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

2

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.

3

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

5

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.

6

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

7

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.

8

OUR

9

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

12

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.

13

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

14

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

17

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

18

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

19

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

20

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

21

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.

22

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.

23

CONCLUSI

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