FINDINGS PROBLEMS & SOLUTION

REGARDING FINANCIAL STATEMENT

ANALYSIS OF
SQUARE PHARMACEUTICALS
BASED ON A STUDY OF COMPANYS RATIOS

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FINDINGS PROBLEMS & SOLUTION
REGARDING FINANCIAL STATEMENT
ANALYSIS OF
SQUARE PHARMACEUTICALS
BASED ON A STUDY OF COMPANYS RATIOS
Prepared for
Humaiara Matin
Lecturer
Department of Business Administration
East West University
Prepared by
MD. Fahmidur ahman !"##$%"%&#%""'(
).M. aian A*am !"##$%"%&#%#+#(
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Authorizatio M!""a#!
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Tra"$itta% M!""a#!
,
th
December- "#&#
Dr. .anbir Ahmed /ho0dhury
Professor
Department of Business Administration
East West University
Dear Madam
1 0rite this *etter to inform you that 0e have prepared a report on Dividend Po*icy and
/apita* )tructure of BE2.E2 Ltd. 1 try to find out their fo**o0in3 dividend systems
maintainin3 capita* structure after ana*ysis of company4s different years Annua* eport. We
try to 3ather information about company4s EP)- dividend per share- stoc5 va*ue- and Asset
va*ue per share- D 6A ratio and so on to ma5e our ana*ysis specific and coherent. .hrou3h the
procedure of preparin3 the report- 1 have co**ected and used necessary data from re*evant
sources.
1 have tried our best to ma5e app*icab*e and feasib*e ana*ysis so that it 0i** be as effective as
e7pected. 1 consider providin3 any information or c*arification if necessary. P*ease contact me
at a"hi&''()!*u+,ahoo-.o$ if you shou*d need any additiona* information.
.han5in3 8ou
MD. Fahmidur ahman
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TABLE OF CONTENT
E2E/U.19E )UMM[Link]
1;.<DU/.1<;:::::::::::::::::::::::::..
)tatement of the esearch Prob*em:::::::::::::::::
)cope of the )tudy::::::::::::::::::::::::
<b=ective of the )tudy:::::::::::::::::::::.
Methodo*o3y of the )tudy :::::::::::::::::::.
Limitations of the )tudy::::::::::::::::::::..
Ethics::::::::::::::::::::::::::::
A.1< A;AL8)1):::::::::::::::::::::::..


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Li"t o/ Fi#ur!"
)L ;<. ;AME <F .HE F1>UE) PA>E ;UMBE)
#&
E0!.uti1! Su$$ar,
23
#" Ba.&#rou4 o/ th! R!5ort 36738
#+ Ba.&#rou4 o/ th! Cor5oratio 39
#? Pro4u.t & S!r1i.! o/ th! Co$5a, ''
#, Aa%,"i" & Fi4i#" ':7';
#' Pro<%!$" & So%utio '(7'6
#@ Co.%u"io =2
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E>ECUTI?E SUMMARY
As a part of our curricu*um 0e need to prepare term paper on different aspects of
or3aniAation. Here 0e have tried to focus on the Financia* Performance of an or3aniAation.
Pharmaceutica* sector is a boomin3 one in our country. ;o doubt about that )Buare
Pharmaceutica* Ltd Ban3*adesh is the *eadin3 company re3ardin3 this sector. .hat4s 0hy 0e
have chosen )Buare Pharmaceutica* to e7ecute our =ob. <ur honorab*e instructor provides us
the basic idea about the topic. <ur report is desi3ned in such a 0ay 0hich ma5es a brid3e
bet0een the theoretica* 5no0*ed3e C rea* *ife. 1t is desi3ned to have a practica* e7perience
0hi*e passin3 throu3h the theoretica* Understandin3. .his report invo*ves the typica*
financia* performance throu3h ratio ana*ysis of different ratios.
)Buare Pharmaceutica* Ltd Ban3*adesh is a pro3ressive Pharmaceutica* company- 0hich
continues its operations since &D,$ as a partnership firm 0ith a commitment of providin3
positive contribution on the socio economic deve*opment. A*ready it has estab*ished itse*f as
the *ar3est pharmaceutica* company in Ban3*adesh and it has been continuous*y in the &
st
position amon3 a** nationa* and mu*tinationa* companies since &D$,.
)Buare Pharma a*ready proved its position stron3*y in the stoc5 mar5et. 1t has a hi3h number
of shareho*ders- investors- 0e**%0ishers. Apart from many ups C do0ns )Buare Pharma 5eep
its position effective*y so that the shareho*ders have the trust in terms of the re*ationship 0ith
it. .hrou3h our ana*ysis 0e have 3athered )Buare4s success- cumu*ative improvement- and
0ays to deve*op. .he company has some prob*ems for that 0e have some recommendations
to overcome those.
Last but not the *east- as a citiAen of Ban3*adesh 0e fee* proud for )Buare Pharmaceutica*s
because of its name C fame 0hich is e7panded day by day in a** over the 0or*d for its Bua*ity
products. We 0ish )Buare pharmaceutica*s4 success and bri3ht prospects.
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INTRODUCTION
Stat!$!t o/ th! r!"!ar.h 5ro<%!$
Financia* statements provide information about a firm4s position at a point in time as 0e** as
its operation over some past period. Ho0ever the rea* va*ue of financia* statements *ies in the
fact that they can be used to he*p predict a firms financia* position in the future and to
determine earnin3s and dividends. From an investor vie0point financia* statement ana*ysis is
a** about these. An ana*ysis of a firm4s ratio 3enera**y is the first step in a financia* ana*ysis.
.he ratios are desi3ned to sho0 re*ationship bet0een financia* statement accounts 0ithin
firms and bet0een firms. Here in our term paper 0e have discussed about the financia* ratios
of )Buare Pharmaceutica*s Ltd. Abso*ute*y no one cou*d be the comp*ete successfu* in
today4s competitive 0or*d. )Buare Pharma a*so has *ac5in3 and prob*ems. We e7p*ored the
present scenario of the company- the internationa*- potentia* prob*em 0ith the financia*
performances and the necessary so*utions. Fina**y 0e hi3h*i3hted the findin3s and provided
appropriate recommendations for the financia* performance ana*ysis of )Buare
Pharmaceutica*s Ltd.
S.o5! o/ th! "tu4,
<ur course teacher tau3ht us spontaneous*y 0e** in the c*assroom. We earned the 5no0*ed3e
of different financia* perspectives in time to time. We have a c*ear idea and 5no0*ed3e about
the modern financia* practices in any or3aniAation both in Ban3*adesh and other countries in
the 0or*d. .his 0ou*d he*p us a *ot to ma5e an intensive survey on any or3aniAation and
understand 0e** various terms- ru*es- and techniBues of financia* terms. .he thin3s that 0e
have *earnt throu3h our te7tua* pro3ram 0e have tried our best to imp*ement those on our
term paper.
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O<@!.ti1!" o/ th! "tu4,
.he prime ob=ectives of preparin3 this survey to 3et practica* 5no0*ed3e of the study 0hich
can he*p us to have a better 5no0*ed3e of our *ectures or boo5ish 5no0*ed3e 0ith the actua*
practices of this study of finance in this particu*ar or3aniAation. .his section a*so desi3ned to
broad our out*oo5 and understandin3 of various comp*e7 topics easi*y.
.his pro=ect is underta5en toE
/a*cu*ate ratios of )Buare Pharmaceutica* Ltd. and ana*yAe their financia* situation.
.a5e in )Buare Pharmaceutica* Ltd consideration and ana*yAe that company4s three years
ratio ana*ysis and ana*yAe them.
Deve*opin3 C ana*yAin3 /ommon )iAe 1ncome )tatement.
Determine <A and <E usin3 DuPont system and ana*yAe them.
Determine the financia* 0ea5ness and stren3th of the company.
Determine 0hether investment in this company is profitab*e or not and the proper
=ud3ment.
M!tho4o%o#, o/ th! "tu4,
T,5!" o/ DataA
.here are t0o types of data.
Primary data
)econdary data
<ur report is based on secondary data because 0e ta5e a** the re*evant information from the
secondary source.
Co%%!.tio o/ DataA
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)econdary )ources of DataE
Pub*ished documents and reports.
Annua* eports of the company !"##,- "##'- "##@(.
Printed record of the company.
e*evant 0ebsites.
Essentia*s of Mana3eria* Finance !)cott Bes*ey C F. Bri3ham(.
Li$itatio" o/ th! "tu4,
)horta3e of time to conduct the survey- co**ectin3- ana*yAin3- processin3- and formu*atin3
the comp*e7 tas5..
Due to time *imitations many of the aspects cou*d not be discussed in the present report.
Every or3aniAation has their o0n secrecy that is not revea*ed to others. Whi*e co**ectin3
data i.e. intervie0in3 the emp*oyees- they did not disc*ose much information for the sa5e
of the confidentia*ity of the or3aniAation.
Another prob*em is that creates a *ot of confusions re3ardin3 verification of data.
As a 3i3antic or3aniAation the c*ients 0ere too busy 0ith their 0or5 rather 3ivin3 us
much time for intervie0.
Ethi."
.he Ethica* >uide*ines in comp*etin3 this report inc*ude transparency and honesty in carryin3
out the study- time*y data co**ection and compi*ations to finish the 0or5 0ithin 3iven time. 1n
conc*udin3 the 0or5- misinterpretation or disc*osure of any confidentia* data pertainin3
)Buare Pharmaceutica*s Ltd has been strict*y prohibited. Appropriate references have been
3iven inc*uded for materia*s obtained from secondary sources.
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Ratio Aa%,"i"
Financia* ratios are usefu* indicators of a firmFs performance and financia* situation. Financia*
ratios can be used to ana*yAe trends and to compare the firmFs financia*s to those of other
firms.
Financia* ratios can be c*assified accordin3 to the information they provide. .he fo**o0in3
types of ratios freBuent*y are usedE
LiBuidity ratio
Asset Mana3ement ratio
Profitabi*ity ratio
Debt%mana3ement ratio
Mar5et 9a*ue atio
LiBui4it, Ratio
LiBuidity ratios actua**y sho0 the re*ationship of a firm4s cash and other current assets to its
current *iabi*ities. LiBuidity ratio measures the abi*ity of the firm to meet its ob*i3ations.
.hese ratios estab*ish re*ation bet0een cash and other current asset and current *iabi*ities.
/reditors to eva*uate the credit0orthiness of the firm use these ratios. .hese ratios a*so
provide reve*s mana3ement4s po*icy in mana3in3 *iBuidity position of the firm. .0o ratios are
discussed under LiBuidity ratios. .hey areE
/urrent ratio
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Guic56 Acid .est ratio.
Curr!t Ratio
/urrent atio indicates the abi*ity of a company to achieve its short%term ob*i3ations- 0here
short%term ob*i3ations indicate those ob*i3ations that are due 0ithin a year or 0ithin the
operatin3 cyc*e. /urrent ratios are e7tent to 0hich the assets that are e7pected to cash cover
the c*aims of short%term creditors. .his ratio indicates the e7tent to 0hich current *iabi*ities
are covered by those assets e7pected to be converted to cash in the near future. /urrent assets
norma**y inc*ude cash- mar5etab*e securities- accounts receivab*es- and inventories. /urrent
*iabi*ities consist of accounts payab*e- short%term notes etc.
Curr!t Ratio C Curr!t A""!t" D Curr!t Lia<i%iti!"
Ta<%! :-3A Curr!t ratio" o/ SBuar! Phar$a.!uti.a%" i 4i//!r!t ,!ar"
Y!ar '226728 '22(726 '22;72(
Curr!t
RatioEti$!"F
3-'( 3-:: 3-68
It!r5r!tatioA
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.he tab*e and chart sho0s us that )Buare Pharmaceutica*s Ltd. /urrent ratio is Buite
consistent throu3h the different fisca* years.
But the current ratio is decreasin3 at a very s*o0 rate day by day.
We can4t say that the *iBuidity position of the company is 0ea5- as 0e don4t have the
industry avera3e but 0e can say that the *iBuidity position is under the standard !"E&( and
it is 3radua**y becomin3 poor day by day 0hich cou*d spe** troub*e for the company.
.he scenario of the fisca* year "##@%"##$ can be a*so because of acute 3*oba* recession in
the 0ho*e 0or*d. .he reason of fa**in3 current ratio is its current *iabi*ities 0ere risin3
faster than its current assets.
Qui.& Ratio D A.i4 T!"t Ratio
Guic5 ratio is most important measure of *iBuidity than the current ratio. Because inventories
0hich are the *east *iBuid of the current assets from the ratio. 1t is essentia* for a company to
rea*iAe its abi*ity to pay the short%term ob*i3ation- 0ithout 5no0in3 on the sa*es of inventory
because they are the assets on 0hich *osses are most*y in the event of *iBuidation.
Qui.& ratio C ECurr!t a""!t" 7 I1!tor,F D Curr!t Lia<i%iti!"
Ta<%! :-' A Qui.& Ratio o/ SBuar! Phar$a.!uti.a%" i 4i//!r!t ,!ar"
Y!ar '226728 '22(726 '22;72(
Qui.&
RatioEti$!"F
2-;8 2-(2 2-;9
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It!r5r!tatioA
)Buare Pharmaceutica*s Ltd Buic5 ratio is consistent throu3h the three different fisca*
years. 1t is s*i3ht*y increase in year "##'%"##@ and a3ain fa** in year "##@%"##$.
But the Buic5 ratio is be*o0 H&I 0hich is not satisfactory.
.he reason is the company is ho*din3 *ar3e inventories throu3h out different fisca* year.
.he company4s inventory is ++J of the company4s current assets 0hich *o0er the Buic5
ratio.
A""!t Maa#!$!t Ratio" o/ SBuar! Phar$a.!uti.a%"
Activity ratios are used to eva*uate the competence- 0hich the company mana3es and uti*iAes
on its asset. .his ratio a*so ca**s the turnover ratios because they indicate the speed 0ith
0hich the assets are transformed or turnover into sa*es. A proper ba*ance bet0een assets and
sa*es 3enera**y ref*ects on that the assets.
1nventory turnover ratio
Days )a*es <utstandin3
Fi7ed asset turnover ratio
.ota* asset turnover ratio
Da," Sa%!" Out"ta4i#
.he Days )a*es <utstandin3 ratio sho0s both the avera3e time it ta5es to turn the receivab*es
into cash and the a3e- in terms of days- of a companyFs accounts receivab*e. .his ratio is of
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particu*ar importance to credit and co**ection associates.
Days Sales Outstanding (DSO) = Trade Debtors/(Annual gross
turnover/365)
Ta<%! :-= A Da, Sa%!" Out"ta4i# EDSOF
Y!ar '226728 '22(726 '22;72(
DSOEDa,"F 3;-9' 3;-63 36-=3
It!r5r!tatioA
)Buare Pharmaceutica*s Ltd. Days )a*es <utstandin3 is Buite inconsistent throu3h the
fisca* years. 1t is very hi3h in year "##,%#' and then hi3h*y decrease in year "##'%"##@
and a3ain s*i3ht*y increase in year "##@%"##$.
But the situation is improvin3 day by day as the D)< is decreasin3 day by day.
1t may indicate that the firm may have chan3ed their credit po*icy to co**ect credit sa*e
ear*ier than before.
)ince the D)< 0as the hi3hest in "##%#' that indicates that customers 0ere ta5in3 *on3er
times to pay their bi**s- 0hich may be a 0arnin3 that customers 0ere dissatisfied 0ith the
companyFs product or service- or that sa*espeop*e 0ere ma5in3 sa*es to customers that are
*ess credit%0orthy- or that sa*espeop*e have to offer *on3er payment terms in order to sea*
the dea*. Lon3 credit po*icy mi3ht be used de*iberate*y to boost sa*es temporari*y. <f
course- it cou*d a*so mean that the company has an inefficient or overta7ed accounts
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receivab*es department. Ho0ever- the si3nificant improvement in "##'%#@ si3nifies that
the company co**ected its outstandin3 receivab*es Buic5er than the previous year and that
the credit terms are 3ettin3 more rea*istic. 1t a*so connotes that the company had 3reater
contro* over Bua*ity of its customer re*ationship mana3ement !/M( durin3 the fo**o0in3
year.
I1!tor, Turo1!r Ratio
.he *iBuidity of the company4s re3ister can be considered by this ratio. 1ts ratio indicates ho0
many periods it is needed to t0ist inventory of sa*es on a standard.
I1!tor, turo1!r ratio C Sa%!" D I1!tori!"
Ta<%! :-:A I1!tor, Turo1!r ratio o/ SBuar! Phar$a.!uti.a%" i 4i//!r!t ,!ar"
Y!ar '226728 '22(726 '22;72(
I1!tor, Turo1!r
RatioEti$!"F
:-26 :-8( :-;:
It!r5r!tatioA
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)Buare Pharmaceutica*s Ltd 1nventory .urnover atio is Buite consistent throu3h the
fisca* years. 1t is increase in year "##'%#@ and then decrease in year "##@%#$.
1t4s decreasin3 1nventory .urnover atio is Buestionin3 the current ratio.
As the firms current ratio and 1nventory .urnover 1s both decreasin3- 0e can assume that
they can4t ab*e to se** their inventories as fast before. Dec*inin3 inventory turnover
common*y indicates that the company is not bein3 ab*e to f*ush its inventory very 0e** as
it 0as doin3 in the previous years. A *o0 turnover rate may point to overstoc5in3-
obso*escence- or deficiencies in the product *ine or mar5etin3 effort. Hi3h inventory
*eve*s are unhea*thy because they represent an investment 0ith a Aero rate of return in
addition to the increased cost associated 0ith maintainin3 those inventories. 1t a*so opens
the company up to troub*e shou*d prices be3in to fa**. Ho0ever- in some instances a *o0
rate may by appropriate- such as 0here hi3her inventory *eve*s occur in anticipation of
rapid*y risin3 prices or shorta3es
Fi0!4 A""!t Turo1!r Ratio
.he Fi7ed Asset .urnover ratio measures the effectiveness in 3eneratin3 ;et )a*es revenue
from investments in ;et Property- P*ant- and EBuipment bac5 into the on*y the investments.
Fi0!4 A""!t" turo1!r C Sa%!" D Fi0!4 A""!t"
Ta<%! :-;A Fi0!4 A""!t" Turo1!r ratio ratio" o/ SBuar! Phar$a.!uti.a%" i 4i//!r!t
,!ar"
Y!ar '226728 '22(726 '22;72(
Fi0!4 A""!t Turo1!r
RatioEti$!"F
'-2' '-3' '-(8
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It!r5r!tatioA
)Buare Pharmaceutica*s Ltd Fi7ed Asset .urnover atio is a*most consistent throu3h the
fisca* years.
But it is decreasin3 at a very s*o0er rate- 0hich is a*armin3.
1t indicates that the firm is not Buite successfu* in usin3 its fi7ed asset efficient*y.
Tota% A""!t Turo1!r Ratio
.he .ota* Asset .urnover is simi*ar to fi7ed asset turnover since both measures a companyFs
effectiveness in 3eneratin3 sa*es revenue from investments bac5 into the company. .ota*
Asset .urnover eva*uates the efficiency of mana3in3 a** of the companyFs assets.
Tota% a""!t" turo1!r ratio C Sa%!"DTota% A""!t"
Ta<%! :-(A Tota% a""!t" turo1!r ratio o/ SBuar! Phar$a.!uti.a%" i 4i//!r!t ,!ar"
Y!ar '226728 '22(726 '22;72(
Tota% A""!t Turo1!r
Ratio Eti$!"F
2-(; 2-6' 2-(;
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It!r5r!tatioA
.ota* Asset .urnover of )Buare Pharmaceutica*s Ltd is in a stab*e *eve* throu3h out the
three fisca* years.
1t is rise in "##'%"##@ periods and a3ain fa** in "##@%#$.
But it is be*o0 Aero- 0hich is not satisfactory and it indicates that the firm is not
3eneratin3 sufficient vo*ume of business 3iven its investment in tota* assets.
D!<t Maa#!$!t Ratio
D!<t Ratio
.he ratio of tota* debt to tota* assets- 3enera**y ca**ed the debt ratio- measures the percenta3e
of funds provided by the creditors.
D!<t ratio C Tota% D!<t D Tota% A""!t"
Ta<%! :-6A D!<t ratio" o/ SBuar! Phar$a.!uti.a%" i 4i//!r!t ,!ar"
Y!ar '226728 '22(726 '22;72(
D!<t
RatioEP!r.!ta#!F
==-6 =2-3 =3-'
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It!r5r!tatioA
1n "##,%#'- +&."J of the tota* assets have been financed by the debt !creditors( - in "##'%
#@ it fe** to +#.&J and then rise to ++.@J in "##@%#$.
/reditors prefer *o0 debt ratios- because the *o0er the ratio the 3reater the cushion
a3ainst creditors *osses in this event of *iBuidation.
.he o0ner on the other hand benefits from this *evera3e as it ma3nifies their earnin3.
But too much debt often *eads to financia* difficu*ty 0hich may cause ban5ruptcy.
1t sho0s sBuare sti** is in 3ood position but ta5in3 too many debt may cause prob*em 1n
future.
Moreover increasin3 debt portion a*so increases the firm4s ris5.
Ti$!" It!r!"t Ear!4 ETIEF
.his ratio provides an indication of the mar3in of safety bet0een financia* ob*i3ations and the
net income thus it provides an indication of the avai*ab*e protection to creditors. Fai*ure to
meet this ob*i3ation can brin3 *e3a* action by the company4s creditors- possib*y resu*tin3 in
ban5ruptcy.
Ti$! it!r!"t !ar!4 ETIEF C EBIT D It!r!"t .har#!4
Ta<%! :-8A Ti$!"7It!r!"t7Ear!4 ETIEF ratio" o/ SBuar! Phar$a.!uti.a%" i 4i//!r!t
,!ar"
Page | 13
Y!ar '226728 '22(726 '22;72(
TIEEti$!"F :-8( 6-63 33-=
It!r5r!tatioA
1t measures the abi*ity of the firm to meet its annua* interest payments.
1t is in a decreasin3 *eve* 0hich is not a 3ood si3n for the company.
Moreover that- the decreasin3 rate is a*so hi3h.
May be )Buare Pharmaceutica*s Ltd is coverin3 its interest chan3es by a *o0 mar3in of
safety.
As .1E ratio reinforces our conc*usion based on debt ratio that )Buare Pharmaceutica*s
Ltd 0ou*d face difficu*ties if it attempted to borro0 additiona* fund.
Pro/ita<i%it, ratio
.here are many measures of profitabi*ity- 0hich re*ate the returns of the firm to its sa*es-
assets- or eBuity. As a 3roup- these measures a**o0 the ana*yst to eva*uate the firm4s earnin3s
0ith respect to a 3iven *eve* of sa*es- a certain *eve* of assets- or the o0ners4 investment.
.his ratio specify the capacity of the company to survive difficu*t circumstances- 0hich
mi3ht occur from a number of basis- such as dec*inin3 price- increasin3 cost and dec*inin3
sa*e.
.he Profitabi*ity ratio 0e can =ustify on the si7 ratios- those are as fo**o0sE
;et Profit mar3in on sa*es.
eturn on tota* asset.
Page | 14
eturn on common stoc5.
N!t Pro/it Mar#i O Sa%!"
Profit mar3in on sa*es ratio offered information as re3ards a company4s success from the
action of core trade. atio 3ives you an idea about the success re*ation to sa*es on after the
cost of 3oods so*d is removin3. 1t4s cou*d be used as a pointer of the 3ood or3aniAation of the
manufacture action and re*ationship bet0een cost of manufacturin3 3oods and se**in3 price.
Pro/it $ar#i o "a%!" C Gro"" Pro/it D Sa%!"
Ta<%! :-9A N!t Pro/it Mar#i o/ SBuar! Phar$a.!uti.a%" i 4i//!r!t ,!ar"
Y!ar '226728 '22(726 '22;72(
Pro/it
Mar#iEP!r.!ta#!F
3(-6 36-: 39-3
It!r5r!tatioA
Page | 15
)Buare Pharmaceutica*s Ltd profit mar3in has been decreased by ".?J from "##,%#' to
"##@%#$ fisca* years.
1t indicates that sa*es are becomin3 *o0er day by day or cost is 3ro0in3 hi3her day by day
on both.
Accordin3 to debt ratio 0e a*ready 5no0 that )Buare Pharmaceutica*s Ltd have hi3h debt
ratio than previous year and .1E sho0s that )Buare Pharmaceutica*s Ltd interest
payments on its debt are a*so increasin3.
1t causes the profit mar3in *o0er.
Hi3h debt mean hi3h interest on 0hich 0i** in terms *o0er the profit.
.
R!tur o Tota% A""!tEROAF
eturn on asset compute the success of a company by usin3 the advanta3e to create to 3et
se*f%3overnin3 of the financin3 of those assets.
1ts compute conseBuent*y divides financin3 action from 0or5in3 and invests tric5s.
R!tur o a""!t C N!t I.o$! D Tota% A""!t
E
Ta<%! :-32R!tur o Tota% A""!t" o/ SBuar! Phar$a.!uti.a%" i 4i//!r!t ,!ar"
Y!ar '226728 '22(726 '22;72(
ROAEP!r.!ta#!F 32-88 3'-:= 3'-;:
Page | 16
It!r5r!tatioA
)Buare Pharmaceutica*s Ltd return on Asset is consistent but sudden*y fa** by a*most "J
in "##@%#$.
A3ain it may be reason of 3*oba* recession for 0hat every time "##@%#$- )Buare
Pharmaceutica*s Ltd is not performin3 0e**.
1t sho0s the eturn from asset is decreasin3 status
R!tur o EBuit, EROEF
eturn on EBuity measures the amount of ;et 1ncome earned by uti*iAin3 each do**ar of .ota*
common eBuity. 1t is the most important of the HBottom *ineI ratio. By this- 0e can find out
ho0 much the shareho*ders are 3oin3 to 3et for their shares. eturn on common stoc5 ratio
indicates the amount of- 0hich the company is capab*e to e7chan3e in service income into an
after ta7 income that fina**y can be maintain by the investor. 1t is a he*pfu* ratio for
investi3ate the capabi*ity of the company4s administration to understand a sufficient come
bac5 on the- capita* invest of the company.
R!tur o .o$$o "to.& !Buit, C N!t i.o$! D Co$$o "to.&ho%4!r" !Buit,
Ta<%! :-33A R!tur o !Buit, o/ SBuar! Phar$a.!uti.a%" i 4i//!r!t ,!ar"
Page | 17
Y!ar '226728 '22(726 '22;72(
ROEEP!r.!ta#!F 3(-:' 36-66 38-'3
It!r5r!tatioA
1t is a*most consistent throu3h the years.
But it is a*so decreasin3 very s*o0*y.
1t passes ne3ative si3na*s to the shareho*ders- because eturn on EBuity sho0s the return
invested on common eBuity.
1t a*so may be for the increase of debt portion.
May be 1nterest Payment is hi3her so that net income fa**s and eturn on EBuity a*so
fa**s.
MARGET ?ALUE RATIOS
Page | 18
.he fina* 3roup of ratios- the mar5et va*ue ratios re*ates the firm4s stoc5 price to its earnin3s
and boo5 va*ue per share. .hese ratios 3ive mana3ement an indication of 0hat investors thin5
of the company4s past performance and future prospects. 1n this section- 0e are 3oin3 to have
a discussion main*y on t0o types of ratiosE
&. Price6 Earnin3s ratio!P6E(
". Mar5et6 Boo5 ratio!M6B(
Pri.! Eari#" Ratio EPDEF
Price earnin3s ratio does the ana*ysis of discussin3 the investment possibi*ity of a 3iven
enterprise use an off%Buoted statistic. .his is computed by dividin3 the mar5et price of stoc5
by its earnin3s per share.
Pri.! !ari#" ratio C Mar&!t 5ri.! o/ "to.& D Eari# 5!r "har!
Ta<%! :-3'A PDE o/ SBuar! Phar$a.!uti.a%" i 4i//!r!t ,!ar"
Y!ar '226728 '22(726 '22;72(
PDEEti$!"F '(-( 33-' 9-6
It!r5r!tatioA
Page | 19
1t sho0s the ta5a amount investor 0i** pay for ta5a & current earnin3.
Price Earnin3s ratio increasin3 and it increased by a *ot in "##@%#$ fisca* years
.Price Earnin3 is hi3her 3ro0th prospect as it is increasin3 0e can see )Buare
Pharmaceutica*s Ltd is 3ro0in3 very fast.
Mar&!t Boo& Ratio EMDBF
1t re*ates the firm4s stoc5 to its earnin3 and boo5 va*ue per share- providin3 an indication ho0
investors re3ard the firm4s future prospects.
Ta<%! :-3=AMDB o/ SBuar! Phar$a.!uti.a%" i 4i//!r!t ,!ar"
Y!ar '226728 '22(726 '22;72(
Mar&!t Boo& ?a%u!
RatioEti$!"F
:-=6 3-99 3-66
Interpretation:
)Buare Pharmaceutica*s Ltd Mar5et%Boo5 ratio is increasin3 day by day.
Page | 20
1nvestors are 0i**in3 to pay more )Buare Pharmaceutica*s Ltd boo5 va*ue than precious
time- because )Buare Pharmaceutica*s Ltd return on EBuity is in a consistent *eve*.
Mar5et%Boo5 va*ue ratio indicates investors are e7cited about the future prospects of its
common stoc5 as an investment.
LIMITATIONS OF RATIO ANALYSIS
Whi*e ratio ana*ysis can provide usefu* information concernin3 a company4s operation and
financia* condition it does have inherent prob*ems and *imitation that necessitate care and
=ud3ment. )ome potentia* prob*ems are 3iven be*o0-
Many *ar3e firms operate a number of different divisions in Buite different industries and
in such case it is difficu*t to deve*op a meanin3fu* set of ratio for comparative purposes.
.his trend to ma5e ratio ana*ysis more usefu* for sma** narro0*y focused firms than for
*ar3e mu*tidivisiona* ones.
Most firms 0ant to be the better than avera3e- so mere*y attainin3 avera3e performance is
not necessari*y 3ood. As a tar3et for hi3h *eve* performance- it is the best to focus on the
industry ratios.
1nf*ation mi3ht distort firm4s ba*ance sheet%1f recorded va*ue are historica* they cou*d be
the substantia**y different from true va*ues. Further because inf*ation affects both
depreciation char3es and inventory cost over time profits are a*so affected. .hus a ratio
ana*ysis for one firm over time or a comparative ana*ysis of firms of different a3es must
be interpreted 0ith =ud3ment.
)easona* factors can a*so distort a ratio ana*ysis- for e7amp*e the inventory turnover ratio
for a Pharmaceutica*s firm sometime anima* medicine is manufactured seasona**y.
Firms can emp*oy 0indo0 dressin3 techniBue to ma5e their financia* statement *oo5
stron3er.
Different accountin3 practices can distort chan3es.
1t is difficu*t to 3enera*iAe about a particu*ar ratio is 3ood or bad. for e7amp*e - a hi3h
current asset ratio may be indicate stron3 *iBuidity position 0hich is 3ood- or e7cessive
cash 0hich is bad a hi3h fi7ed assets turnover ratio mi3ht denote either firm that uses its
assets efficient*y or one that is under capita*iAe and cannot afford to buy enou3h asset.A
Page | 21
firm mi3ht have ratios that *oo5 3ood and others that *oo5 bad ma5in3 it difficu*t to te**
0hether the company is on ba*ance- stron3- 0ea5. Ho0ever statistica* procedures can be
used to ana*yAe the net effects of a set of ratios.
atio ana*ysis is usefu*- but ana*ysis shou*d be a0are of these prob*ems and ma5e ad=ustment
as necessary. atio ana*ysis conducted in a mechanica*- unthin5in3 mana3er is dan3erous but
used inte**i3ent*y and 0ith 3ood =ud3ment- it can provide usefu* insi3hts into a firm s
operation.
CHAPTER ;
Pro<%!$" & So%utio
PROBLEMS
/urrent ratio and Buic5 ratio are fa**in3 day by day. Both the ratios are be*o0 the standard
*eve*. )o company is facin3 *iBuidity prob*em.
Dec*inin3 inventory turnover ratio imp*ies that company can not ab*e to se** the
inventories as fast as reBuired or they have too many obso*ete- e7pired inventories.
/ompany didn4t ab*e to use their tota* assets and fi7ed assets efficient*y and effective*y.
ate of debt financin3 is a*so increasin3 0hich is ris5y enou3h and cost 0orthy for the
company.
Annua* interest payment abi*ity is a*so dec*inin3.
Profit mar3in on sa*es is decreasin3.
eturn on tota* asset and return on eBuity is a*so dec*inin3.
Page | 22
So%utio
Mana3ement shou*d emphasis to reduce the differences bet0een avera3e co**ection
period and avera3e payment period. 1t 0i** resu*t *iBuidity of the company. 1f the firm
manufactures and se**s a substantia* amount of inventory for cash *on3 before supp*iers-
emp*oyees- and short term creditors need to be paid- then it rea**y doesn4t face a *iBuidity
prob*em.
1n order to improve 1nventory .urnover ratio- at first an end%to%end vie0 in addressin3
inventory needs to be *oo5ed at. )upp*y chains need to be optimiAed- production
processes shou*d have to be efficient as 0e**- so that the supp*iers become ab*e to produce
and de*iver materia*s in a time*y- *o0 cost fashion that a**o0s the company to minimiAe
their inventory and cost of materia*s. /o**aborative re*ationships 0ith customers can
a**o0 them to ma5e their demand for products more predictab*e thereby a**o0in3 to
minimiAe finished product inventory 0ithout fai*in3 to meet their needs for vo*ume and
time*iness.
Discount%driven sa*es may 3enerate a boost in sa*es. )uch discounts can erode the
company4s profit mar3ins but 0i** boost revenue and rate of inventory turnover. .he
company mi3ht *oo5 *i5e it is becomin3 *eaner- 0hen in fact it may simp*y be pushin3
products into the mar5etp*ace usin3 artificia* *o0 pricin3. Ho0ever- before it can be done-
the 3ross mar3ins reported by the business needs to be ana*yAed carefu**y. 1f 3ross
mar3ins decrease as a percenta3e of sa*es in spite of an increase in inventory turnover-
they shou*d not app*y this po*icy.
)upp*ier%financed inventory may reduce inventories and sho0 improved inventory
turnover by forcin3 supp*iers to carry the inventory for the company. .he supp*iers
assume the cost of maintainin3 inventory and passes that cost on. A*ternative*y- the
company may reduce inventory by the use of e7press shipment or other cost*y means of
de*ivery to ensure the avai*abi*ity of materia*s and supp*ies 0hen needed. )o*utions of
maintainin3 inventory that simp*y shift cost to supp*iers return the cost in added mar5%ups
to the materia*s and supp*ies purchased. .his resu*ts in a rise in unit product unit cost.
As the price of ra0 materia*s is increasin3 re3u*ar*y so )Buare Pharma shou*d consu*t
0ith the respective authorities to minimiAe the price. 1n that case 3overnment shou*d
come on0ard to he*p the pharmaceutica* sectors.
Mana3ement shou*d try to boost up its Buic5 and current rations C the earnin3s per share.
Page | 23
/ompany shou*d reduce its dependency on debt because it is rapid*y decreasin3 the profit
*eve* of the company.
Mana3ement can increase their profit before ta7 if they can cut the financia* cost and use
*ess debt capita*.
Another si3nificant factor 0e have ana*yAed that every sector is sufferin3 due to the
*ac5in3 of po0er supp*y. )o here )Buare can emphasiAe on the bad effect of *oad%
sheddin3 and other re*ated events so that 3overnment shou*d immediate*y ta5e effective
initiative to save this boomin3 pharmaceutica* sector.
)Buare has the potentia*ity to increase its sa*e in the overseas mar5et more. 1n terms of
deve*opin3 the e7port sector of Ban3*adesh it shou*d increase the production rate.
Another thin3 0e have derived by our research that as an o*d pharmaceutica* company
)Buare doesn4t have the hi3h techno*o3ica* support rather than other companies. )o
)Buare shou*d ta5e immediate steps to deve*op its techno*o3ica* supports.
A3i3antic 3roup is needed hu3e time to ta5e any decision. 1n that case- )Buare is hi3h*y
recommended that they shou*d deve*op the hierarchy in the decision ma5in3 process.
As the competition is increasin3 day by day )Buare shou*d ta5e some innovative efforts to
retain their *eadin3 position.
CHAPTER (
Co.%u"io
After ana*yAin3 a** the ratios- 0e have found out the fo**o0in3 informationE
&. LiBuidity atiosE 1n the *iBuidity ratio 0e can see that both current ratio and Buic5 ratio are
consistent but fa**in3 over the time mar3ina**y.
". Asset Mana3ement atiosE 1nventory turnover- .ota* Asset .urnover- Fi7ed Asset
.urnover a** had been re*ative*y f*uctuate throu3hout the three years because of usin3 the
assets inefficient*y and ho*din3 e7cessive inventory. Avera3e /o**ection period 0as pretty
3ood. .he on*y prob*em here is the Avera3e co**ection period 0hich is 0ay hi3h. Ho0ever-
Page | 24
such a situation is actua**y pretty much norma* for bi3 companies.
+. Debt Mana3ement atiosE Here Debt ratio has increased over time and .1E has decreased
over the time because of financin3 the business by usin3 hu3e amount of debt.
?. Profitabi*ity atiosE Apart from >ross Profit atio- most of the Profitabi*ity ratios have
actua**y decreased throu3h out the tree years.. A*thou3h the decrease rate is very minima* sti**
it is a prob*em for )Buare and they need to try to improve these ratios.
,. Mar5et 9a*ue atiosE Both P6E ratio and M6B ratio has consistent*y increased throu3h out
the three years. But this happened most*y because the 0ho*e mar5et 0as so friend*y for
investment in that year.
)Buare Pharmaceutica* Limited is a very 0e** 5no0n nationa* fi3ure in Ban3*adesh. .hey are
the bi33est or3aniAation in Ban3*adesh. 1t is a 0e**%estab*ished and *eadin3 Pharmaceutica*s
firm of the country. .he + years financia* data sho0 a consecutive 3ro0in3 trend of the
company. .he net profit after ta7 !;PA.( indicates the company4s e7ce**ent performance in
operation- turnover- mana3ement and competitive business statica**y. As the inventor
e7pectation is to earn more money over their investment- )Buare Pharmaceutica*s L.D is
p*ayin3 an important ro*e to set the investors on it. More C more effective decisions are ta5en
by the company to ma5e it a successfu* and a pioneer in the sector of pharmaceutica*s in
Ban3*adesh. .he mana3ement is a*so conscious about the current events and effective
measurements.
From the tota* ana*ysis- 0e can summariAe that )Buare Pharmaceutica*s Ltd. has been doin3
pretty 3ood throu3h out the years. 1t is true that *ast year there return did dec*ine but it is sti**
pretty much satisfactory. .herefore- 0e can conc*ude that )Buare Pharmaceutica*s Ltd. is a
3ood enou3h company to invest on.
CHAPTER 6
R!/!r!.! a4 Bi<%io#ra5h,
Page | 25
Financia* reports of )Buare Pharma of the year "##,%#'- "##'%#@ C "##@%"##$.
HEssentia*s of Mana3eria* FinanceI by )cott Bes*ey C Eu3ence F. Brin3ham- &+
th
edition.
/*ass Lectures on atio Ana*ysis-
Li"t o/ Fi#ur!"
)L ;<. ;AME <F .HE F1>UE) PA>E ;UMBE)
#&
E0!.uti1! Su$$ur,
23
#" Ba.&#rou4 o/ th! R!5ort 36738
#+ Ba.&#rou4 o/ th! Cor5oratio 39
Page | 26
#? Pro4u.t & S!r1i.! o/ th! Co$5a, ''
#, Aa%,"i" & Fi4i#" ':7';
#' Pro<%!$" & So%utio '(7'6
#@ Co.%u"io =2
Page | 27