Case Analysis on Financial Risk Control of Kunming Pharmaceutical Corporation

Citation

Zheng Zhongxin. (2021). Case analysis on financial risk control of Kunming Pharmaceutical Corporation. (Master Independent Study). Bangkok: Siam University.

Abstract

Pharmaceutical industry is one of the most important parts of China’s national economies, which is closely related to the lives of residents. In recent years, with the continuous improvement of China’s comprehensive national strength, economic strength and production capacity, the income level of the pharmaceutical industry is significantly improved. As a branch of the pharmaceutical industry, the pharmaceutical manufacturing industry is a high-risk and high-yield industry, and belongs to capital-intensive and innovative industries. The financial risk sensitivity of pharmaceutical manufacturing enterprises is stronger. Therefore, controlling financial risk has become an indispensable part of the development process of pharmaceutical manufacturing enterprises. It is of great significance for protecting the rights and interests of stakeholders and for the sustainable development of enterprises to discover the financial risks existing in pharmaceutical manufacturing enterprises at the promissory time. Although pharmaceutical manufacturing enterprises have many advantages in China, such as many preferential policies of the government, great potential for market development, strong industrial foundation and so on. There are still many shortcomings gradually exposed in the development, such as similar profit model, narrow financing channels, high cost, poor investment decisions and so on. Under the condition of deepening the reform of medical and health system, the society has begun to pay attention to the pharmaceutical manufacturing industry, especially its control of financial risks. In such a complex and changeable economic situation, pharmaceutical manufacturing enterprises should pay more attention to financial risks. Kunming Pharmaceutical Corporation, as one of the top 100 pharmaceutical enterprises in China, has a strong comprehensive strength. It has a certain reference significance for other pharmaceutical manufacturing enterprises to study the financial risk control of Kunming Pharmaceutical Corporation (Hereinafter referred to as KPC).

Firstly, this paper introduces the research background and significance, and then reviews the relevant research on financial risk control by international and domestic scholars. Then it introduces the related concepts and theories of the control on financial risk. The theoretical bases of financial risk control are capital structure theory, portfolio theory, principal-agent theory and internal control theory. This paper focuses on the content of financial risk control in pharmaceutical manufacturing industry, including the control of funding risk, investment risk, capital recovery risk and income distribution risk, which lays the foundation for the following analysis. Then the case of KPC is introduced. According to the financial data of KPC from 2013 to 2017, this paper specifically analyzes the manifestations of the above four risks, and draws a conclusion that KPC has a greater financial risk. Then it elaborates the existing measures of financial risk control of KPC, mainly including the following three aspects: first, adopting diversified financing methods to reduce the cost of financing; second, making diversified investment to reduce the risk of investment; third, expanding sales channels to improve the efficiency of capital operation. Then the deficiencies of the existing control measures are analyzed in detail, including irrational debt structure, low return on equity investment, high risk of inventory management, loose credit policy, and mismatch between dividend policy and the development stage of the company. Then, aiming at the problems, the causes of the defects in financial risk control of KPC are deeply analyzed. The causes include the lack of long-term planning in the financing process, unscientific investment management system, the need to strengthen inventory management and the failure of minority shareholders to effectively exercise shareholder rights.

Finally, the paper puts forward the optimization countermeasures for financial risk control of KPC from four aspects. In the aspect of funding risk control, we should rationally plan the amount of financing, establish a fund-raising management system, and rationally arrange long-term and short-term debts. In terms of investment risk control, we should adopt sound investment strategies, beef up the feasibility analysis and optimize the industrial chain. In terms of risk control of capital recovery, we should speed up product research and development, promote de-inventory strategy and beef up the management of accounts receivable. In the risk control of income distribution, small and medium-sized shareholders should effectively exercise shareholders’ rights. KPC should strengthen coordination and communication among stakeholders, and should rationally choose the way of income distribution. This paper studies the financial risk control of KPC, and summarizes its experience and shortcomings. Hope to provide feasible suggestions for similar enterprises to strengthen financial risk control.

Key words: Pharmaceutical manufacturing industry, Financial risk, Risk control.

Case Analysis on Financial Risk Control of Kunming Pharmaceutical Corporation

Master of Business Administration (International Program), Siam University, Bangkok, Thailand

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