Financial Statement Analysis Of Actinogen Medical

Industry Analysis And Company Plans Medical industry in Australia

Actinogen Medical is a biotechnology ASX-listed company which develops inventive treatments for diseases like Alzheimer’s and metabolic diseases like Type 2 diabetes. The management team includes world-renowned researchers in the field of Alzheimer’s disease and also some industry specialists in clinical trial management and drug design. The present CEO of the company is Dr Ketelbey, who has an experience of 30 years in the industry of healthcare and pharmaceutical. Founded in 1999 the company has headquarters in New South Wales, Australia. The company has shifted the office in Sydney with a view of expansion and growth.  The company is involved in developing a new approach to the production of drugs associated with Alzheimer’s disease that slow down or even prevent the cognitive decline.

The latest fiscal year ended on 31st June 2016. The area of operation is expanded to entire of Australia. The independent Auditor of the company as per the annual reports is Ernst & Young. In their opinion, the statements reflect the true and fair picture of the financial position of the company and are in compliance with AAS and Corporations Act 2001. The stock price of Actinogen Medical as on 13^th September 2017 was 0.052 AUD. The EPS according to the books is 0.60 AUD [1].

As per the past surveys of 2010, there were around 12,545 people who were employed in the manufacturing sector of medical technology (ABS, Experimental Estimates for the Manufacturing Industry). The total of wages and salaries in the manufacturing outlets were approximate $656 million for 2009-10, and the total value of production was around 2.1 Billion. The data have just doubled itself at the end of 2015. Australia has been a leader in the manufacturing of medicals, and its export market includes USA, New Zealand, UK, Germany; Netherlands, Japan, China. Out of major exports include implants for disabilities and medical treatments related to disabilities with growing age like Alzheimer’s disease. Hence, there are great prospects for Actinogen Medical for growth and expansion in other countries as well [2].

The major future plans of the company include conducting research on Xanamen- an innovative drug used for the treatment of Alzheimer and communicating the results to different communities of research and medical so that the findings of the research contribute to better patient management. The company also plans to maximise shareholder’s wealth with the LTE component [1].

The tables below represent the company’s financial position as compared to the previous year. The years prior to 2015 have not been considered for comparison as there no data is available for the same.

Table 1: Common Balance Sheet for the year 2016-2015

Table 2: Financial Performance for the year 2015 and 2016

Table 3: Common Profit and Loss Statement for 2015 and 2016

Table 4: Common Cash Flow Statement for the year 2016-2015

• Any transaction costs associated with equity are recognized directly under the equity [3].  
• The EPS is obtained by dividing the attributable profit, by the weighted average number of ordinary shares outstanding during the financial year excluding any costs of servicing equity. The amount obtained thereto is adjusted for a bonus in ordinary shares issued.
• Other significant accounting policies like revenue recognition are accounted on the basis of Effective Interest Rate Method in order to measure the values as realizable over time.
• Current assets are measured initially at fair value and later at an amortized cost [3].
• The trade receivables are due generally for the duration of 30 days after the settlement.

The sales of the company have although increased to a great extent. However, Actinogen still suffers from huge losses. There has not been any gross profit to the company. The accumulated losses also include part of R&D activities, up to the extent of $2,605,395. Hence the losses up to this amount can be justified. The other losses required to be assessed by the Board in detail and appropriate manner. A downfall in the assets has been seen, and on the other hand, there is an increase in liabilities as well. The company’s assets do not provide an adequate backup to discharge any debts arising on account of the company.

Future plans of Actinogen Medicals

The year 2016 has also seen a reduction in equity. This indicates that the company has made cancellations of shares or repurchased its own shares in order to maximise shareholder’s value. This provides a more efficient capital structure to the company and balances many ratios which are currently not controllable by the management [4]. There were no financial inflows and outflows of the company in 2016. However, the cash flow from financing activity also displayed negative results in the previous year. The investing and operating cash flow remain negative; however, the figures have seen major improvements, which are expected to rise further in the coming years.

Table 5: Analysis of Liquidity of Actinogen Ltd.

Liquidity ratios are calculated to ascertain the liquidity risk management of a particular company [5]. In the case of Actinogin, the company follows an active mechanism to reduce the risk of liquidity. The working capital ratio was very high in the year 2015 as compared to previous year. This means there were idol funds which were far more than the amount actually required [6].  This leads to overcapitalization of resources, which is not a very good situation for any company which is striving for growth and expansion [7]. There is also the very high rate of companies’ average day’s sales uncollected, due to which the current asset far exceed the current liabilities.  

Profitability Ratios

Table 6:  Analysis of Profitability of Actinogen Ltd.

The company has witnessed major losses in consecutively two financial years. The losses have increased due to large funding for expenses related to research and development. Other than this another major reason for losses was an expense of share-based payment granted to Key Management Personnel in the previous year. However, the company has an average Asset Turnover ratio; it can still improve the ratio by proper asset management.

Long term Solvency Ratio

These ratios cannot be assessed and evaluated due to insufficient data.

Cash Flow adequacy

Table 7: Analysis of Cash flow adequacy of Actinogen Ltd.

The primary measure of measuring cash sufficiency is the Cash flow adequacy ratio. This performance ratio should have a value of 1 or higher [10]. The company experiences a negative ratio which indicates that the operations of the company do not produce sufficient cash for meeting essential business debts. It also indicates potential problems of liquidity. It reflects the company’s incapability of covering its debt repayment and capital expense [11].

Market strength ratios

The EPS of the company has reduced significantly from the past year. Maximization of shareholder’s wealth has been the future plan of the company, and the management is working to improve the market strength thereby improving their share price in the years to come. Since the date of incorporation, no amount has been paid by way of dividend.

The major strength of the company lies in its Research and development activity which is the major reason for the survival of the company in the competitive market despite incurring huge losses over the years.

The major weakness of the company is that the funds available with the company were not being put to appropriate use, which may result in the loss of opportunity cost. Another area of weakness is the negative cash outflows which fail to meet the major criteria required by a company for being recognized as a strong performer.

Conclusions 

The company must work on its sales collection process, which will assist the company in gaining a strong financial position in the market. It is also recommended for the company to invest more effort in putting their idol resources to better use in expansion and growth beyond the geographic territories of Australia. Asset management can be done in order to improve the asset turnover ratio by a major focus on managing current assets like receivables [12]. The operations of the business must be improved so that the cash flow position improves. Further, the company must check the amount of expenditure in R&D activities.

According to the analysis of financial statements, it can be concluded that the company does not reflect a good financial position.  The company has a huge expenditure on R&D activities, which form the major reason behind the losses. The company is incurring huge losses due to which it can be said as a good performer.

References 

ANNUAL FINANCIAL STATEMENTS. ACTINOGEN MEDICAL LIMITED. 2016. (PDF). Available through < https://actinogen.com.au/wp-content/uploads/2017/07/20161024-Annual-Report-to-Shareholders-1.pdf>. [Accessed on 14^th September 2017.]

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