Essay Example on COVID-19 Impact on Felix Pharmaceuticals Inc: A Small Startup's Road to Recovery

Introduction

The coronavirus COVID-19 has placed an enormous strain on the global supply of the medical products, thus resulting in the risk of shortages. Felix Pharmaceuticals Inc., a diagnostic company, has been affected due to its key staff members in the finance team becoming ill as a result of the pandemic. Being a small start-up with some promising development for the COVID-19 diagnostic tool, Felix Pharmaceuticals Inc. is healthy and has a future despite the effects of the epidemic on the critical staff finance team.

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From the financial statements for Felix Pharmaceuticals Inc. for 2018 and 2019, it is clear what the company owns and what is owed in terms of the assets and liabilities. The financial ratios for Felix Pharmaceuticals Inc. show that it has kept the equity above a certain percentage of the debt with its current assets above a satisfied percent of the liabilities. The profitability ratios for Felix Pharmaceuticals Inc. based on how it earns and how its sales with its higher profit margin more efficient, flexible, and able to take on new opportunities. Besides, the return on assets ratios for Felix Pharmaceuticals Inc. shows that the company is utilizing the assets.

The return on equity (ROE) in Felix Pharmaceuticals Inc. measures how the business is doing concerning the investment made by the shareholders. With Felix Pharmaceuticals Inc. experiencing a downturn of 21%, it is performing relatively well. However, the company needs to establish the cause of the downturn and create solutions for improvement. The leverage ratio for Felix Pharmaceuticals Inc. provides an indication of the long term solvency as well as the extent the company uses long term debt to support the business. The lower leverage ratio in Felix Pharmaceuticals Inc. is a good indicator of its ability to repay the debts and even take additional debt to support new opportunities.

Transactions Planned

The plan to borrow $1,300,000 from Valley Bank, signing a 90-days, 1.5% Note Payable on 1 February 2020, is a crucial one. It is an essential plan since the company has to focus on first things first. It is a crucial consideration for short term investment for safety, liquidity, and yield. Once the company satisfies liquidity, it will be able to compare the yields.

The company selling some old plant and machinery for $500,000, receiving $100,000 cash and a five-year, 12 percent note receivable for the remaining balance in one year are happy returns. The interests and gain for the agreed period would be correspondingly higher. For such a significant period indicates a better deal with all other things being equal.

Felix Pharmaceuticals Inc. paying Valley Bank the Note Payable plus the accrued interest. It is a strategy for its recovery as it will receive short term financing. Also, the plan to issue 100,000 ordinary shares of par value $0.01 at $20 each will allow the company to focus on its normal functioning. Focusing on the solution for coronavirus with the promising development of the diagnostic tools will give the company new opportunities, thus making it stabilize jobs and keep the economy growing (Kim et al., 2020).

The plan to purchase fixture and fitting for $1,500,000 with the residual value of $200,000 at the end of its economic life of 5 years will give Felix Pharmaceuticals Inc. a gradual resumption, thus the need for the company to be optimistic and make the best of this situation to remain successful.

Felix Pharmaceuticals Inc. plans to buy 20,000 ordinary shares at $15 by 1 December. The company needs to gain greater visibility on the financial and operational impact of the pandemic; thus, Felix Pharmaceuticals Inc. has a high chance of growing.

Raising money from debt and equity helps healthcare companies such as Felix Pharmaceuticals Inc. to go through significant challenges. Firstly, Felix Pharmaceuticals Inc. will feel less burden with equity financing since there will be no loan to repay. Besides, the company will not have to make monthly payments especially since it is not generating profit during this COVID-19 pandemic. With equity financing, Felix Pharmaceuticals Inc. will form informal partnerships with experienced individuals allowing its business to benefit from the business network potentially. Therefore, the company will focus on growth and building out the delivery network as well as the infrastructure to gain the market share (Kim et al., 2020). The loans and equity will help Felix Pharmaceuticals Inc. prepare for the future despite the pandemic halting the strategies of the company. The loans will also help Felix Pharmaceuticals Inc. place its priorities on the recovery by accelerating the financial toll the pandemic brought in the market.

The disadvantages of raising money from debt and equity include the shared profit, company losing control, as well as potential conflict. Firstly, the investors and the lenders will expect and deserve a piece of the benefit. Besides, the company might lose control over the price to pay for equity financing. Sharing ownership might result in conflict due to differences in vision.

Treasury shares entail the previously outstanding stock obtained from the stockholders through company issuing. The purpose of Treasury shares is that it makes the total number of outstanding shares on the open market to decrease. Besides, it reduces the total shareholder's equity on the company's balance sheet.

The straight-line depreciation method allows practical calculation of the asset's loss of value. The technique is essential for bookkeeping as it helps in spreading the cost of an asset evenly. However, the downside of this method is the pressure on the final year and its inability to provide a replacement.

The declining method allows the company to calculate a large immediate tax education while reducing the depreciation tax breaks for the subsequent years. However, the disadvantage of this method is based on a tax scenario where the company does not want a more significant tax break early on.

Conclusion

Financial leverage entails the use of debt to but more assets. It allows powerful access to capital as it has the power to multiply the potential of every dollar put to work. Also, it is ideal for acquisitions due to the additional cost as well as risks of bulking up on debt. The disadvantages of financial leverage include the risky form of finance. It is also more costly and complicated as it involves subordinated mezzanine debt.

References

Kim, H., Hong, H., & Yoon, S. H. (2020). Diagnostic Performance of CT and Reverse Transcriptase-Polymerase Chain Reaction for Coronavirus Disease 2019: A Meta-Analysis. Radiology. 201–343. https://doi.org/10.1148/radiol.2020201343