as comparable as possible. However, making these adjustments
may not always be possible, and that can make it difficult to draw conclusions from the
comparisons.
Many companies are conglomerates and are made up of many different divisions operating in
different, unrelated industries. This diversification 20 can make it difficult to compare any two
companies, because while they may share some markets, they seldom share all of the same
mar-kets.
Companies can choose different methods of computing things such as depreciation expense,
cost of goods sold, and bad debt expense. Leases can be reported as operating leases,
appearing on-ly in the income statement, or they can be capitalized and reported on the balance
sheet. These variations in reporting also affect the comparability of companies.
A company may have poor operating results that are caused by several different, small factors. If
an analyst focuses on trying to find one major problem, he or she may miss the confluence of
many factors.
Traditional ratio analysis focuses on the balance sheet and income statement, and therefore cash
flow ratios may be overlooked.
Many financial statement items are based on historical cost values. Ratios based on those historical cost values may be less relevant to a decision than current market values.
Financial statements consist of summaries and simplifications for the purpose of classifying the
economic events and presenting the information in a form that can be utilized. In some cases the
details behind the summarized transactions are recoverable, but in other cases they are not.
Financial statements deal only with monetary amounts and do not reflect the decrease in the
purchasing power of money that occurs with inflation. Therefore, comparing values over a long
period of time may be misleading.

Business Techniques
SWOT Analysis

The SWOT analysis combines the results of the environmental analysis and the internal appraisal into
one framework for assessing the firm's current and future strategic fit, or lack of it, with the environment. It
is an analysis of the organisation's strengths and weaknesses, and the opportunities and threats offered
by the environment (ACCA P3, 2014)
Strengths: Strengths are qualities that enable a firm to accomplish its mission.
Weaknesses: Weaknesses are qualities that restrict the company from accomplishing its mission.
Opportunities: Opportunities are presented by environment and the firm must capitalize on opportunities.
Threats: Threats arise when conditions in external environment restrict you. (Management Study Guide,
2013)
The main advantages of conducting a SWOT analysis is that it has little or no cost - anyone who
understands your business can perform a SWOT analysis. You can also use a SWOT analysis when you
don't have much time to address a complex situation. This means that you can take steps towards
improving your business without the expense of an external consultant or business adviser. Another
advantage of a SWOT analysis is that it concentrates on the most important factors affecting your
business. (Benefits and limitations of SWOT analysis, 2013)
Limitations of SWOT Analysis
When you are conducting a SWOT analysis, you should keep in mind that it is only one stage of the
business planning process. For complex issues, you will usually need to conduct more in-depth research
and analysis to make decisions.
Keep in mind that a SWOT analysis only covers issues that can definitely be considered a strength,
weakness, opportunity or threat. Because of this, it's difficult to address uncertain or two-sided factors,
such as factors that could either be a strength or a weakness or both, with a SWOT analysis (e.g. you
might have a prominent location, but the lease may be expensive).
A SWOT analysis may be limited because it:
-

doesn't prioritise issues

doesn't provide solutions or offer alternative decisions

can generate too many ideas but not help you choose which one is best

can produce a lot of information, but not all of it is useful.

Porters Five Competitive Forces

Porter (Competitive Strategy) distinguishes between factors that characterise the nature of competition.
-

In one industry compared with another (eg in the chemicals industry compared with the clothing
retail industry), some factors make one industry as a whole potentially more profitable than
another (ie yielding a bigger return on investment).
- Factors within a particular industry lead to the competitive strategies that individual firms might
select.
Five competitive forces influence the state of competition in an industry, and collectively determine the
profit potential of the industry as a whole

The threat of new entrants to the industry

The threat of substitute products or services

The bargaining power of customers

The bargaining power of suppliers

The rivalry amongst current competitors in the industry

Limitations of Porters Five Forces

Porters model of Five Competitive Forces has been subject of much critique. Its main weakness results
from the historical context in which it was developed. In the early eighties, cyclical growth characterized
the global economy. Thus, primary corporate objectives consisted of profitability and survival. A major
prerequisite for achieving these objectives has been optimization of strategy in relation to the external
environment. At that time, development in most industries has been fairly stable and predictable,
compared with todays dynamics. (themanager.org, 2015)
In general, the meaningfulness of this model is reduced by the following factors:
-

In the economic sense, the model assumes a classic perfect market. The more an industry is
regulated, the less meaningful insights the model can deliver.

The model is best applicable for analysis of simple market structures. A comprehensive
description and analysis of all five forces gets very difficult in complex industries with multiple
interrelations, product groups, by-products and segments. A too narrow focus on particular
segments of such industries, however, bears the risk of missing important elements.

The model assumes relatively static market structures. This is hardly the case in todays dynamic
markets. Technological breakthroughs and dynamic market entrants from start-ups or other
industries may completely change business models, entry barriers and relationships along the
supply chain within short times. The Five Forces model may have some use for later analysis of
the new situation; but it will hardly provide much meaningful advice for preventive actions.

The model is based on the idea of competition. It assumes that companies try to achieve
competitive advantages over other players in the markets as well as over suppliers or customers.
With this focus, it dos not really take into consideration strategies like strategic alliances,
electronic linking of information systems of all companies along a value chain, virtual enterprisenetworks or others.

Overall, Porters Five Forces Model has some major limitations in todays market environment. It is not
able to take into account new business models and the dynamics of markets. The value of Porters model
is more that it enables managers to think about the current situation of their industry in a structured, easyto-understand way as a starting point for further analysis.

3 Business Analysis and Financial Evaluation

3.1 SWOT Analysis of DHG Pharma
Strenghts:
-

The distribution system is the deepest and most extensive in Vietnam compared to the domestic
and foreign competitors; therefore, DHG can actively generate high revenue from in-house
products and exclusive products.

Biggest plant capacity in Vietnam (7.5 billion product units/year). In addition to in-house
production,volume growth from existing markets; the company can accept temporary processing
order, export-orienting and centralized bidding.

Leading position in market share, reputation, and brand position in Vietnam pharmaceutical
industry: 20 consecutive years leading in sales, market share, and production capacity.

Strong financial resource, effective operation (cash-rich, 15 years tax incentive for new plant, high
profitability ratios) enables the Company to implement modern strategies to attract skillful
personnel, R&D investment, capital raising,M&A and Joint-Venture DHG has grown and trained
passionate and enthusiastic staff: they are confident, loyal, and represent DHGs cultural identity;
thus it creates confidence for customers, consumers, partners, and investors with the image of a
reputable and friendly Company.

Social activities: DHG is well-known as a company having many social activities to give back to
the community.

Weaknesses:
-

The application of new technology in R&D is a major strategic initiative but have yet to prove
effective. The progress of releasing new products each year is still slow. There are still few
external activities.

Investment has been slow and often delayed, especially large projects under approval of the
Board of Management.

Slow to react proactively to the provisions of law (Circular 01, Circular 200,Regulations on
medicine registration), affecting business results and company strategies.

Has yet to release financial statements, report of B.O.M using BFO software, thus no
multidimensional analysis data was available to assist the financial advisory for the decisionmaking of internal management, market operating, and manufacturing.

The logistic initiative has not been established, thus internal resources and costs have not been
optimized to carry out the best business performance possible.
The regulation system of the Company is still insufficient, and there are still many keys initiatives
which need to be reviewed to achieve high operation efficiency and inline with the development
plan of the Company.

Opportunities:
-

Opportunity for R & D from collaborative relationships, joint ventures, technology transfer,
purchasing scientific projects, hiring researches.

State policies and new pharmaceutical regulation create opportunities for enterprises to be in
control of production and business operation.

Thanks to economic integration, many international pharmaceutical groups are entering the
Vietnam market; this facilitates the learning and experiences growth in science and technology for

DHG Pharma personnel, creates the opportunity for them to interact with modern equipment and
machinery.
-

Market size is expanding more and more due to the overall increase in health expenditure,
population and per capita income.

DHG has advantages when participating in the centralized bidding (based on production capacity,
product quality, supplying and distribution chain, financial capacity...)

The strengths of DHG create advantages for DHG to attract investment, opportunity for joint
venture, association, M & A, exclusive distribution, technology transfer from large corporations in
the world, qualified suppliers selection, and price competition.

Threats:
-

The economy of Vietnam is integrating deeply and widely. The open trade policy with other
countries, fragmentation growth of market, psychology of preferring imported goods, cheap
medicines with poor quality flocking into Vietnam market create an extremely fierce competition
environment in the healthcare market.

The main raw materials for production of DHG and other enterprises in the sector is mainly
imported (80-90%); hence, it is influenced by factors such as exchange rates, raw material price
fluctuations, import tax policy,...

The monetary policy of exchange rate in the macro-economic with export priority affects
unfavorably to enterprises having large importing proportion (materials, equipment and
technology).

Medicine price is controlled by the Government while input costs are increasing.

Besides, the increase of medicine price is influenced by competitive factors and other means of
mass media.

The growth rate in the last 10 years of DHG significantly outperformed peers.

Expectation of investors regarding growth rate, dividend rate, ROS, ROE... are always high,
exerting pressure to the Board of Management and Board of Directors. It also affects to the long
term sustainable development strategy of the Company.

Change of policies and regulations related to the industry affect the business bottom line of the
Company (Circular 01, Circular 200, the regulation for approving product registration number,
regulations on advertising,...).

3.2 Porters Five Forces Analysis of DHG Pharma

The threat of new entrants into the market MEDIUM
-

The Pharmaceutical industry has experienced the average high growth rate of 16- 18%

The pharmaceutical companies is tightly controlled by government polices

The pharmaceutical companies need to meet the GSP standard provided by WHO (and GDP,
GLP, PPP standards) in order to stay in this industry.

Capital requirement is low due to the fact that most of companies focus on simple production, low
technology, unspecialized.

The threat of increased competition from rivals within the industry - HIGH
-

The Pharmaceutical industry has experienced the average high growth rate of 16- 18%

From 1/1/2007 foreign firms will be allowed to open branches in Vietnam in the form of joint
venture or 100% foreign capital. The number of foreign companies increased rapidly from 300 in
2007 to nearly 500 enterprises in 2010. (Annual report 2010)

Vietnamese companies mainly concentrate on ordinary products without much differentiation;

compete severely in a small segment market.

Pharmaceutical corporations with big names such as Sanofi-Aventis (France), GSK (UK), Servier
(France), Pfizer (USA), has appeared in Vietnam and dominated the domestic market in
specific remedy segment. (Annual report 2009)

Although at current time, the foreign pharmaceutical firms cannot produce and distribute in the
domestic market, as of the time of protection expiring, the pharmaceutical industry will have a
fiercely competitive environment. At that time the domestic pharmaceutical enterprises will have
to cope with the multi-national corporations with modern technology and high productivity.

High switching costs when customer can freely switch from this product to another

The bargain power of buyers - LOW

-

Low buyer concentration versus firm concentration

Drug is an essential products that can not be replaced by any other product

The bargain power of suppliers - HIGH

-

Manufacturing activities depend on more than 90% imported materials from India, China,
Holland

High concentration of suppliers

Low differentiation in suppliers

Low present of substitute input

The threat of substitute products - LOW

-

Drug is an essential products that can not be replaced by any other product

Demand for pharmaceuticals is a necessity so possible substitutes for this item is nearly zero.

3.3 Financial Performance of DHG Pharma

A. Revenue Analysis/ Horizontal Trend Analysis
Horizontal trend analysis is used to evaluate trends over a period of several years for a single business.
The first year is the base year, and amounts for subsequent years are presented not as dollar amounts
but as percentages of the base year amount, with the base year assigned a value of 100%, or 100.

B. Profitability analysis which measures the firms profit in relation to its total revenue or the amount
of net income from each dollar of sales and its return on invested assets.

Gross Profit Margin Percentage

The gross profit margin measures the percentage of the sales price available to cover fixed and
nonmanufac-turing costs. Gross profit margin is an important measurement of a companys performance,
because all other costs must be covered by the gross profit, and net income is the amount remaining after
those costs have been covered. Therefore, the companys gross profit margin is the key to its overall
profitability.

Operating Profit Margin Percentage

The operating profit margin percentage measures how much of its sales revenue the firm keeps as
operating income.
Operating income includes revenues and expenses of the companys principal operations. It does not
include revenues and expenses that result from secondary or auxiliary activities of the company, gains
and losses from investments, or gains and losses that are infrequent or unusual. It also does not include
gains and losses from discontinued operations or extraordinary items.

Net Profit Margin Percentage

Net income includes revenues and expenses of the company from all sources (except for other
comprehensive income items, which are reported directly in equity).

EBITDA Margin Percentage

EBITDA stands for earnings before interest, taxes, depreciation and amortization. EBIT (earnings before
interest and taxes) includes deductions for depreciation and amortization expensed. Therefore, EBITDA is
EBIT plus depreciation and amortization expense, to add back the depreciation and amortization.
EBITDA is used to analyze a company's earnings before interest and taxes as well as before the noncash charges of depreciation and amortization.

Return on Capital
Return on Capital Employed (ROCE)
Return on capital employed (ROCE) may be used by the shareholders or the Board to assess the
performance of management.

Return on Equity (ROE)

Return on equity measures the return the business receives on the stockholders equity invested in the
business.

C. Long-term Solvency and Stability

Debt ratio
The debt ratio is the ratio of a company's total debts to its total assets.

Gearing/leverage
Gearing or leverage is concerned with a company's long-term capital structure. We can think of a
company as consisting of non-current assets and net current assets (ie working capital, which is current
assets minus current liabilities).

Interest cover
The interest cover ratio shows whether a company is earning enough profits before interest and tax to pay
its interest costs comfortably, or whether its interest costs are high in relation to the size of its profits, so
that a fall in PBIT would then have a significant effect on profits available for ordinary shareholders.

Cash flow ratio

The cash flow ratio is the ratio of a company's net cash inflow to its total debts. a company needs to be
earning enough cash from operations to be able to meet its foreseeable debts and future commitments,
and the cash flow ratio, and changes in the cash flow ratio from one year to the next, provide a useful
indicator of a company's cash position.

D. Short-term Solvency and Liquidity which measure the sufficiency of the firms cash resources to
meet its short-term cash obligations.

Net Working Capital

A companys net working capital bridges the gap between the production process and the collection of
cash from the sale of the item. The amount of liquidity a company needs depends upon the length of its
operating cycle. The operating cycle is the period from the time cash is committed for investment in goods
and services (the purchase of, not the payment for, inventory) to the time that cash is received from the
investment (from the collection on the sale of the inventory).

Current Ratio
The current ratio is the most commonly used measure of short-term liquidity, as it relates current assets to
the claims of short-term creditors. Whereas net working capital expresses this relationship as an amount
of currency, the current ratio expresses the relationship as a ratio.

Quick or Acid Test Ratio

The quick ratio, also called the acid test ratio, is a more conservative version of the current ratio. The
quick ratio measures the firms ability to pay its short-term debts using its most liquid assets.

Cash Ratio
The cash ratio is another version of the current ratio. The cash ratio is even more conservative than the
quick ratio. The cash ratio is the ratio between cash and current liabilities. Cash equivalents and
marketable securities are included in the numerator along with cash for purposes of calculating the cash
ratio.

E. Efficiency (turnover ratios) which provide information on a firm's ability to manage efficiently its
current assets (accounts receivable and inventory) and current liabilities (accounts payable).

Accounts Receivable Collection Period

A rough measure of the average length of time it takes for a company's customers to pay what they owe
is the accounts receivable collection period.

Inventory turnover period

This indicates the average number of days that items of inventory are held for

Accounts payable payment period

The payment period often helps to assess a company's liquidity; an increase is often a sign of lack of
long-term finance or poor management of current assets, resulting in the use of extended credit from
suppliers, increased bank overdraft and so on.

E. Shareholders' Investment Ratios

Ratios such as EPS and dividend per share help equity shareholders and other investors to assess the
value and quality of an investment in the ordinary shares of a company.

Earnings per Share

Earnings per share is the amount of net profit for the period that is attributable to each ordinary share
which is outstanding during all or part of the period.

Dividend per Share

It shows the proportion of profit for the year that is available for distribution to shareholders that has been
paid (or proposed) and what proportion will be retained in the business to finance future growth.

P/E ratio
A high P/E ratio indicates strong shareholder confidence in the company and its future. The P/E ratio of
one company can be compared with the P/E ratios of:

Other companies in the same business sector

Other companies generally

It is often used in stock exchange reporting where prices are readily available.

Dividend yield
Shareholders look for both dividend yield and capital growth. Obviously, dividend yield is therefore an
important aspect of a share's performance.

3.4 Non- financial perpectives

-

Commitment to our employees

Employee total turnover rate

Contribution to society

Community support by area

Humanitarian and social projects

Community involvement

Safety, health and environmental protection

DHG Pharma accident rate

Occupational accidents

Heavy metals discharged to water ways after treatment (kg/year)

Chemical waste produced (t/year)