ratio analysis fin 254
TRANSCRIPT
RATIO ANALYSISOF
SQUARE PHARMACEUITCALS LTD.
Prepared for
Ryashad Ahmed
Lecturer, School of Business.
North South University.
Prepared by
M Mushfiqul Hossain Khan 053 443 030 M Ahsan Habib 053 439 030
Tarek Mahmud Bhuiyan 061 095 030
FIN- 254Sec-09
NORTH SOUTH UNIVERSITY
1
Date of submission: 03/03/08
TABLE OF CONTENT
Acknowledgement
03 Letter of Transmittal
04 Executive Summary
05 SQUARE’s Vision Statement
06 SQUARE’s Background
07 Our Objects
08
Ratio Analysis 09 - 20
Recommendation
21 Conclusion
22
Appendix 23 -28
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ACKNOWLEDGEMENT
First of all, we would like to thank Almighty God for giving us the strength
and knowledge for preparing this project. Secondly, we would like to thank
our respected instructor Riyashad Ahmed for allowing us to work in this
project and giving us all the necessary help and suggestions that we needed.
Then, we would like to thank the Information department of
SQUARE PHARMACEUTICAL LIMITED
For all the encouragement and that helped us complete this project
successfully. Lastly, we want to thank each other for being so cooperative
and for all their contribution. Thank you all.
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ACKNOWLEDGE
LETTER OF TRANSMITTALMarch 3, 2008
Mr. Riyashad Ahmed
Lecturer, School of Business.
North South University.
Dhaka - 1213
Subject: Submission of the project report.
Dear Sir,
We are glad to submit this report on ratio analysis of Square Pharmaceuticals Ltd. The
report deals with a study of ratios of last three years and from this report we can
understand the financial health of Square Pharmaceuticals Ltd. In the process, current
procedures have been reviewed, present flaws identified and thereby strategies formulate
and recommendations made.
We thank you for your sincere co-operation throughout the duration of the study. If you
need further clarification on any issue, we are at your disposal at any time of your
convenience.
We, therefore, would like to request you to accept my assignment and oblige us thereby.
Sincerely,________________________________
M. Ahsan Habib ID# 053-439-030
M Mushfiqul Hossain Khan ID# 053-443-030
Tarek MAhmud Bhuiyan
4
ID# 061-095-030
________________________________
________________________________
This report, entitled ‘Financial Statement Analysis for Square Pharmaceuticals Ltd. covers different aspects of a financial sector for the company.
Generally this financial statement begins with a set of financial ratios analysis involves,
- comparing the SQUARE’s financial performance.
- evaluating trends in the SQUARE’s financial position over time.
- analysis also designed to reveal the strengths and weaknesses of the SQUARE.
- to show whether its financial position has been improving or deteriorating over time.
This Analysis helps management identify deficiencies and then take action to improve performance
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EXECUTIVE
EXECUTIVE
COMPANY VISSION STATEMENT
Vision
SQUARE’s see business as a means to the wellbeing of the investors, employees and the society at large, leading to accretion of wealth through financial and moral gains as a part of the process of the human civilization.
Mission
SQUARE’s mission is to provide quality & innovative healthcare relief for people, maintain stringently ethical standard in business operation also ensuring benefit to the shareholders and other stakeholders.
Objectives
SQUARE’s objectives are to conduct transparent business operations within the legal & social frame work with aims to attain the mission reflected by our vision.
Corporate Focus
SQUARE’s vision, mission and objectives are to emphasis on the quality of product, process and services leading to growth of the company imbibed with good governance practices.
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COMPANY BACKGROUND
SQUARE Pharmaceuticals was established in 1958 as a partnership firm. But the revolution has begun when it incorporated itself in 1964 as a private limited company. From then, SQUARE is one on the market leaders in the pharmaceutical industry. The chairman of SQUARE Group is Mr. Samson H Chowdhury who is a well reputed personality of the society. The origin of SQUARE Group started from the district of Pabna. Still it has its largest plant in there. After the liberation war period SQUARE group started to move forward impressively. In 1974 they signed a Technical Collaboration Agreement with Janssen Pharmaceuticals of Belgium (A subsidiary of Johnson & Johnson International Ltd.). A Technical Collaboration Agreement with F.Hoffman-La Roche & Co. Ltd. was 1982. In 1987 SQUARE was the pioneer of pharmaceutical export from Bangladesh. In 1991 SQUARE was enlisted as a public limited company and from 1995 it started its functioning in the Dhaka and Chittagong stock exchange. Another important event for SQUARE was the agreement with M/s. Bovis Tanvec Ltd. of UK for implementation of Dhaka Plant in 1996. For its well reputation SQUARE Pharmaceuticals won national export trophy in 1997 and awarded ISO-9001 certificate in 1998. Recently in 2004, SQUARE Signed agreement with ROVIPHARM, Vietnam to manufacture and market SQUARE products under license in Vietnam. Currently it has authorized capital of BDT1, 000 Million and paid up capital of BDT496.8 Million. Total number of their pharmaceutical plant employees is 2,073.
Reasoning behind selectionRight from the beginning SQUARE is holding its leading position in the
Bangladeshi Pharmaceutical Industry. It provides the market with a wide
selection of drugs across all major therapeutic classes, and also offers some
specialty medicines. This company is the pioneer of pharmaceutical
exporters from Bangladesh which started from 1987. SQUARE has very
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weighted agreements with some well reputed companies like Johnson &
Johnson intl., F.Hoffman-La Roche & Co. Ltd., ROVIPHARM etc. For their smart
business process SQUARE won national export trophy in 1997 and awarded
ISO-9001 certificate in 1998. SQUARE also meets all national regulatory
requirements relating to its current businesses and ensures that current
Good Manufacturing Practices as recommended by World Health
Organization is followed for its pharmaceutical operations.
To calculate liquidity, activity, profitability, debt and market ratio of the company in
pharmaceuticals industry.
To analyze and interpret the ratio against consecutive three years ratio.
Develop and analyze common size income statement of the three companies.
Use Du Pont systems to analyze ROA and ROE.
To find financial problems of SQUARE Pharmaceuticals and to give them suggestion.
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OUR
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RATIO
ANALYSIS
RATIO ANALYSISLiquidity Ratio
10
Current Ratio
Quick Ratio
1.66 times
1.08 times
31-03-2005 31-03-2006 31-03-2007 Remark
1.78 times
1.19 times
1.44 times
0.84 times
Remark
Poor
Poor
Current Ratio
1.66 1.781.44
0
0.5
1
1.5
2
2005 2006 2007
Financial Ratio
Tim
es
Interpretation of Liquidity Ratio
Current Ratio: In the year 2007, Square Pharmaceutical has current assets were 1.44 times than
their current liabilities. In year 2006 and 2005, the company had sequentially 1.78 times and 1.66 times.
It goes down in Square Pharmaceutical. Since the current asset decrease and current liabilities increase in year 2007
(except in case of year 2006). So the ratio goes down.
Quick Ratio: In the year 2007, Square Pharmaceutical has current assets without inventories were
0.84 times than their current liabilities. In year 2006 and 2005, the company had sequentially 1.19 times and 1.08 times.
It goes down in Square Pharmaceutical. Since the current asset decrease, at the same time inventories increase and current
liabilities increase in year 2007 (except in case of year 2006). So the ratio goes down.
Graph of Current Ratio
11
7
Quick Ratio/Acid Test Ratio
1.08 1.190.84
0
0.5
1
1.5
2005 2006 2007
Financial Year
Tim
es
Graph of Quick Ratio/Acid Test Ratio
Asset Management Ratio
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Inventory Turnover Ratio
Fixed Assets Turnover Ratio
Total Assets Turnover Ratio
Day’s Sales Outstanding
Average Payment Period
4.66 times
2.30 times
0.94 times
18 days
10 days
31-03-2005 31-03-2006
4.54 times
1.16 times
0.65 times
17 days
8 days
4.93 times
1.10 times
0.72 times
16 days
5 days
31-03-2007 Remark
Good
Poor
Average
Good
Poor
Interpretation of Asset Management Ratio
Inventory Turnover Ratio In the year 2007, Square Pharmaceutical has sold out and restocks its inventories
4.93 times. In year 2006 and 2005 it is 4.54 times and 4.66 times. It goes up in Square Pharmaceutical. Since, net turnover increased form previous years and also increase in stock. So the
ratio goes up. It is become favorable to the company.
Fixed Assets Turnover Ratio In the year 2007, Square Pharmaceutical has generated $1.10 worth of sales by
utilizing $1 worth of fixed assets. In year 2006 and 2005, it is $1.16 and $2.30. It goes down so it is unfavorable for Square Pharmaceutical. Because at the same time net turnover and fixed asset increase, so the ratio goes
down.
Total Asset Turnover Ratio In the year 2007, Square Pharmaceutical has generated $0.72 worth of sales by
utilizing $1 worth of fixed assets. In year 2006 and 2005, it is $0.65 and $0.94. It is fluctuating for Square Pharmaceutical. Because at the same time net turnover and total asset increase at a close increasing
rate
Day’s Sales Outstanding In the year 2007, Square Pharmaceutical took on an average 16 days to collect from
their trade debtors. In year 2006 and 2005, it is 17 and 18 days. It is favorable for Square Pharmaceutical. Since net turnover and trade debtors amount increase sequentially, so it is logically
good.
Average Payment Period In the year 2007, Square Pharmaceutical took on an average 5 days to make
payment to the trade creditors. In year 2006 and 2005, it is 8 and 10 days. It goes down but it is unfavorable for Square Pharmaceutical. Because the account receivable duration should be below account payable. It means
collection of cash take more time then payment in every year in Square Pharmaceutical.
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9
Graph of Inventory Turnover Ratio
Inventory Turnover
4.664.54
4.93
44555
2005 2006 2007
Financial Year
Tim
es
Graph of Asset Turnover Ratio
Fixed Asset Turnover
2.30
1.16 1.10
-
1
2
3
2005 2006 2007
Financial Year
Tim
es
Graph of Total Asset Turnover Ratio
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Average Collection Period
18.3117.31
15.7114
16
18
20
2005 2006 2007
Financial Year
Day
s
Average Payable Period
9.69 8.225.18
-
5
10
15
2005 2006 2007
Financial Year
Day
s
Total Asset Turnover
0.940.65 0.72
-
0.50
1.00
2005 2006 2007
Financial Year
Tim
es
Graph of Average Collection Period
Graph of Average Payable Period
Debt Management Ratio
15
0.39 times
12.57 times
0.31 times
11.30 times
0.30 times
7.71 times
31-03-2005 31-03-2006 31-03-2007
Total Debt to Assets Ratio
Times Interest Earned (TIE)
Remark
Good
Good
Total Debt to Total Asset Ratio
0.390.31 0.30
0
0
0
1
2005 2006 2007
Financial Year
Per
cen
tag
e
Times-Interest-Earned Ratio
12.57 11.307.71
-
5.00
10.00
15.00
2005 2006 2007
Financial Year
Tim
es
Interpretation of Debt Management Ratio
Total Debt to Assets Ratio
In the year 2007, Square Pharmaceutical has total debt 0.30 times than their total assets. In year 2005 and 2006, it was 0.39 times and 0.31 times
In 2005 the company was in very risky position but in 2006 and in 2007 the has improved.
From the above condition, the company has a safe position in debt asset ratio. And it is still decreasing. So it is favorable for Square Pharmaceutical.
Times Interest Earned Ratio (TIE) In the year 2007, Square Pharmaceutical company’s EBIT was 7.71 times higher
then their interest expense. In year 2005 and 2006, it is 12.57 times and 11.30 times. It goes down. Because interest expense goes down
Graph of Total Debt to Total Asset Graph of Times- Interest- Earned Ratio Ratio
Profitability Ratio
16
Gross Profit Margin
Net Profit Margin
Return on Assets (ROA)
Return on Equity (ROE)
31-03-2005
40.75%
23.55%
21.08%
50.08%
31-03-2006
42.11%
19.14%
12.54%
35.19%
31-03-2007
43.09%
17.37%
12.43%
31.86%
Remark
Good
Poor
Poor
Poor
Gross Profit Margin
40.7542.11
43.09
394041424344
2005 2006 2007
Financial Year
Per
cen
tag
e
Net P rofit Marg in
-
5.00
10.00
15.00
20.00
25.00
2005 2006 2007
Per
cen
tag
e
S eries 1
Interpretation of Profitability Ratio
Gross Profit Margin In the year 2007, Square Pharmaceutical has earned $43.09 gross profit per $100
sales. In year 2006 and 2005 it is $42.11 and $40.75 per $100 sales. It has gone up. It increase because, gross profit has gone up so that’s way the ratio has gone up.
Net Profit Margin In the year 2007, Square Pharmaceutical has earned $17.37 net profit per $100
sales. In year 2006 and 2005 it is $19.14 and $23.55 per $100 sales. It has gone down, Since the net profit decreases from previous years so that the ratio also decreases. So
it is not favorable for Square Pharmaceutical.
Return on Asset (ROA) In the year 2007, Square Pharmaceutical had a net income of $12.43 by
utilizing $100 worth of total asset. In year 2005 and 2006 this particular company had net income of $21.08 and $12.54 by utilizing $100 worth of total asset.
It goes down and it is unfavorable for Square Pharmaceutical. Because the net income decreases, so the ratio decreases.
Return on Equity (ROE) In the year 2007, Square Pharmaceutical’s common shareholders had a earning
of $31.86 per $100 worth of common equity. In the year 2005 and 2006, it is $50.08 and $35.19 per $100 worth of common equity.
It goes down and it is unfavorable for Square Pharmaceutical. Because the net income decreases and at the same time total common equity
increases, so the ratio decreases.
Graph of Gross Profit Margin Graph of Net Profit Margin
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12
Return on Asset
21.0812.54 12.43
0
10
20
30
2005 2006 2007
Financial Year
Per
cen
tag
e
Return on Equity
50.0835.19 31.86
0
20
40
60
2005 2006 2007
Financial Year
Per
cen
tag
e
Graph of Return on Asset (ROA) Graph of Return on Asset (ROE)
Stock Market Ratio
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Earning per Share
Price-to-Earning Ratio (P/E)
Market to Book Value (M/B)
31-03-2005
290.70/share
12.74 times
6.38 times
31-03-2006
195.56/share
17.59 times
3.40 times
31-03-2007
218.61/share
16.03 times
9.08 times
Remark
Average
Good
Good
Price / Earning Ratio
12.74 11.5916.03
-5101520
2005 2006 2007
Financial Year
Tim
es
Market / Book Ratio
6.38
3.40
9.08
-
5
10
2005 2006 2007
Financial Year
Tim
es
E arning P er S hare (E P S )
-
100.00
200.00
300.00
400.00
2005 2006 2007
Per
Sh
are
Inco
me
S eries 1
Interpretation of Stock Market Ratio
Earning per ShareIn the year 2007, earning per share of Square Pharmaceutical was 218.61/share. In 2005 and 2006, it was 290.70/share and 195.56/share.
In 2005earning per share was relatively good than 2005. But in 2007 it has improved.
Price-to-Earning Ratio In the year 2007, the stock price per share of Square Pharmaceutical 16.03 times of
earning per share. In year 2005 and 2006, it was 12.74 times and 17.59 times. It goes up so it is favorable for Square Pharmaceutical. Because the market share price increase as because net income and other income
increase in Square Pharmaceutical.
Market to Book Value Ratio In the year 2007, Square Pharmaceutical’s market price per share was 9.08 times
then the book value per share. In year 2005 and year 2006 it was 6.38 times and 3.40 times. It goes up and it is favorable for Square Pharmaceutical. Since, company’s net income goes up.
Graph of Price/ Earning Ratio Graph of Market/ Book Ratio
Graph of Earning per Share
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16
Other Equations
Profit Margin ×Total Assets Turnover× Equity Multiplier = Net Profit × Sales × Total Assets Sales Total Assets Equity
2005= 1,255,848,153 × 5,332,046,635 × 5,957,983,236 5,332,046,635 5,957,983,236 2,507,810,668
2006= 1,165,864,616 × 6,089,905,396 × 9,298,987,312 6,089,905,396 9,298,987,312 3,312,992,882
2007=1,303,242,840 × 7,500,811,349 × 10,486,940,004 7,500,811,349 10,486,940,004 4,089,979,175
Du Pont Equation
Return on Asset (ROA) = Profit Margin × Total Assets Turnover
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Unfavorable
Unfavorable
Remark Extended Du Pont Equation
Return on Equity (ROE) =
= Net Profit × Sales Sales Total Assets 2005= 1,255,848,153 × 5,332,046,635 5,332,046,635 5,957,983,236
2006= 1,165,864,616 × 6,089,905,396 6,089,905,396
9,298,987,312
2007= 1,303,242,840 × 7,500,811,349 7,500,811,349 10,486,940,004
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RECOMMANDATION
Generally, financial statement analysis generally begins with a set of financial ratio
designed to disclose the strengths and weaknesses of a SQUARE as compare over year to
year position, and to show whether its financial position has been improving or failing
over time.
From the above sixteen ratio analysis of SQUARE PHARMACEUTICALS Ltd. our
recommendation for the investors is that the company financial wealth which was
unfavorable and not in good position for the company. We determined this decision about
SQUARE’s because of their deteriorating in liquidity ratio, assets management ratio, debt
management ratio except profitability ratio and stock market ratio.
If the company wants to improve the current financial position and increase stakeholder
response by investing more in the SQUARE, the company should make
quick turnover of inventories,
account receivable,
cash liquidity,
total assets
Meanwhile, the company should make longer payment period than receiving period.
Square should limit their financial expenses and other expenses.
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CONCLUSI
From overall financial analysis, we came to know how ratio analysis can help us to evaluate
the financial performance of the company. From this project we also learned to analyze the
value of different financial reports of different financial years and to improve forecasting
skills. We were able to gain specific knowledge about the financial strengths and weaknesses
of our selected company SQUARE Pharmaceuticals Ltd in the chosen industry. In
doing so, we have learnt about group dynamics as we function as part of a team.
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CONCLUSI
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