RE-DUE Financial Analysis

Ratio Analysis

Description	ADMS	IPXL
	2012	2013	2012	2013
Liquidity Ratios
Current Ratio=Current Assets/Current Liabilities	1.67	20.39	3.75	4.29
Profitability Ratios
Operating Profit Margin	53.24%	80.20%	14.27%	-1.25%
Net Profit Margin	47.33%	71.62%	14.32%	28.73%
Solvency Ratios
Interest coverage	48.97	593.18	132.82	351.69

The ratios for Adamas Pharmaceutical for the FY 2012 and 2013 are presented above.

Liquidity Ratios:

Liquidity ratios according to Investopedia are used by investors to determine the overall ability o1f a company to meet its short term liabilities with its short term assets. The ratio analyzed to access the company liquidity was current ratio which compares ac company’s current assets with its current liabilities. A current ratio of greater that one is generally considered to be satisfactory.(Investopedia, Liquidity ratio, n.d) (Investopedia, Current ratio, n.d)

The result of the ratio analysis indicates that Adamas Pharmaceutical was able to increase in current ratio from 1.67 in FY 2012 to 20.39 in FY 2013. The said increase was as a result of the sudden decline in the current liabilities of the company which decreased from 38 million USD to 4 million USD in 2013. Further the performance of the company in comparison to the competitor also indicates a better liquidity position as the competitor had a much lower current ratio i.e. 4.29 in FY 2013.

Profitability Ratios:

Profitability ratios are ratios used to analyses how successful the management of a company has been in converting its eFICS into profits. More specifically the ratios are aimed at interpreting the overall success the company has had in conversion of capital into returns.

Operating profit margin is a profitability measure used to measure the profits a business earns from its core operations. More specifically the measure does not include the earnings forma the non-operating investments a company has made and the impact of taxes and interest. The operating profit of Adamas Pharmaceutical in the two years under observation showed a positive trend and increased from 53.24% in FY 2012 to over 80% in FY 2013. The said increase in operating profit can be traced to the fact that there was a considerable increase in the company revenues which increased from USD 37 million in 2012 to USD 71 million in the year 2013 i.e. an almost 100% increase. The operating expenses on the other hand saw a decline from USD 18 million to USD 14 million resulting in the overall increase in the operating profit margin. (Investopedia, Operating profit, n.d)

When compared to the competitor the Adamas Pharmaceutical had a clear advantage in terms of operating profit as competitor has lower operating profits in both years under observation.

Net profit analysis i.e. an analysis of what a company earns after meeting all its expenses including interest and tax of the two companies in FY 2012 and FY 2013 again indicated a considerable advantage for Adamas Pharmaceutical. The superior company performance is indicated form the fact that company has a net profit margin of 47.33% in FY 2012 which increased to 71.62% in FY 2013. In contrast the competitor saw an increase in its net profit from 14.32% to 28.73%.

The increase in net profit of the company can be traced to the fact that Adamas Pharmaceutical was able to manage its operating costs efficiently. Further the company was also able to achieve a substantial increase in its revenues. This substantial increase in revenues and ability to manage its operating expenses meant that the company was able to achieve an overall increase in its bottom line i.e. the net profit margin. (Investopedia, Net profit, n.d)

Solvency ratios

Solvency ratios according to Investopedia are ratios used to interpret a company’s ability to meet is long term obligations i.e. the debts that a company has undertaken. As a general rule the lower a company’s solvency ratio the greater the possibility that the company may fail to meet its debt obligations. (Investopedia, Solvency ratios, n.d)

Interest coverage ratio was used to interpret the company’s overall solvency position. The ratio is calculated by dividing a company’s earnings by its expense. In the two years under observation Adamas Pharmaceutical showed a substantial improvement in its solvency position as it saw an increase in its interest coverage ratio form 48.97 in FY 2012 to 593.18 in FY 2013. The said increase in interest coverage ratio can be traced to the fact that there was a decline in its long term liabilities from USD 21 million in FY 2013 to less than 1 million in FY 2013. (Investopedia, Interest Coverage, n.d)

In comparison to the company the competitor too showed as strong position in terms of solvency as its interest coverage ratio increased form 132.82 in FY 2012 to 351.69 in FY 2013.

References

Elvis Picardo, C. (2003). Solvency Ratio Definition | Investopedia. Investopedia. Retrieved 16 January 2015, from http://www.investopedia.com/terms/s/solvencyratio.asp

Finance.yahoo.com,. (2015). ADMS Competitors | Adamas Pharmaceuticals, Inc. Stock - Yahoo! Finance. Retrieved 16 January 2015, from https://finance.yahoo.com/q/co?s=ADMS+Competitors

Financials.morningstar.com,. (2015). Balance Sheet for Adamas Pharmaceuticals Inc (ADMS) from Morningstar.com. Retrieved 16 January 2015, from http://financials.morningstar.com/balance-sheet/bs.html?t=ADMS&region=usa&culture=en-US

Financials.morningstar.com,. (2015). Growth, Profitability, and Financial Ratios for Impax Laboratories Inc (IPXL) from Morningstar.com. Retrieved 16 January 2015, from http://financials.morningstar.com/ratios/r.html?t=IPXL&region=usa&culture=en-US

Investopedia,. (2003). Current Ratio Definition | Investopedia. Retrieved 16 January 2015, from http://www.investopedia.com/terms/c/currentratio.asp

Investopedia,. (2003). Net Income (NI) Definition | Investopedia. Retrieved 16 January 2015, from http://www.investopedia.com/terms/n/netincome.asp

Investopedia,. (2004). Interest Coverage Ratio Definition | Investopedia. Retrieved 16 January 2015, from http://www.investopedia.com/terms/i/interestcoverageratio.asp

Investopedia,. (2006). Liquidity Ratios Definition | Investopedia. Retrieved 16 January 2015, from http://www.investopedia.com/terms/l/liquidityratios.asp

Investopedia,. (2007). Operating Profit Definition | Investopedia. Retrieved 16 January 2015, from http://www.investopedia.com/terms/o/operating_profit.asp

Liquidity Ratios 2012 2013 2012 2013 ADMS IPXL Current Ratio 2012 2013 2012 2013 ADMS IPXL 1.67 20.39 3.75 4.29 Operating Profit Margin 2012 2013 2012 2013 ADMS IPXL 0.53239999999999998 0.80200000000000005 0.14269999999999999 -1.2500000000000001E-2 Net Profit Margin 2012 2013 2012 2013 ADMS IPXL 0.4733 0.71619999999999995 0.14319999999999999 0.2873