Step 1: Identify key accounting policies

How to identify key accounting policies view of ROA and ROE

ROA
2014 2015 2016 2017 2018 2019
9,08% 6,61% 4,33% 3,49% 3,16% -0,07%
Even though Kimia Farma company had experienced a decrease in ROA, it is still
considered reasonable by the government, because until now Kimia Farma company was
able to survive with many new innovations and research developments. In 2014-2019 able to
manage assets well so that from year to year it still gets a profit.

ROE
2014 2015 2016 2017 2018 2019
13,45% 12,71% 11,77% 12,70% 12,39% -0,22%
Kimia Farma company has a negative return on equity. The decrease in return on
equity is caused by a loss (negative profit) which in turn has an impact on the reduction in the
equity composition of the owner's capital from the company's assets (assets).

The other efforts that were continuously being improved by the Company were:

 Sought for raw materials and alternative packaging materials that had the same quality
with more competitive price.
 Conducted reformulation using alternative raw materials.
 Made savings of indirect production costs and general expenses.
 Controlled the production outputs by increased the yield of production, improved
production lead time and reduced the occurrence of repeated process.

The other thing that has been carried out and will be continue due to its significant impact
was the improvement of production facilities referring to the provisions of current Good
Manufacturing Practice (cGMP). The provision was the standard required by The National
Agency of Drug and Food Control (NADFC) towards the ASEAN Free Trade Area (AFTA).
PT Kimia Farma have to Trading & Distribution (KFTD), unit usaha yang bergerak di bidang
distribusi, telah melakukan beberapa kegiatan yang mendukung operasional Perseroan.
Beberapa di antaranya adalah pembuatan blue print distribusi yang mengarah pada CDOB,
pengembangan sistem informasi, penambahan keagenan baru, dan penataan ulang organisasi
Perseroan. Other than klinical laboratory was being operated independently by PT Kimia
Farma Diagnostika (KFD), a subsidiary of KFA. The Company has developed clinical
laboratory into 40 branches, cooperated with several companies in providing Medical Check
Up services for the employees and candidate of employees, and intensified the marketing
program and accredited quality management system application that complies with the
principles from Health Laboratory Accreditation Committee of the Ministry of Health.

In addition, the Company also developed examination for PCR (Polymerase Chain
Reaction) HBV DNA Quantitative and Culture check-up & Resistance Fully Automatic.
Product development was directed to complement existing therapy classes or the new therapy
classes has not been owned by the Company, therefore the Company could launch a new
product. The first copy product were expected to be leading products. The activities of the
R&D were carried out independently, in cooperation with universities and other research
institutions as well as under licences scheme.

Product development in 2014-2019 as follows:

 ARV line 2.
 FDC for TB line 2.
 Generic.
 Ethical.
 OTC .
 Factory in Indonesia that manufactures diagnostic tools.

In addition to develop pharmaceutical products, the Company also developed chemical

products in 2014 as follows:

 Iodine dan turunannya, dengan pengembangan eksplorasi dan eksploitasi tambang

Iodine di Jombang dan Mojokerto.
 Ferrous Sulphate.
 Castor Oil.
 Vegetable Oil.

Step 2: Assess accounting flexibility

In the Kimia Farama company, management or managers have the right to make strategies
that are not the same by other companies, because managers have the authority and are
flexible.

Examples of flexible activities performed by managers to provide financial decisions in Kima

Farma company in 2014-2019:

 The increase was due to changes in the valuation method of land fixed assets; from
previously the acquisition price method to the revaluation / fair method. value. In
addition, the increase was also due to increase in Company's investment.
 The capital structure of Company and its subsidiaries consists ofequity attributable to the
owner of Entity Parent, which consists of share capital, additional paid in capital, and
retained earnings; and loans and net debt which consists of financial leases, bank loans and
MTN less cash and cash equivalents. The company and subsidiaries are not required to fulfill
certain capital requirements.

Apart from its responsibilities as State-Owned-Enterprise, Company strives to improve its

business performance and has re-compiled the Long Term Plan for 2020-2024 to improve
performances. Steps and strategies for improvement in 2020 includes the following:

1. Reducing the Investment / Capex budget in 2020 from Rp1,989 Billion to Rp547
Billion;
2. Decrease gradually the interest-bearing loans, Cutting the Operating Expenses for
2020;
3. Support Government of Indonesia in the logistics of drugs, medical devices,
supplements and health services to tackle the pandemic, so that the 2020 sales target
can be achieved.