Valeant's Accounting Analysis
Valeant’s Accounting Analysis
Brief Summary
Valeant Pharmaceuticals, headquartered in Quebec, Canada, is a multinational company. It sells generic pharmaceuticals and OTC products. After several significant acquisitions and mergers, Valeant became the most valuable company in Canada. However, Valeant was investigated due to manipulation of drug price. It is being investigated by SEC for possibility that it booked imaginary sales and account receivables. As a result, its stock price has drastically dropped from $242.14 to $35.16 as of April 30, 2016 (Figure 1). Issues
Valeant was involved in an investigation because it inflated the price for drugs, such as flucytosine and Glumezta. This action is called market manipulation. Market manipulation …show more content…
The DuPont analysis formula is expressed as profit margin multiplied by total asset turnover and then multiplied by equity multiplier. The DuPont formula is a detailed return on equity. In the formula, we can analyze the operating efficiency, the asset usage and the financial leverage. The DuPont analysis is listed in Table 2.
Table – 2 DuPont Analysis from 2011 to 2015data retrieved from factset 5 Yr AVG Dec '15 Dec '14 Dec '13 Dec '12 Dec '11 (Pretax)Profit Margin (4.58) (1.49) 13.22 (22.78) (11.12) (0.73) Asset Turnover 0.25 0.28 0.30 0.25 0.23 0.21 Equity Multiplier 4.77 6.71 5.21 5.20 4.03 2.68 Return on Equity (1.34) (5.20) 17.52 (19.60) (3.00) 3.58
As we can see from the analysis, the profit margin is negative except in 2014. This indicates the firm does not have an effective strategy to maximize shareholder’s interests and …show more content…
We can find that it is common that the enterprise value differs slightly from the market value, such as H Lundbeck, Teva and Shire. However, the market value of Valeant obviously differs from the enterprise value. Investors may asserts that it is a good opportunity to invest and acquire capital gains after the market price returns to normal. However, the news showed that the price dropped because of market manipulation and financial fraud. Consequently, it is not likely for the stock price to increase. It is unlikely for Valeant to be a good investment choice. If the company can explain the financial data and market actions reasonably, convincing investors that every action is legal, and then the stock price may
Brief Summary
Valeant Pharmaceuticals, headquartered in Quebec, Canada, is a multinational company. It sells generic pharmaceuticals and OTC products. After several significant acquisitions and mergers, Valeant became the most valuable company in Canada. However, Valeant was investigated due to manipulation of drug price. It is being investigated by SEC for possibility that it booked imaginary sales and account receivables. As a result, its stock price has drastically dropped from $242.14 to $35.16 as of April 30, 2016 (Figure 1). Issues
Valeant was involved in an investigation because it inflated the price for drugs, such as flucytosine and Glumezta. This action is called market manipulation. Market manipulation …show more content…
The DuPont analysis formula is expressed as profit margin multiplied by total asset turnover and then multiplied by equity multiplier. The DuPont formula is a detailed return on equity. In the formula, we can analyze the operating efficiency, the asset usage and the financial leverage. The DuPont analysis is listed in Table 2.
Table – 2 DuPont Analysis from 2011 to 2015data retrieved from factset 5 Yr AVG Dec '15 Dec '14 Dec '13 Dec '12 Dec '11 (Pretax)Profit Margin (4.58) (1.49) 13.22 (22.78) (11.12) (0.73) Asset Turnover 0.25 0.28 0.30 0.25 0.23 0.21 Equity Multiplier 4.77 6.71 5.21 5.20 4.03 2.68 Return on Equity (1.34) (5.20) 17.52 (19.60) (3.00) 3.58
As we can see from the analysis, the profit margin is negative except in 2014. This indicates the firm does not have an effective strategy to maximize shareholder’s interests and …show more content…
We can find that it is common that the enterprise value differs slightly from the market value, such as H Lundbeck, Teva and Shire. However, the market value of Valeant obviously differs from the enterprise value. Investors may asserts that it is a good opportunity to invest and acquire capital gains after the market price returns to normal. However, the news showed that the price dropped because of market manipulation and financial fraud. Consequently, it is not likely for the stock price to increase. It is unlikely for Valeant to be a good investment choice. If the company can explain the financial data and market actions reasonably, convincing investors that every action is legal, and then the stock price may