Long-term solvency ratios

Long-term solvency ratios measure an enterprise’s capbility of dealing with its

debt and is frequently used by potential business creditors. It indicates the
sufficient cash flow for long-term liability. According to the annual financial
report by Traphaco, it can be seen clearly from the above bar chart that the
highest long-term solvency ratio was 2.88 in 2015, which means that in 2015
Traphaco had the most sufficient cash flow to copw with their long-term
liability. Although there was a slight decrease of the figure from 2.75 in 2018 to
2.59 in 2019, Traphaco still not face many difficulties in their liability because
the debts increase more slowly than the equity, which still presents a stable
development of Traphaco.

Debt-Equity Ratio
 Debt-Equity Ratio Traphaco
1.46

1.44

1.42

1.4

1.38

1.36

1.34

1.32

1.3
2016 2017 2018

Debt-Equity Ratio= Total Debt/Total Equity

Debt-Equity Ratio is calculated by dividing a company’s total liabilities by its
shareholder equity. The ratio is used to evaluate a company’s financial leverage.
It measures the degree to which a company is financing its operations through
debt and equity. According to the provided chart about Traphaco’s Debt-Equity
Ratio, it can be indicated that Traphaco has a low ratio in 2019, which is a sign
for their investors that Traphaco is a low-risk and better investment.

Equity Multiplier

Equity Multiplier(Traphaco)
1.46

1.44

1.42

1.4

1.38

1.36

1.34

1.32

1.3
2016 2017 2018

Equity Multiplier= Total assets/Total equity

The equity multiplier is a risk indicator that measures the percentage of a
company’s assets that is financed by shareholders’equity than by debt. It is
calculated by dividing a company’s total asset value by its total
shareholders’equity. Based on the given chart above, Traphaco had a high
Equity Multiplier in 2018, which indicates that they are using a high amount of
debt to finance asset.

Profitability ratios
Profit Margin

(Traphaco gross profit margin)

Net sales−Cost of goods sold
Gross profit margin ¿ Net sales

Profit Margin is one of the commonly used in profitability ratios to determine

whether the company or business activity is making money or not. It indicates
what percentage of sales has turned into profits. There are four level of profit
margin: gross profit, operating profit, pre-tax profit and net profit. Based on the
above chart, the gross profit margin of Traphaco in 2019 is 54.98 %, which
illustrates that Traphaco is making good amount of money by their business
activity.
Return on Asset (ROA)

Return on Asset (ROA) measures how much profit is generated per dollar of
assets that a company has. It illustrates the efficiency of the ultilization of the
asset to generate profit. The higher the ROA, the more efficient that company is
using their asset. ROA is vital for the investors to consider the company they
are investing in. The long-term tangible asset are necessary because Traphaco
need equipment to produce their product, as well as property for the plant to
operate. Based on the provided comparison on ROA between Traphaco and
DHG Pharma, it is noticeable that Traphaco presents lower percentage of ROA
respectively in 2018 and 2019. Those figure are not a good sign for Traphaco
because they had a lower efficiency of using asset than their competitors(DHG
Pharma).

Return on Equity (ROE)

Return on Equity (ROE) measure how well stockholder fared during the year. It
present the efficiency put up by stockholders that are turned into profit. ROE is
calculated by breaking it down into ROA x Financial
Leverage(assets/shareholders’equity). This ratio is crucial for the company to
show the future investors how efficiently their money will be used.
According to the ROE comparison between Traphaco and DHG Pharma,
Although the figure of Traphaco was higher than DHG(26.58% > 22.73%), they
still presents lower ratio than their competitor respectively in 2018 and 2019.
Those figure indicate an downward performance of using money to generate
profit by Traphaco