Salix Pharmaceuticals Limited Investment Recommendation Analysis

Running Head: Company Analysis 1

Name

University

Running Head: Company Analysis 2

COMPANY OVERVIEW

Salix Pharmaceuticals, Inc. is an American specialty pharmaceutical company that

focuses on developing, marketing, and licensing prescription pharmaceutical products for the

prevention and treatment of chronic gastrointestinal disorders (Weissenborn, 2002). Its products

include APRISO (mesalamine) 0.375 g extended-release capsules; COLAZAL (balsalazide

disodium) 750 mg capsules; FULYZAQ (crofelemer) 125 mg delayed-release tablets; GIAZO

(balsalazide disodium) 1.1 g tablets; METOZOLV ODT (metoclopramide HCl) 5 mg orally

disintegrating tablets; PEPCID (famotidine) for oral suspension; RELISTOR (methylnaltrexone

bromide) subcutaneous injection; SOLESTA (hyaluronic acid/dextranomer); UCERIS

(budesonide) 9 mg extended-release (Ferenci & Waltham, 2005).

about the company, Salix Pharmaceuticals can be obtained in the company’s form 10K

which is attached below this document.

INVESTMENT THESIS

The company’s total assets both current and non-current assets in 2014 amount to $4.

12B. Moreover, Salix Pharmaceuticals Inc. both short-term and long-term liabilities in

the fiscal year amount to $3.88B while the owner’s equity is valued at $238.243M.

This information can be obtained in the form 10k, in the consolidated statement of

financial position (Ferenci & Waltham, 2005).

In the case of liquidation, the equity shareholders of the company are not guaranteed to

be paid their equity amount, this is because the company is in financial difficulty and it

is making losses, hence their goodwill and other assets are bound to lose value hence

Running Head: Company Analysis 3

the amount realized in the sale of assets are used to offset the liabilities (Ferenci &

Waltham, 2005).

Salix Pharmaceuticals Inc. non-current liabilities include the following: deferred tax

amounting to 284.51M, long-term debt amounting to 1.83B, Non-current capital leases

amounting to 9.13M, and other long-term liabilities amounting to 280.17M. The total

non-current liabilities amounted to 2.4B

The company’s current ratio is 0.68 times. This can be obtained by:

Current ratio = Current Assets = 1.01B =0.68

Current Liabilities 1.48B

There was a cash outflow from investing activities due to the acquisition of Property

Plant and Equipment worth $17.76 million, acquisition of a subsidiary worth $2.47

billion and an investment income worth $44.86 million.

Therefore, Net cash outflow from investing activities = -17.76M – 2.47B +44.86M

= -2.45 Billion

Cash flow from operations is derived from the day to day operations of the company,

therefore, they include revenue, cost of sales, selling and distribution and the

administrative costs and is recognized in the cash flow statement while the operating

income is recognized in the statement of comprehensive income and include all

expenses such as depreciation, amortization, impairment and even loss on disposal of

assets (Ferenci & Waltham, 2005). Moreover, income derived from other sources are

Running Head: Company Analysis 4

added into it such as gain on sale of asset or subsidiary and even investment income.

The cash flow from operations amounted to $4.15M after adding back depreciation

$265.57M and decrease in the liabilities of $191.54M to the net income while the net

operating losses was $414.91 million.

The percentage change of general selling, distribution and administrative expenses to

sales are as follows:

2012= 296458 X 100 = 40% 37-40 X 100= -7.5%

735444 40

2013= 342359 X 100 = 37% 58-37 X 100= 56.75%

913781 37

2014= 660114 X 100 = 58%

1133542

There is a significant increase in the change of general expenses hence a bad trend due to the

increase and might lead to insolvency.

Total Assets Turnover = Sales = 1.13B = 0.27times

Total assets 4.12B

This means of every 1 dollar in assets the company generates 0.27 dollar.

There are no prepaid expenses during the year, current assets include cash and cash equivalents

amount to 499.33M, the receivables amounted to 42.51M, inventory amounted to 175.15M, then

other current assets amounted to 288.94M. The total current assets amounted to 1.01B. These can

be found in the statement of financial position and the notes pertaining the individual asset.

Running Head: Company Analysis 5

The accrued expenses during the year amounted to 179.2M, the notes payable during the year

amounted to 45.64M, current portion long-term debt amounted to 921.05M, Other current

liabilities amounted to 269.37M. The total amount of current liabilities amount to 1.48B.

Prepaid rent is the rent paid for the next financial year thus it is a current asset while deferred

rent is the rent accrued for the current year to be paid in the next year thus is a current liability.

The interest income recognized in the income statement can be obtained if the company issued a

long term loan to another entity which pays interest annually hence recognized as an income in

the income statement (Rogers, 2009).

Earnings Per Share = Profit Attributable to Ordinary Shares

Weighted Average Number Of Ordinary Shares

Basic EPS

2012=1.09

2013=2.31

2014= 6.53

Net Profit Margin = Net Profit X 100=

Revenue

2012= 64.24 X 100= 8.74%

735.44

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2013= 143.03 X 100=15.32%

933.83

2014= (414.91) X 100=-36.72%

1.13B

There is an increase in the company’s performance therefore it a good significant sign for the

company, then there is a marginally large decrease in the net profit margin which is a bad threat

indicator to the going concern.

The cash and cash equivalents at the beginning amounted to $1.16B while the cash and cash

equivalent at the end amounted to $ 499.33M this is according to the statement of cash flows in

the organization.

In the statement of cash flow there is a decrease in the account receivables thus it is added back

in the working capital and it amounts to $107 434 000 thus increasing the operating activities.

Gross profit Margin= Revenue-Cost of sales X 100

Revenue

2013 = 754.44 X 100 = 80.8%

933.83

2014= 795.7M X 100 = 70.4%

1.13B

This information is obtained from the income statement. There is a decrease in the gross profit

margin in the consecutive years thus meaning there is a decrease in the company performance.

Running Head: Company Analysis 7

SALIX PHARMACEUTICAL INC.

400 SOMERSET CORPORATE BLVD, BRIDGEWATER, NJ08807

TELEPHONE: 866-246-8246

SAL: 0091, USA, 17

BUSINESS MEMO

TO: CLIENT {

FROM: SALIX PHARMACEUTICAL INC

DATE:6/11/2018

SUBJECT: ANALYSIS AND RECOMMENDATION ON INVESTING

In my analysis of the company, Salix Pharmaceutical Inc. I would advise against the

viability option into your current portfolio. Due to the following reasons:

Salix Pharmaceuticals has experienced a steep decline in earnings per share in the most recent

quarter in comparison to its performance from the same quarter a year ago. The company has

reported a trend of declining earnings per share over the past two years. Moreover, there is a

steady increase in expenses thus reduction in net profit thus is a bad threat to the going concern

of the company. Furthermore, there is increase in the long term debts in the years making the

company highly levered thus very risky. Because of the reasons above it is not advisable to

invest your viable current portfolio because the returns are not guaranteed (Tarter &

Weissenborn, 2002).

Running Head: Company Analysis 8

References

Ferenci P & Waltham (2005). Hepatic encephalopathy in adults: Clinical manifestations and

diagnosis. 2013 Sep 19 [cited 2014 Oct 30] Available from: www.uptodate.com

Subscription required.

Rogers, G. C. (2009). Center for Drug Evaluation and Research, U.S. Food and Drug

Administration. Company: Salix Pharmaceuticals, Inc. Application no.: NDA 22-554.

Approval date: 24/04/2010. Rockville (MD): FDA; 2010. [Cited 2014 Aug 25]. Statistical

review(s) [Internet] (FDA drug approval package). Available from: http://www.accessdata

.fda.gov/drugsatfda_docs/nda/2010/022554Orig1s000Stat.pdf.

Ferenci P, Lockwood A, Mullen K, Tarter R, Weissenborn K, (2002) Hepatic encephalopathy--

definition, nomenclature, diagnosis, and quantification: final report of the working party at

the 11th World Congresses of Gastroenterology, Vienna, 1998. Hepatology. 2002

Mar;35(3):716–721. [PubMed]

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