Financial Performance of Listed Pharmaceutical Companies on Ghana Stock Exchange

Abstract

This paper examines the profitability, liquidity and solvency and probability of failure of listed pharmaceutical companies on the Ghana Stock exchange. The findings from the activities ratios indicated efficiency of Arytons management in utilizing the asset of the firms in day-to-day basis is declining in recent years whiles that of Starwin is improving even though Aryton Drug Ltd is generally more efficient than Starwin Ltd. The Average cash conversing cycles of Aryton and Starwin were found to be 196 and 282 respectively which are relatively higher than the bench mark in Germany, UK and US of 145 days, 127 days and 142days respectively. The liquidity ratio metric indicated that Aryton Drug Ltd manages it liquidity and is very good position to meet it long term obligation as well, as oppose to Starwin Ltd which has very limited cash to cover its short term debt and is less solvent. Starwin’s is more geared which has exposed the firm to higher interest expense. The study also discovered from the DuPont analysis that operating income- to- revenue and revenue- to- total assets ratios significantly influence ROE positively. Measurement of profitability, proxy by ROE and ROA, shows that Aryton generates more returns on it asset and on equity than Starwin Ltd, although lower than industrial bench marks in UK and US of 54.9% and 32.5% respectively, however Starwin Ltd is seen to be posting good returns in recent years which is almost at par with Aryton’s. Starwin’s COGS growth rate has been generally greater than its revenue growth rate which is note the case for Aryton Ltd. A test of financial soundness and stability with Altman’s Z-score revealed that Aryton is not financially distress but Starwin is in financial distress and likely to be bankrupt in the near future, exposing investors to serious risk. Thus Starwin Ltd should consider takeover offer or merger for reorganization of the firm.