| Metric | This Period | Prior Year Period | YoY |
|---|---|---|---|
| Revenue / Net Sales | ¥21230.5 B | ¥18862.6 B | +12.6% |
| Operating Income / Operating Profit | ¥2290.9 B | ¥3319.2 B | -31.0% |
| Profit Before Tax | ¥2634.3 B | ¥3556.3 B | -25.9% |
| Net Income | ¥2598.7 B | ¥2957.6 B | -12.1% |
| ROE | 15.6% | 18.2% | - |
For the fiscal year ended March 2026, Daiichi Sankyo reported Revenue ¥21230.5 B (YoY +¥2,368.9 B +12.6%), Operating Income ¥2290.9 B (YoY -¥1,028.3 B -31.0%), Ordinary Income ¥5,191.3 B (YoY +¥3,171.2 B +156.7%), and Net Income attributable to owners of the parent ¥2,598.7 B (YoY -¥358.9 B -12.1%). Revenue achieved double-digit growth driven by expanded sales of prescription pharmaceuticals; however, Operating Income declined substantially due to a rising cost of goods sold ratio (Cost of Goods Sold ¥6,690.4 B, to Revenue 31.5%) and increased research and development expenses (R&D ¥4,660.1 B, to Revenue 21.9%). Meanwhile, recognition of financial income ¥408.1 B and a low tax burden (income taxes ¥35.6 B, effective tax rate 1.4%) resulted in Ordinary Income doubling year-on-year and Net Income remaining a double-digit decline. Total assets expanded to ¥4兆53.9 B (YoY +¥5,492.7 B +15.9%), and the Equity Ratio was maintained at 41.5%, indicating a stable financial base.
[Revenue] Revenue ¥21230.5 B (YoY +12.6%) was led by prescription pharmaceuticals ¥20,295.4 B (YoY +12.9%). By region, the U.S. showed the largest increase at ¥7,494.0 B (composition 35.3%, YoY +¥1,071.9 B), followed by Europe ¥4,973.8 B (YoY +¥791.6 B) and Other regions ¥2,961.6 B (YoY +¥541.3 B), with all regions expanding. Japan was ¥5,801.1 B (composition 27.3%), nearly flat YoY with -¥37.0 B. By product category, Healthcare was ¥907.8 B (+4.8%) with modest growth, while the expansion of prescription pharmaceuticals drove overall growth. Gross profit was ¥14,540.0 B with a gross margin of 68.5%, a high level, but down about 9.4pt from the prior year's gross margin of 77.9% (gross profit ¥14,704.6 B / Revenue ¥18,862.6 B), highlighting a notable rise in the cost of goods sold ratio.
[Profitability] Operating Income ¥2,290.9 B (YoY -31.0%) declined substantially due to increases in SG&A ¥7,806.8 B (to Revenue 36.8%, YoY +¥755.8 B) and R&D ¥4,660.1 B (to Revenue 21.9%, YoY +¥240.4 B). Operating margin was 10.8%, a deterioration of 6.8pt from 17.6% a year earlier. Non-operating items contributed +¥341.3 B due to financial income ¥408.1 B, financial expenses ¥79.9 B (improved from ¥118.5 B a year earlier), and equity-method investment income ¥15.1 B, resulting in Ordinary Income ¥5,191.3 B (YoY +156.7%)—a doubling year-on-year. Against Profit Before Tax ¥2,634.3 B, income taxes were ¥35.6 B (effective tax rate 1.4%, prior year 16.8%), an extremely low level, and Net Income attributable to owners of the parent ¥2,598.7 B (-12.1%) remained a double-digit decline. Extraordinary gains/losses were limited, and the gap between Ordinary Income and Net Income is primarily attributable to the low tax burden. In conclusion, the results represent higher revenue but lower operating profit.
[Profitability] Operating margin 10.8% fell 6.8pt from 17.6% a year earlier, and high R&D ratio 21.9% (prior year 23.1%) and SG&A ratio 36.8% (prior year 38.8%) pressured profitability. ROE 15.8% declined 2.1pt from 17.9% a year earlier, mainly due to declines in Net Income margin 12.2% (prior year 15.7%) and total asset turnover 0.53x (prior year 0.55x). Gross margin 68.5% remains high but down about 9pt year-on-year, suggesting changes in product mix or rising manufacturing costs.
[Cash Quality] Operating Cash Flow / Net Income is 0.30x (prior year 0.18x), at a low level, with inventory increases ¥1,727.5 B and accounts receivable increases ¥1,046.2 B significantly impeding cash generation. Days Sales Outstanding 127 days and Inventory Turnover Days 378 days both lengthened, worsening the Cash Conversion Cycle (CCC) to 180 days.
[Investment Efficiency] Total asset turnover 0.53x declined from 0.55x a year earlier, and Revenue growth +12.6% has not kept pace with total assets increase to ¥4兆53.9 B (+15.9%).
[Financial Soundness] Equity Ratio 41.5% (prior year 47.0%) remains at a healthy level, but long-term borrowings increased to ¥3,000.8 B (prior year ¥1,009.3 B), expanding interest-bearing debt to ¥3,004.8 B (prior year ¥1,013.3 B). D/E ratio is low at 0.18x, indicating restrained financial leverage. Cash and deposits totaled ¥4,889.8 B, and the current ratio is about 2.4x, suggesting limited short-term liquidity risk.
Operating Cash Flow was ¥776.5 B (prior year ¥538.4 B, +44.2%) and improved, but Operating Cash Flow / Net Income remains 0.30x relative to Net Income ¥2,598.7 B, indicating low cash quality. Operating cash flow before working capital changes totaled ¥1,880.4 B, while inventory increase ¥1,727.5 B, accounts receivable increase ¥1,046.2 B, and decrease in accounts payable ¥105.0 B consumed significant cash, and payments for income taxes ¥1,284.5 B were outflows. Conversely, increases in provisions ¥1,956.6 B and contract liabilities ¥619.1 B contributed to cash inflows. Investing Cash Flow was -¥1,482.4 B, driven by capital expenditures ¥1,283.7 B and acquisition of investment securities ¥1,018.9 B; partially offset by net decrease in time deposits (withdrawals ¥981.2 B - deposits ¥1,317.3 B) and disposals of investments ¥1,302.1 B. Free Cash Flow was -¥705.9 B (Operating CF ¥776.5 B - CapEx ¥1,283.7 B), negative, with growth investments exceeding cash generation. Financing Cash Flow was -¥978.8 B: dividend payments ¥1,284.3 B and share buybacks ¥1,504.6 B resulted in total shareholder returns ¥2,788.9 B, partially funded by long-term borrowings ¥3,000.0 B. Cash and cash equivalents decreased to ¥4,889.8 B (prior year ¥6,398.4 B, -¥1,508.6 B), including foreign exchange effects ¥176.1 B. Expansion of working capital is constraining cash generation, and normalizing inventory and receivables management is an urgent issue.
Of Revenue ¥21230.5 B, prescription pharmaceuticals account for 95.6%, indicating a stable recurring revenue structure. Other income ¥221.0 B (to Revenue 1.0%) and financial income ¥408.1 B (to Revenue 1.9%) are small relative to Revenue, but there is approximately a ¥2,900 B gap between Operating Income ¥2,290.9 B and Ordinary Income ¥5,191.3 B, with financial income and the low tax burden boosting final profit. Income taxes ¥35.6 B (effective tax rate 1.4%) are far below normal levels, likely partly due to an increase in deferred tax assets ¥4,653.0 B (YoY +¥1,602.8 B). With Operating Cash Flow ¥776.5 B versus Net Income ¥2,598.7 B, Operating CF / Net Income is 0.30x and low, and the accrual ratio (Net Income - Operating CF) / Total Assets is about 4.5%, within an acceptable range, but inventory increase ¥1,727.5 B and accounts receivable increase ¥1,046.2 B weaken cash backing. The divergence between Ordinary Income and Net Income is small and extraordinary items are limited, but the uplift from non-operating income and the low tax rate may lack sustainability. Earnings quality depends on product sales but is weakened by weak cash generation and rising reliance on non-operating income and tax effects.
Full year plan: Revenue ¥22800.0 B, Operating Income ¥3150.0 B (YoY +37.5%), Net Income attributable to owners of the parent ¥2630.0 B (YoY +0.0%), EPS ¥142.88, Dividend ¥50.00. Actual results to date: Revenue ¥21230.5 B (93.1% of plan), Operating Income ¥2290.9 B (72.7% of plan), Net Income ¥2598.7 B (98.8% of plan), indicating low progress at the operating level. To meet the full-year Revenue target requires approximately ¥1570 B in the remaining period, and Operating Income requires about ¥860 B of additional earnings. The decline in operating margin from 17.6% to 10.8% year-on-year is the primary factor; recovery of gross margin and cost containment are key to achieving the full-year plan. Net Income is close to the plan due to financial income and the low tax burden, so improvement at the operating level will be the focus going forward.
With a year-end dividend ¥39.00 and interim dividend ¥39.00, the annual dividend is ¥78.00 (prior year ¥30.00), and the payout ratio is 55.5% (dividend ¥78.00 against EPS ¥140.44). Total dividends amounted to ¥1,289.6 B (dividend payments ¥1,284.3 B), representing a payout ratio to Net Income of 49.4%. Share buybacks totaled ¥1,504.6 B, and combined with dividends ¥1,284.3 B, total shareholder returns were ¥2,788.9 B; the total return ratio was 107.3% (total returns ¥2,788.9 B / Net Income ¥2,598.7 B), exceeding Net Income. With Free Cash Flow -¥705.9 B versus total returns ¥2,788.9 B, returns significantly exceeded cash generation and were supplemented by cash on hand ¥4,889.8 B and long-term borrowings ¥3,000.0 B. A dividend payout ratio in the 50% range is within a reasonable range, but a total return ratio of 107% raises sustainability concerns; normalization of working capital and returning Free Cash Flow to positive are prerequisites for continued returns.
Risk of deteriorating working capital efficiency: Rapid increases in inventory ¥6,923.8 B (YoY +¥1,774.7 B +34.5%) and accounts receivable ¥7,411.4 B (YoY +¥1,220.4 B +19.7%) have markedly extended Inventory Turnover Days to 378 days and Days Sales Outstanding to 127 days. The Cash Conversion Cycle worsened to 180 days, and the low Operating CF / Net Income of 0.30x indicates that profit realization into cash is severely hindered. Increased risk of inventory write-downs and credit losses, and the enlarged working capital will reduce capital efficiency and financial flexibility.
Risk of sustained margin pressure: Operating margin 10.8% is down 6.8pt from 17.6% a year earlier, and gross margin worsened to 68.5% (approx. 78% prior year), about a 9pt decline. With SG&A ratio 36.8% and R&D ratio 21.9% remaining high, combined with rising cost of goods sold, recovery of profitability requires both revenue growth and cost control. Achieving the full-year Operating Income target ¥315.0 B presumes substantial improvement in margins, but current trends run counter to that, increasing uncertainty around attainment.
Risk from dependence on low tax burden and financial income: Income taxes ¥35.6 B (effective tax rate 1.4%) are far below normal levels, likely influenced by an increase in deferred tax assets ¥4,653.0 B (YoY +¥1,602.8 B +52.6%). Financial income ¥408.1 B boosted Ordinary Income, but these factors may be temporary and cannot be regarded as a sustainable earnings base. If realization of future taxable income is uncertain or financial market conditions change, normalization of tax burden or a decline in financial income could materially affect final profits.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Return on Equity | 15.8% | -19.7% (-58.1%–4.6%) | +35.5pt |
| Operating Margin | 10.8% | -94.2% (-358.4%–8.6%) | +105.0pt |
| Net Income Margin | 12.2% | -101.5% (-373.7%–5.9%) | +113.8pt |
ROE 15.8%, Operating Margin 10.8%, and Net Income Margin 12.2% all substantially exceed the industry median, indicating relatively high profitability within the pharmaceutical sector.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth Rate (YoY) | 12.6% | -0.6% (-22.4%–13.3%) | +13.2pt |
Revenue growth 12.6% outpaces the industry median -0.6% by 13.2pt, showing a growth pace well above the industry average.
※Source: Company aggregation
Revenue grew 12.6% with double-digit expansion in prescription pharmaceuticals and strength in the U.S. and Europe, so topline expansion is progressing smoothly. However, deterioration in Operating Margin to 10.8% (down 6.8pt from 17.6% prior year) and gross margin to 68.5% (down about 9pt from approx. 78%) is evident, and high R&D ratio 21.9% and SG&A ratio 36.8% are weighing on profitability. Operating Income of ¥2290.9 B (progress 72.7% toward the full-year plan ¥3,150.0 B) fell short, and recovery in margins during the remaining period is key to achieving the plan.
Weak cash generation is the biggest concern. Operating CF ¥776.5 B versus Net Income ¥2,598.7 B yields an Operating CF / Net Income ratio of 0.30x. Working capital increases—inventory +¥1,727.5 B and accounts receivable +¥1,046.2 B—are pressuring cash, and Free Cash Flow is negative at -¥705.9 B. Inventory Turnover Days 378, DSO 127, and CCC 180 days have all materially lengthened, making normalization of inventory and receivables management urgent. Total shareholder returns of dividends ¥1,284.3 B and share buybacks ¥1,504.6 B (total ¥2,788.9 B; total return ratio 107.3%) exceed Net Income and are not funded by Free Cash Flow. Although supplemented by cash on hand ¥4,889.8 B and long-term borrowings ¥3,000.0 B, sustaining returns requires compression of working capital and returning Free Cash Flow to positive.
The financial base is stable with an Equity Ratio of 41.5% and D/E ratio 0.18x, and financial leverage remains restrained despite increased long-term borrowings. Ordinary Income ¥5,191.3 B surged YoY +156.7% due to financial income ¥408.1 B and a low effective tax rate (1.4%), but these factors may lack sustainability. The increase in deferred tax assets ¥4,653.0 B (YoY +¥1,602.8 B) depends on projections of future taxable income, and attention should be paid to profit levels if non-operating contributions abate. Industry benchmarks show relative advantages with ROE 15.8%, Operating Margin 10.8%, and Revenue Growth 12.6% well above medians, but in the short term improvements in working capital and cost control are essential to restore profitability and cash flow.
This report is an earnings analysis document automatically generated by AI analyzing XBRL financial statement data. It does not constitute a recommendation to invest in any specific security. Industry benchmarks are reference information compiled by the company based on public financial statements. Investment decisions should be made at your own responsibility; consult a professional as necessary.