Financial Annalysis

7/31/2019 Financial Annalysis

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Financial Ratio Analysis of Square Pharma & Beximco Pharma

|Financial Ratio Analysis | |

| |Performing Year: 2008 & 2009 |

| | |

Beximco Pharmaceuticals ltd.

&

Square Pharmaceuticals ltd.

Submitted by

Group Name: Peace Messengers

Islam Mohammad Samiul (09-14649-3)

Hamid Faisal (09- 15037 -3)

Course Name: Financial Management

Section: H

AIUB

Letter of Transmittal

01/03/2011

Mrs. Farzana Islam

Honorable Faculty

A.I.U.B.

Dear Madam,

It gives us immense pleasure to submit a report on Financial Ratio Analysis. Thisreport is submitted as a partial fulfillment/ as a part of our course Financial Management . We have choose two renowned pharmaceuticals companies of the countrywho are Beximco Pharmaceuticals Ltd. and Square Pharmaceuticals Ltd.The preparationof the report has given us in-depth knowledge on Financial Ratio Analysis. We havegiven our best effort to make it a worthy one and each aspect of the problem isconsidered and studied as required.

If any confusion arises or further explanation is needed, we shall be availableto explain the matter to you as and when required despite having limitations. Yo

ur compassionate and authoritative advice will encourage us to conduct further flawless research in future.

Yours sincerely,

Islam Mohammad Samiul (09-14649-3)

Hamid Faisal (09-15037 -3)

Course Name: Financial Management


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Section: H

AIUB

Financial Ratios

Financial ratios are useful indicators of a firm's performance and financial situation. Financial ratios can be used to analyze trends and to compare the firm'sfinancials to those of other firms.

Financial ratios can be classified according to the information they provide. The following types of ratios frequently are used:

1. Liquidity ratios

2. Activity ratios

3. Debt management ratios

4. Profitability ratios

5. Market value ratios

1. LIQUIDITY RATIOS

Liquidity ratios are the first ones to come in the picture. These ratios actually show the relationship of a firms cash and other current assets to its current liabilities. Two ratios are discussed under Liquidity ratios. They are:

i. Net Working Capital

ii. Current ratio

iii. Quick/ Acid Test ratio.

i. Net Working Capital: A measure of both a company's efficiency and its short-t

erm financial health. Positive working capital means that the company is able topay off its short-term liabilities. Negative working capital means that a company currently is unable to meet its short-term liabilities with its current assets (cash, accounts receivable and inventory).The working capital ratio is calculated as:

Net Working Capital = Current Assets Current Liabilities

|Year |Beximco Pharmaceuticals ltd. |Square Pharmaceuticals ltd. |

|2008 |2,861,891,654 - 2,602,032,267 |4,411,836,436 - 3,500,845,103 |

| |=Tk. 259,859,387 |=Tk. 910,991,333 |

|2009 |6,916,737,893 2,321,451,642 | 3,843,512,855 - 2,640,868,554 |

| |=Tk. 4,595,286,251 |=Tk. 1,202,644,301 |

ii. Current ratio: This ratio indicates the extent to which current liabilitiesare covered by those assets expected to be converted to cash in the near future. Current assets normally include cash, marketable securities, accounts receivables, and inventories. Current liabilities consist of accounts payable, short-term notes payable, current maturities of long-term debt, accrued taxes, and other


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accrued expenses (principally wages).

Current Ratio=Current Assets/Current Liabilities

|Year |Beximco Pharmaceutical |Square Pharmaceutical |

|2008 | 2,861,891,654 / 2,602,032,267 | 4,411,836,436 / 3,500,845,103 |

| |=1.09 Times |=1.26 Times |

|2009 | 6,916,737,893 / 2,321,451,642 | 3,843,512,855 / 2,640,868,554 |

| |= 2.98 Times |=1.45 Time |

iii. Quick/ Acid Test ratio: This ratio indicates the firms liquidity position as well. It actually refers to the extent to which current liabilities are covered by those assets except inventories.

Quick Ratio=(Current Assets-Inventories)/Current Liabilities

|Year |Beximco Pharmaceutical |Square Pharmaceutical |

|2008 | (2,861,891,654 - 1,505,288,093) / 2,602,032,267 | (4,411,836,436 - 2,026,736,322) / 3,500,845,103 |

| |=0.53 Times |=0.69 Times |

|2009 | (6,916,737,893 1,722,953,284) / 2,321,451,642 | (3,843,512,855 - 2,098,755,231) / 2,640,868,554 |

| |=2.23 Times |=0.67 Times |

Summary: In the liquidity ratio we can see that NWC of Beximco Pharma. Ltd. is higher than Square pharma. Ltd. both current ratio and quick ratios are also improved over time marginally. Both companies situations are stable.

2. ACTIVITY RATIOS

An indicator of how rapidly a firm converts various accounts into cash or sales.In general, the sooner management can convert assets into sales or cash, the more effectively the firm is being run. Activity ratios measure the efficiency ofthe company in using its resources.

The ratios are:

i. Inventory Turnover Ratio

ii. Average Collection period Ratio

iii. Fixed Asset Turnover Ratio

iv. Total Asset Turnover Ratio

v. Accounts Receivable Turnover Ratio

i. Inventory Turnover Ratio: This ratio is a relationship between the cost of goods sold during a particular period of time and the cost of average inventory during a particular period. It is expressed in number of times. The formula is:

Inventory Turnover Ratio = Cost of goods sold / Inventory


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|2008 |2,002,871,181 / 1,505,288,093 |4,856,061,933 / 2,026,736,322 |

| |=1.33 Times |=2.39 Times |

|2009 |4,868,254,915 / 1,722,953,284 |5,672,565,973 / 2,098,755,231 |

| |= 2.83 Times |=2.71 Times |

ii. Average Collection period Ratio: The average collection period ratio represents the average number of days for which a firm has to wait before its debtors are converted into cash. Following formula is used to calculate ;

Average collection period = Accounts Receivable / Annual Sales


|2008 |503,916,401 / 4,010,167,059 |1,510,502,334 / 9,565,715,902 |

| |=0.12 Times |=0.15 Times |

|2009 |694,111,730 / 4,868,254,915 |693,157,720 / 11,366,597,928 |

| |=0.14 Times |=0.06 Times |

iii. Fixed Asset Turnover Ratio: Fixed assets turnover ratio is also known as sales to fixed assets ratio. This ratio measures the efficiency and profit earningcapacity of the concern. Higher the ratio, greater is the intensive utilizationof fixed assets. Lower ratio means under-utilization of fixed assets. The ratiois calculated by using following formula:

Fixed Assets Turnover Ratio = Sales / Net Fixed Assets


|2008 |4,010,167,059 / 11,921,072,697 |9,565,715,902/ 4,088,432,171 |

| |= 0.33 Times |=2.33 Times |

|2009 |4,868,254,915 / 12,966,587,178 |11,366,597,928 / 4,899,679,832 |

| |=0.37 Times |=2.31 Times |

iv. Total Asset Turnover Ratio: Asset turnover measures a firm's efficiency at using its assets in generating sales or revenue - the higher the number the better. It also indicates pricing strategy: companies with low profit margins tend tohave high asset turnover, while those with high profit margins have low asset turnover.

The formula is :

Total Asset Turnover Ratio = Sales / Total Assets


|2008 |4,010,167,059 / 14,819,665,441 |9,565,715,902 / 12,703,127,420 |

| |=0.27 Times |=0.76 Times |


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|2009 |4,868,254,915 / 14,819,665,441 |11,366,597,928 / 13,251,242,856 |

| |=0.32 Times |=0.86 Times |

v. Accounts Receivable Turnover Ratio: An accounting measure used to quantify afirm's effectiveness in extending credit as well as collecting debts. The receivables turnover ratio is an activity ratio, measuring how efficiently a firm usesits assets. The formula is:

Accounts Receivable Turnover Ratio = Sales / Accounts Receivable


|2008 |4,010,167,059 / 503,916,401 |9,565,715,902 / 1,510,502,334 |

| |=7.96 Times |=6.33 Times |

|2009 |4,868,254,915 / 694,111,730 |11,366,597,928 / 693,157,720 |

| |=7.01 Times |=16.39 Times |

Summary: Both the companies changes are normal. Beximco is in better position.

3. DEBT MANAGEMENT RATIOS

A ratio that indicates what proportion of debt a company has relative to its assets. The measure gives an idea to the leverage of the company along with the potential risks the company faces in terms of its debt-load.

The ratios are:

i. Debt Ratio

ii. Debt Equity Ratio

iii. Times-Interest-Earned (TIE) Ratio

i. Debt Ratio: The debt ratio compares a company's total debt to its total assets, which is used to gain a general idea as to the amount of leverage being usedby a company. A low percentage means that the company is less dependent on leverage. The formula is:

Debt Ratio = Total Liability / Total Assets


|2008 |4369463296 / 14,819,665,441 |4286086715 / 12,703,127,420 |

| |= 29% |=33.75% |

|2009 |9006226808 / 19,891,933,422 |3301845222/ 13,251,242,856 |

| |=45% |=24.92% |

ii. Debt Equity Ratio: The debt-equity ratio is another leverage ratio that compares a company's total liabilities to its total shareholders' equity. This is ameasurement of how much suppliers, lenders, creditors and obligors have committed to the company versus what the shareholders have committed. The formula is:


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Debt Equity Ratio = Total Debt / Total Share Holders Equity


|2008 |4369463296 / 10,450,202,145 |5551255643 / 8,417,040,705 |

| |= 41% |=65.96% |

|2009 |9006226808 / 10,885,706,614 |3978587430 / 9,949,397,634 |

| |=82% |=39.99% |

iii. Times-Interest-Earned (TIE) Ratio: A metric used to measure a company's ability to meet its debt obligations. It is calculated by taking a company's earnings before interest and taxes (EBIT) and dividing it by the total interest payable on bonds and other contractual debt. It is usually quoted as a ratio and indicates how many times a company can cover its interest charges on a pretax basis.Failing to meet these obligations could force a company into bankruptcy. The formula is:

TIE ratio = EBIT / Interest Expense


|2008 |998,794,848 / 249,654,298) |1,709,305,818 / 351,868,423) |

| |=4 Times |=4.86 Time |

|2009 |1,001,282,411 / 910,840,798 |2,368,437,227 / 397,135,963 |

| |=1.09 Times |=5.97 Times |

Summary:

4. PROFITABILITY RATIOS

Profitability is the net result of a number of policies and decisions. Profitabi

lity ratios show the combined effects of liquidity, asset management and debt onoperating results.

There are four important profitability ratios that we are going to analyze:

i. Gross Profit Margin

ii. Operating Profit Margin

iii. Net Profit Margin

iv. Return on Total Assets

i. Gross Profit Margin: Gross Profit Margin gives us the amount of Gross profita firm is earning per dollar of its sales. The equation is as follows:

Gross Profit Margin (GPM) = Gross profit / Sales


|2008 |2,007,295,878 / 4,010,167,059 |3,401,781,806 / 9,565,715,902 |

| |=50.05% |=35.56% |


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|2009 |2,302,048,289 / 4,868,254,915 |4,148,230,595 / 11,366,597,928 |

| |=47.28% |=36.50% |

ii. Operating Profit Margin: The operating profit margin is a type of profitability ratio known as a margin ratio. The information with which to calculate the operating profit margin comes from a company's income statement. The formula is :

Operating Profit Margin = Operating Income / Sales


|2008 |998,794,848 / 4,010,167,059 |1,709,305,818 / 9,565,715,902 |

| |=24.91% |=17.87% |

|2009 |1,001,282,411 / 4,868,254,915 |2,368,437,227 / 11,366,597,928 |

| |=20.57% |=20.84% |

iii. Net Profit Margin: Net Profit Margin gives us the net profit that the business is earning per dollar of sales. The equation is as follows:

Net Profit Margin = Net Profit After Taxes / Sales


|2008 |545,341,273 / 4,010,167,059 |1,381,863,093 / 9,565,715,902 |

| |=13.60% |=14.44 % |

|2009 |624,740,307 / 4,868,254,915 |1,890,052,929 / 11,366,597,928 |

| |=12.84% |=16.63% |

iv. Return on Total Assets: Return of total asset measures the amount of Net Inc

ome earned by utilizing each dollar of Total Assets. The equation is:

Return on Total Assets (ROA) = Net Profit After Tax / Total assets


|2008 |545,341,273 / 14,819,665,441 |1,381,863,093 / 12,703,127,420 |

| |= 3.68% |=10.88% |

|2009 |624,740,307 / 19,891,933,422 |1,890,052,929 / 13,251,242,

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