ANALYSIS OF FINANCIAL STATEMENTS

TERM REPORT
Submitted to: Sir Maqbool Ur Rehman
Submitted by: Lauzina Ghazaali
ID: 12706
Submission Date: May 8, 2014

TABLE OF CONTENTS
PREFACE
EXECUTIVE SUMMARY
PAKISTAN PHARMACEUTICAL INDUSTRY
Introduction
Factors affecting Pharmaceutical Industry
Problems associated with Pharmaceutical Industry
INTRODUCTION TO SANOFI AVENTIS
SWOT ANALYSIS
PEST ANALYSIS
COMMON SIZE
VERTICAL COMMON SIZE
HORIZONTAL COMMONSIZE
COMMONSIZE ANALYSIS
Income Statement Analysis
Balance Sheet Analysis
RATIO ANALYSIS
LIQUIDITY RATIOS
ACTIVITY RATIOS
LEVERAGE RATIOS
PROFITABILITY RATIOS
MARKET VALUE
DU PONT ANALYSIS
CONCLUSION

PREFACE

The report has been prepared in order to analyze the financial statements of Sanofi Aventis. It incorporates the information for the period of ten
years regarding the pharmaceutical industry along with the companys information, its SWOT and PEST analysis, common size, DuPont analysis and
ratio analysis.
The report will help in order to better understand the financial statements of Sanofi and to apply the concepts that have been learned in this course
Analysis of Financial Statement.

EXECUTIVE SUMMARY
The Pharmaceutical Industry has grown over the past few years and today Pakistan has a total of 400 pharmaceutical units including those operated
by 25 multinationals present in the country. 80% of the domestic demand of finished medicines is being met from the local production whereas 20%
through the imports. The industry manufactures a variety of products ranging from pills to insulin, Oncology and Value added Generic compounds.
Few of the pharmaceutical companies in Pakistan are Abbott, Sanofi, GSK, Sandoz, Reckitt Benckiser etc. In Pakistan the market for pharmaceutical
has been expanding at the rate of 10 to 15% since the last few years due to the increasing demand for the medicines.
There are many factors that have affected the pharmaceutical industry such as population growth, economic growth rate, exchange rate, interest
rate, government regulations and import duties. However, few challenges that are mainly faced by the Pharma industry are numerous. The
problems include uncertainty in Prices, uncertainty of quota allocation, reliance on the third party, productivity of counterfeit products, product
liability claims, and risk of nonpayment.

Sanofi is ranked as the seventh largest pharmaceutical company and fourth largest by prescription in sales in 2014 with its head quarters located in
Paris, France. Through their strong presence they make sure that benefits are delivered to people through their quality medicine that caters to
different age groups. Today Sanofi has a market share and growth rate of 4% and it offers a wide range of treatment and prevention solutions to
fulfill the patients needs. In 2013 the companys production was mainly of Consumer healthcare products and vaccines that registered a sales
growth of 1.89% as compared to the previous year.
There were some major fluctuations in Sanofis net profit in ten years time but in 2009 as it was able to sell more of its vaccines and made a huge
profit before tax. On the other hand decrease in net profit in 2013 indicates that it needs to curtail its expenses along with the interest payments
which were mainly rising over the period of time.
Sanofis liquidity position was satisfactory but its working capital management was below par as operating cycle days increased. The company
should focus on improving its working capital management by strengthening credit control to expedite recoveries from retailers and distributors and
speeding up stock rotation (e.g. by offering discounts) to ensure that less cash is tied in inventory.
Moreover, the return on equity in 2013 came down due to the fact that Sanofis profits were decreasing and the assets were not utilized effectively.
This is supported by low sales growth and worsening of total asset turnover. In addition the operating expenses were rising indicating that the
company needs to manage its expenses efficiently.
As the company is highly geared due to the debt ratio of 65.9% in 2013 it might face problems in paying off its interest expenses in future if profits
decrease in future. Sanofi should concentrate on keeping an appropriate level of debt and equity to achieve a well-balanced capital structure.
Sanofi should improve its net profit margins by controlling its expenses and stimulating sales. This, combined with better working capital
management, will have a positive impact on the profitability and cash flow position of the company; thus translating into a stronger market
standing.

PAKISTAN PHARMACEUTICAL INDUSTRY

Introduction
The Pharmaceutical Industry has grown over the past few years and today Pakistan has a total of 400 pharmaceutical units including those operated
by 25 multinationals present in the country. 80% of the domestic demand of finished medicines is being met from the local production whereas 20%
through the imports. Domestically the Pharma market is divided equally between the Nationals and the Multinationals in terms of market share.
There has been a growth in National Pharma over the years and this industry has invested considerably to upgrade in accordance to GMP (Good

Manufacturing Practices). The industry manufactures a variety of products ranging from pills to insulin, Oncology and Value added Generic
compounds. Moreover, the main focus of the industry is to exceed the export of USD 800 Million dollars by 2012 so as to create new global and
regional opportunities.
In Pakistan the market for pharmaceutical has been expanding at the rate of 10 to 15% since the last few years due to the increasing demand for
the medicines.
Few of the pharmaceutical companies in Pakistan are:

Abbott Pakistan
Sanofi Aventis
GSK
Allergan
Getz Pharma
Sandoz
Reckitt Benckiser
Wyeth
Maple Pharma
Hilton Pharma

Factors affecting Pharmaceutical Industry

Population Growth
This is an important factor that affects the production of pharmaceutical industry because if there is a growth in population due to higher birth
rates, more antibiotic, anti malaria or other medicines will be consumed in the country.
Economic Growth Rate
The future growth of pharmaceutical industry relies heavily on the growth of the economy. If there is a slowdown of economic growth then this
decline will have an adverse affect on the pharmaceutical industry.
Exchange Rates

Most of the pharmaceutical firms import raw material and other ingredients used in medicines. Therefore, if the exchange rate depreciates,
then imports would become expensive resulting in an increase in the cost of businesses.
Interest Rates
Interest rate is one of the most important economic factors that influence the pharmaceutical industry. For a leveraged firm, an increase in the
interest rate would add up to the cost of borrowing of that firm and will adversely affect the net profits.
Government Regulation
Given the link between the pharmaceutical industry and public welfare and to prevent exploitation of consumers by unscrupulous businesses
charging unfairly high prices, the pharmaceutical industries in most countries are heavily regulated by governments through various price
control measures. Such controls (e.g. maximum prices) have repercussions for the revenue and bottom line of the industry.
Import Duties
Many firms in pharmaceutical industry tend to import various raw materials along with other ingredients. In case where government raises the
import duties, the imports will become expensive which will in turn increase the cost of production of these firms resulting into lower profits.

Problems associated with Pharmaceutical Industry

Uncertainty in Prices
With prices fixed by the government, the pharmaceutical industry faces uncertainty as to the pricing of its products. The government imposed
a price freeze across a majority of the product categories in December 2001. A price increase was granted for only some of the products
recently despite the cost pressures faced by the industry on account of inflation and depreciation of the PKR.
Uncertainty of Quota Allocation
There are certain products for which raw materials are imported and these imports are controlled and regulated by the Government (Narcotics
Division) and in few instances these raw materials were banned for some months resulting in the shortage of products that required these
materials.
Reliance on the third party
A major portion of raw material, active ingredients and medical devices are supplied by third party suppliers however, if these suppliers are

facing financial difficulties then there is a risk of supply interruption and specific quality material will not be supplied.
Productivity of counterfeit products
There are instances where counterfeit products are distributed illegally through various channels in the market. In case of a negative reaction
these products can materially affect the health of a patient and their confidence in an authentic product.
Product liability claims
This is one of the most significant problems that firms in this industry face. Many claims for injuries have been alleged against pharmaceutical
firms for which they have to pay for the damage caused by their medicines.
Risk of Non Payment
Most of the pharmaceutical industry is subject to the risk of nonpayment mainly from distributors, government institutions and hospitals. So as
to minimize this risk, many firms sell their products on cash basis.

INTRODUCTION TO SANOFI AVENTIS

Sanofi is ranked as the seventh largest pharmaceutical company and fourth largest by prescription in sales in 2014 with its head quarters located in
Paris, France. With strong presence in the country, the company employs over 1000 workers to improve the healthcare conditions across Pakistan.
They make sure that benefits are delivered to people through their quality medicine that caters to different age groups. Its manufacturing
facilitates are environmental friendly and most modern according to the Good Manufacturing Practices (GMP).
Today Sanofi has a market share and growth rate of 4% and it offers a wide range of treatment and prevention solutions to fulfill the patients
needs. In 2013 the companys production was mainly of Consumer healthcare products and vaccines that registered a sales growth of 1.89% as
compared to the previous year. Recently, Sanofi also penetrated the market of Afghanistan Pharma and launched its new product and registered a
sales growth of 45.9% backed by increased volume of established brands.
Sanofis product portfolio includes life saving medicines in different classes; these are:

Oral anti diabetic

Insulin
Oncology
Pain management
Allergy management
Anti biotic
Diarrhea
Gastric disease
Cough and cold

Anti malaria
Sleep disorder
Cardiology
Animal care drugs

For the manufacturing of these medicines both direct and indirect raw materials are used. Some if these include:
Direct Raw materials: Chemicals like Lasix substance, Gliben Clamide and Gelatin.
Indirect Raw materials: Bottles, vials, caps, PVC foil plugs and ammonium foil

SWOT ANALYSIS
Strengths
1. Sanofi is one of the worlds largest producers of medicines with best of the line, cutting edge manufacturing facilities.
2. Strong global presence is the major strength of the company. The company is well known for its prescription sales as it is holding the
fourth position throughout the world.
3. Broad product portfolio.
4. It has acquired US biotech company Genzyme which has given it considerable presence of solution for uncommon diseases.
Weakness
1. The profitability of Sanofi relies heavily on a few products like Ovenex and Plavix and their sudden sale decrease will have adverse
effects.
2. Patent of most of the drugs will expire in coming years.
3. Generic products that are the main source of earning income are not being prepared according to the demand and their competitors
enjoy the fruit of their sale bearing less manufacturing cost.
Opportunities
1. Strong emerging markets in developed countries like Brazil, Russia, and China which can be leveraged by updating healthcare facilities.
2. The company can use its globalization power to take advantage of the rapidly aging population in some countries and emerging markets.

Threats

1.
2.
3.
4.

Growing generic competition might dilute market share and tighten profit margins.
Government reforms to cut government spending on health care.
Problem of counterfeit medicines in emerging countries.
Economic slowdown can hamper sales growth and bottom line.

PEST ANALYSIS
Political
The political instability in some of the developing countries creates uncertainty as to government policies such as price regulation, quota
allocation, exchange rate management etc.
Government pressure to cut healthcare costs to ensure wider availability of drugs would lower gross selling rates
Economic

take

In Pakistan consumers are reluctant to spend on healthcare due to economic crises.

Rapid economic growth in developing countries has opened up new avenues for expansion.
Increased pressure from shareholders has caused a consolidation of the industry. Analysts foresee that more mergers and acquisitions will
place over the coming years.

Socio-cultural

The aging population and growing obesity in some countries has resulted in an increase in the demand for medicines.
Patients are becoming more informed. Their expectations have changed and they have become more demanding.
Public activism has also increased through the harnessing of new social networking technologies.
Global epidemics such as various diseases such as Swine flu have boosted Sanofis activities.

Technological
Increase in Sanofis R&D cost for the invention of new medicines.

 Direct to-patient communication.

Social media for promotion of welfare projects.

COMMON SIZE
VERTICAL COMMON SIZE

HORIZONTAL COMMONSIZE

COMMONSIZE ANALYSIS
Income Statement Analysis
Sanofi is one of the largest pharmaceutical companies in Pakistan and currently it is ranked as the fourth largest by prescription in sales.

Over the period of ten years Sanofis sales have shown an increasing trend. Major change occurred in 2009 when sales spiked by 54.7% due to the
sales of key brands of pharmaceutical products to SKUs in that year. Where as in 2013 there was a minor rise in the companys sales that is of 1.9%
as it penetrated in Afghanistan Pharma and launched its new products there.
The companys cost of sales was going up till 2009 and reached Rs. 5,099 million as compared to Rs.3, 291 million in 2008. This rise was mainly due
to the fact that Sanofis raw material, packing material and fuel and power cost increased by a good amount. Even though these costs were
climbing still the company was able to increase its gross profit by 54.1% in that particular year. Later in 2010 cost of sales were controlled by Sanofi
which reduced by 13.6% but after 2010-2013 it again started to go up. Despite the fact that Sanofi needs to produce enough medicines to meet the
unexpected demand of people still to some extent it was able to control the relevant cost of sales to ensure that its gross profit is not affected.
Major fall in operating profit occurred in 2007 of 58% as compared to 2006 as other expenses along with selling, distribution and admin expenses
increased. Where as in 2009 Sanofis operating profit went up enormously by 124.6% because the effect of increased expenses was mitigated by a
significant rise of sales (54.7%) and other income (94.2%). On the other hand in 2013 the operating profit came down by 11% mainly due to the
exchange rate losses which soared significantly due to high imports during the year coupled with deprecation of Pak Rupee versus US Dollar and
Euros.
However, there were some major fluctuations in Sanofis Net Profits in ten years time but its profits went up by 339.5% in 2009 as it was able to sell
more of its vaccines and made a huge profit before tax. But on the other hand decrease in net profit in 2013 indicates that it needs to curtail its
expenses along with the interest payments which were mainly rising over the period of time.

Balance Sheet Analysis

Overall, the size of Sanofis balance sheet is expanding indicating that it has been investing mainly in machinery, buildings, motor vehicles and
fixtures and fittings which are reflected in the rising trend of fixed assets over the period of ten years. On the other hand its other noncurrent asset
showed a major increase of 20% in 2011 as the company borrowed long term loans. On the other hand the companys current assets increased by
47.1% in 2011 and by 22.6% in 2013 that was due to an increase in stock in trade, prepayment and trade deposits and short term loans.
Being a leveraged firm, Sanofis noncurrent liabilities showed a decreasing trend till 2006 but in 2007 it rose by 386.7% due to an increase in
deferred tax. Later in 2010 due to an introduction of long term financing of Rs. 372 million there was a sharp rise in its long term liabilities followed

by the same trend in 2013 that is the noncurrent liabilities increased by 308.3% due to the injection of long term financing amounting to Rs 500
million. Likewise, Sanofis current liabilities were rising except for year 2006 and 2010 in which it decreased as the company paid off the major
portion of its short term borrowing in 2010 that is by 82.5% and in 2006 along with the short term borrowing trade payables and accrued markup
also went down. However in 2013, running finances increased that led to a rise in the current liabilities. Share capital of Sanofi remained constant at
Rs. 96 million but there a steady increase in the general reserves and un-appropriated profits for the company that helped in expanding the size of
the balance sheet of Sanofi.

Matching Principle

USES OF CASH

SOURCES OF CASH

Short term uses

Short term sources

Operations (paid)
351,726

Short term finance

400,000
Overdraft
145,441

Long term uses

Long term sources

Fixed assets
446,255

Dividend paid
120,007

long term financing

obtained
500,000
Repayment of long term
financing
(125,000)
Repayment of liability
against assets
(2,453)

917,988

917,988

Analysis

RATIO ANALYSIS
LIQUIDITY RATIOS
Industry
Average

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

Current Ratio (x)

2.46

1.4

1.2

1.1

1.4

1.0

1.0

1.3

1.5

1.3

1.4

Quick Ratio (x)

1.25

0.7

0.5

0.5

0.5

0.4

0.3

0.4

0.5

0.3

0.4

Cash to Current Liabilities (x)

0.52

(0.5)

(0.4)

(0.4)

(0.2)

(0.7)

(0.5)

(0.4)

(0.2)

(0.1)

(0.06)

Operating Cycle (Days)

73

85

30

35

53

46

57

70

86

71

13

Avg. No of days inventory in stock (Days)

112

135

113

94

98

83

126

125

137

137

98

Average Collection Period (days)

18

38

26

11

15

14

12

13

11

Creditor Turnover (Days)

73

88

85

70

60

51

79

68

62

74

92

Analysis
Over the period of ten years, Sanofis liquidity ratios showed great fluctuations. Its current ratio of 1.5 times was better off in 2006 as compared to
the other years but in 2004, 2010 and 2012 the ratio stood at 1.4 times and in 2009 and 2008 at 1.0 times. Major increase in Sanofis current ratio
occurred in 2010 when it jumped to 1.4 times from 1.0. The reason being that even though the companys current assets were declining, it was able
to pay off a major portion of short term borrowings which decreased by a higher proportion of 82.5% in 2010. However, in 2011 the ratio came
down to 1.1 times which implies deterioration in its ability to meet its short term obligations. The increase in current ratio between 2012 and 2013
indicates that the company had problem in converting inventory into cash. This is reflected further in the average number of days inventory in
stock that rose up to 135 days in 2013 mainly because the pharmaceutical firms produce medicines in bulk to meet the unexpected demand which
results in excessive inventory. In addition, the rise in the operating cycle to 85 days in 2013 from 30 days in 2012 clearly indicates that the company
had cash conversion problems.
The quick ratio of Sanofi was almost constant at 0.5 times with slight fluctuations throughout the ten year period; however, major increase occurred
in 2013 when the ratio went up to 0.7 times from 0.5 times in 2012. This can be attributed to a rise in its cash balances and deposits and other
receivables. The ratio, however, falls below the acceptable range i.e. 0.9-1.0 which might create difficulties for the company in future in case of an
increase in its short-term liabilities or difficulty in rotating stocks.
From 2004 to 2011 there was a mixed trend in the average collection period of the company with slight increases and decreases. Though, from 26
days in 2012 it rose up to 38 days in 2013 because of an increase in other receivables that consisted of employee gratuity fund, insurance claim
and sales tax services. The rise in the average collection period points out to poor credit control on part of the company and increased risk of bad
and doubtful debts.
In 2004 the creditor turnover was at its peak after which it showed a declining trend till 2006. It was the lowest in 2009 at 51days as the company
was able to pay off its creditors (as shown by the decrease in creditors balances from Rs 893m in 2008 which declined to Rs. 688.33m in 2009.
Whereas, as we go forward the creditor turnover showed an increasing trend, reaching to 88 days in 2013 as the company purchased more on credit

basis and the suppliers were not giving discounts.

ACTIVITY RATIOS

Industry

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

Average
Inventory Turnover (x)

3.33

2.7

3.3

3.9

3.7

4.4

2.9

2.9

2.6

2.6

3.7

Account Receivable Turnover (x)

37.5

9.5

13.9

33.3

24.5

27.0

30.0

27.3

33.1

47.5

46.9

Creditor Turnover (x)

7.23

4.2

4.3

5.2

6.0

7.1

4.6

5.3

5.8

4.9

3.96

Fixed Asset Turnover (x)

4.8

5.3

4.9

4.4

4.8

3.6

4.9

5.4

5.5

5.3

Total Asset Turnover (x)

4.7

1.3

1.6

1.7

1.8

2.0

1.5

1.6

1.9

1.6

2.1

Analysis
Activity ratio measures the efficiency of Sanofi in selling its inventory, collecting receivables, paying its creditors and generation of sales through
fixed and total assets.
In 2004 the inventory turnover for Sanofi was 3.7 times which decreased to 2.6 times in 2005 and remained constant in 2006. In 2006 the stock in
trade of the company showed a significant increase of Rs. 477,672 resulting in decrease in the ratio. From 2008 to 2009 the ratio showed a spike of
1.5 times because it was able to manage and sell its inventory that was in good condition. Then the ratio went down to 2.7times till 2013 as Sanofi
kept excessive inventory to meet the unexpected demand of the patients.
Sanofi was efficient in collecting its receivables as the ratio was at its peak at 47.5 in 2005. But after 2005 the ratio plummeted to 24.5 in 2010.
After one year that is in 2011 receivable turnover went up to 33.3 times because the company made many of its sales on credit basis and gave
trade debtors discounts that resulted into prompt payments. But, later till 2013 the ratio started declining and came down to 2.7 times because the
proportion by which sales rose was less than that of trade debts.
The creditor turnover showed slight fluctuations from 2004 to 2008 but in 2009 the ratio surged up to 7.1 times as Sanofi paid off Rs. 204,669 of its
payables. As the years passed by the ratio started decreasing and reached to 4.2 times in 2013. Even though the current ratio in 2013 was 1.4 as
compared to last year of 1.2 still it was facing problems in cash conversion as operating cycle jumped from 33 days to 85 days reflecting liquidity
problems.

Sanofi has been investing heavily in property; plant and equipment as it need latest machinery to produce and test every type of drug. Its fixed
asset turnover has fluctuated greatly over the period of ten years. In 2004, 2005, 2006 and 2012 there were slight changes in this ratio but in 2008
fixed asset turnover was at its lowest that is 3.6 times indicating that in this particular year even though the companys fixed assets increased by
51.1% but the sales only rose up to 10.4% which shows that the company was not utilizing its property, plant and equipment properly to generate
sales. This might be due to the fact that the capitalizations were made in the later part of the year and thus, were not able to generate a full years
sales. But later in 2012 the ratio came back to 5.3 times from 4.9 times in 2011 as sales went up along with an increase in fixed assets.
In 2004 Sanofis total asset turnover was 2.1 times which decreased to 1.6 times in 2005. Later, till 2008 there was slight fluctuation in the ratio and
it came to 2 times in 2009 (1.5 times in 2008). This increase was due to the fact that the companys fixed asset turnover also rose up from 3.6 times
in 2008 to 4.8 in 2009 implying that Sanofi was utilizing its total assets well which went up by 15.1% along with an increase in sales of 56% in
2009. However, after 2009 the ratio kept on decreasing which shows that after 2009, Sanofi was facing problems to manage its total assets as a
whole.

LEVERAGE RATIOS
Industry 2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

Average
Interest Earned (x)

8.56

3.3

5.5

4.7

4.1

2.9

2.0

2.8

7.4

9.3

17.3

Debt to Equity Ratio (x)

0.43

1.9

1.7

1.8

1.3

1.7

1.7

1.2

0.8

1.3

1.2

Debt Ratio (%)

0.73

65.9

63.1

63.7

56.4

62.4

62.6

54.1

43.9

56.6

54.9

Analysis
Leverage ratio indicates the proportion of debt in a companys capital structure as it is the tradeoff between risk and the return.
Sanofis time interest earned was highest in 2004 at 17.3 times. In this year the company was making enough operating profit (Rs. 409 million) and
it also has a positive cash flow from operating activities (Rs. 695 million) which made it possible to pay off its interest expense. Thereafter, the ratio
started declining and it reached to 2 times in 2008 because the operating profits were gradually going down and came to 171 million in 2008. After
2008 Sanofi started recovering in terms of paying its fixed expense as times interest earned began to rise and reached 5.5 times in 2012. The
reason being that it started earning a handsome amount of operating profits that reached till Rs. 869 million. On the other hand, in 2013 the
operating profit came down by 12.1% while the finance cost surged by 46.5% that resulted in a decrease in the ratio by 2.2 times.
Debt to equity ratio for Sanofi fluctuated slightly from 2004 (1.2 times) to 2005 (1.3 times) but then it decreased by 0.5 times in 2006 due to the
payment of short term borrowings. After 2006 the ratio increased considerably and went up till 1.7 times in 2008 and then in 2009 it remained

constant. In 2010 the ratio decreased to 1.3 times (1.7 times in 2009) because even after the introduction of long term loan of Rs. 375 million and
increase in trade payables, Sanofi paid a major portion of short term borrowings which came down by 82.6% in 2010 along with an increase in
equity. Then in 2013 the ratio rose to 1.9 times implying that Sanofis debt is higher than the equity.
Sanofis debt ratio showed a mixed trend over the period of ten years but it was highest at 65.9% in 2013 as compared to the other years because
its debt increased by 10.5% along with an increase in its assets indicating that majority of the total assets are financed through debt.

PROFITABILITY RATIOS
Industry

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

Net Profit Margin (%)

3.5

5.6

3.0

3.6

2.5

0.9

1.9

5.9

8.0

7.7

Gross Profit Margin (%)

30.5

30.5

26.7

28.5

24.2

24.3

27.8

32.6

33.8

31.0

Operating Profit (%)

8.8

10.1

7.0

8.6

5.7

3.9

4.6

10.8

13.0

13.8

Return on Assets (%)

4.7

8.9

5.2

6.7

4.9

1.3

3.1

11.4

12.7

16.5

Return on Equity (%)

13.9

24.2

14.3

15.3

12.9

3.4

6.8

20.3

29.4

36.6

Average

Analysis
Sanofis gross profit margin was constant in 2008 and 2009 at 24.4% and in 2012 and 2013 at 30.5%. However, in between those years there was a
lot of fluctuation in the ratio but major decrease occurred from 32.6% in 2006 to 27.8% in 2007 as the cost of the medicines being sold increased by
10.6%. This means that Sanofi need to increase its sales along with controlling its cost of sales.
In 2004 operating profit of Sanofi was highest at 13.8% but in later years it started dropping and reached to 3.9% in 2008. The main reason behind
this was that the companys distribution and marketing and administrative expense started to rise and the sales were not increasing in the same
proportion. Furthermore, operating profit margin showed a mixed trend that is increase and decrease after 2008 and finally came down to 8.8% in
2013 as compared to 10.1% in 2012 which occurred as even the company was making enough sales but they were not able to control its expenses
which rose as a whole.
The companys net profit margin ratio follows the same trend when compared to its net profit that is when net profit increases the ratio also
increased and when the profits decline ratio also comes down. As Sanofis net profit decreased by almost 67%, the ratio also came down radically
from 5.9% to 1.9% in the year 2007. Later in 2009 net profit margin jumped by 1.6 times because even in this year its operating expenses along
with tax and finance cost showed a rise but it was able to triple net profits due to an increase in the sales of vaccines. Till 2013 Sanofis main
concern was its expenses which it was not able to control and the profits were not increasing by the same proportion which caused the problem.
Ratio of return on assets showed a decreasing trend from 2004 to 2008 but it was highest in 2004 at 16.5%. After 2008 the ratio increased till 6.7%
in 2010 as in these years the earnings of Sanofi started increasing at a good rate along with a slight increase in total assets mainly due to additions
to non-current assets. Furthermore, in 2012 the ratio increased to 8.9% which then decreased to 4.7% in 2013 implying that Sanofi need to manage
its current as well as the fixed assets efficiently to earn good amount of earnings.

MARKET VALUE
2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

32.1

50.5

23.8

23.3

17.4

3.9

7.8

23.5

28.8

25.4

7.3

6.1

6.1

8.4

53.2

35.4

35.4

10.7

10.3

9.1

Dividend Per Share (Rs.)

12.5

10

10

1.4

1.4

4.4

7.1

8.7

7.5

Payout Ratio (after tax) (%)

24.7

42

43.1

40.3

35.3

56.4

56.4

30.2

30.4

29.5

Earnings per Share (Rs.)

Price Earnings Ratio (x)

Analysis
All in all, the earnings per share for Sanofi increased over the period. The ratio was the highest in 2012 at Rs. 50.5 as compared to 2011 because its
earnings doubled from previous year, reaching Rs. 487 million; implying that the company has more profits to distribute to the shareholders and
retain profits for further expansion.
The companys price to earnings ratio was at its peak at 53.2 times in 2009 times but there after it deteriorated to a meager 7.3 times in 2013. This
decline occurred as there was no growth in the earnings meaning that it would be difficult for the investor to determine growth in Sanofis future
earnings. The steep decline in the P/E ratio indicates a negative market sentiment as shareholders lost confidence in Sanofis ability to maintain
earnings in future. On the contrary, the excessive ratio might be due to the fact that the companys stock was over-valued for e.g. because of
speculative activity and the ratio might be falling to reflect the true equilibrium price of the share.
Sanofis dividend per share showed a decreasing trend till 2008 that is Rs.1.4 and remained constant in 2009. But it was highest in 2013 at Rs. 12.5
indicating the scrips attractiveness to investors. However, its payout ratio showed a mix trend over the period of ten years but was high at 56.4%
both in 2007 and 2008 as the company was paying this much percentage of dividend to its shareholder. This is a moderate level of payout ratio as
the company in retaining the profits for further expansion.

DU PONT ANALYSIS
2013
2012
2011

NPM
3.5
5.6
3

TAT
1.3
1.6
1.7

ROI
4.6
8.9
5.1

FL
2.9
2.7
2.8

ROE
13.3
24.2
14.3

2010
2009
2008
2007
2006
2005
2004

3.6
2.5
0.9
1.9
5.9
8
7.7

1.8
2
1.5
1.6
1.9
1.6
2.1

6.5
5
1.35
3.04
11.2
12.8
16.2

2.3
2.6
2.7
2.2
1.8
2.3
2.2

15.3
13
3.6
6.7
20.2
29.4
35.6

For Sanofi the return on equity was at its lowest point in 2008 because both, the net profit margin and total asset turnover are lower in this year
than from 2004 and 2005. The combination of average use of debt (financial leverage) and improvement in profitability and asset utilization has
provided an improved overall return of 35.6% in 2004 relative to the years where the return on equity was less. The company has used a reasonable
amount of debt to finance capital asset expansion and has used its debt effectively. Even though debt carries risk and added cost in form of interest
expense, it has a positive benefit of financial leverage when employed successfully. In 2013 the return on equity was at 13.3% as compared to the
last year of 24.2% because the companys sales were decreasing due to higher operating costs and it was not using its total asset efficiently that
caused return on equity to decline. Thus, the overall return on investment in 2013 is deteriorating due to these factors.

CONCLUSION
Overall Sanofis liquidity position was satisfactory but its working capital management was below par as operating cycle days increased. The
company should focus on improving its working capital management by strengthening credit control to expedite recoveries from retailers and
distributors and speeding up stock rotation (e.g. by offering discounts) to ensure that less cash is tied in inventory.
Moreover, the return on equity in 2013 came down due to the fact that Sanofis profits were decreasing and the assets were not utilized effectively.
This is supported by low sales growth and worsening of total asset turnover. In addition the operating expenses were rising indicating that the
company needs to manage its expenses efficiently.
As the company is highly geared due to the debt ratio of 65.9% in 2013 it might face problems in paying off its interest expenses in future if profits

decrease in future. Sanofi should concentrate on keeping an appropriate level of debt and equity to achieve a well-balanced capital structure.
Sanofi should improve its net profit margins by controlling its expenses and stimulating sales. This, combined with better working capital
management, will have a positive impact on the profitability and cash flow position of the company; thus translating into a stronger market
standing.