Introduction

Origin
The following financial report analysis is based on three companies- Beximco Pharma, Square
Pharmaceuticals Limited and Renata Limited. All these three companies are well known
pharmaceuticals companies in the todays market of Bangladesh. This report is prepared for Mrs.
Dilara Afroz Khan (DAK), instructor of the course FIN 254 (Introduction to Financial Management)
for the fall semester 2006 as a partial requirement of the course.

Objective
The objective of this report is to analyze the scenario of these three companies as well as
gathering practical knowledge from the financial context and establish a relation with our
knowledge of the course. A key objective is to conduct a ratio analysis, developing common size
income statement of the companies and evaluate their performances by generating industry
averages or industry standard values. To evaluate their performances against the industry
standard values we have used the Do Pont System to analyze the ratios. The project includes
application of various ratio formulas to find out the ratios required to understand the financial
situation of the companies in comparison to the industry average.

Methodology
Before gathering all the information, we generated a clear and precise strategy to work. First we
collected the Annual report of the companies for the year 2005. Then the ratios and industry
standard values are generated using Microsoft Excel. Afterwards, the original reports are
common sized using the format of our book ( Principles of Managerial Finance,

Lawrence J.Gitman). Finally, through implementing our learning in the course, the analysis
part was done.

Scope
This report focuses on the various ratios under the criterion of liquidity, profitability, asset
management, debt management, market value which are generated on the financial
performances of the Pharmaceuticals Companies naming- Beximco Pharma, Square
Pharmaceuticals Limited and Renata Limited from Dhaka Stock Exchange of the year 2005.

Limitation
The contents of the report are exclusively obtained from the annual reports and our learning in
the course FIN 254. Therefore, the analysis part reflects our limited knowledge about the vast
financial world. Furthermore, the assumptions made about various situations can be different
from what it is in the real world. So, the content of the report may vary slightly from reality and the
analysis in the report may not fully reflect the actual situation of the companies.

Source of Data
The information provided in this report was collected in several ways. We collected the annual
report from people in parental level and other essential information was collected from the
Internet. Finally, they were manipulated with the help of the contents of our book.

Backgrounds of the Companies

In todays market of Bangladesh Beximco Pharma, Square Pharmaceuticals Limited and Renata
Limited are well reputed and well recognized companies. In addition, all these three companies
are among the leading companies of the pharmaceuticals market and they are doing good
business in the market race.
Beximco Pharma is a leading Edge pharmaceuticals company based in Dhaka, Bangladesh. It is
also acclaimed for its outstanding product quality, world class manufacturing facilities, product
development capabilities and outstanding professional services. Their mission is that each of their
activities must benefit and add value to the common wealth of the society.
Square Pharmaceuticals Limited is another leading company of Bangladesh. They view business
as a means to the material and social 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. Their vision, there mission and their objectives are to emphasize on the
quality of product, process and services leading to growth of the company imbibed with good
governance practices.
Like others Renata Limited is also a renowned company of Bangladesh. Their mission is to
produce and provide quality & innovative healthcare relief for people, maintain stringently ethical
standard in business operation also ensuring benefit to the shareholders, stakeholders and the
society at large. Their objectives are to conduct transparent business operation based on market
mechanism within the legal & social framework with aims to attain the mission reflected by our
vision.

Why we have chosen the company

Beximco Pharma, Square Pharmaceuticals Limited and Renata Limited all these three
companies have a real hold in the market. So choosing these companies will provide closer
scenario of the practical and actual situations. Naturally, all these companies perform various
kinds of financial activities each year. So we will be able to focus on various parts and terms more
appropriately. Moreover, this will help a lot to enrich our acquired knowledge.
These are the reasons why we have chosen Beximco Pharma, Square Pharmaceuticals Limited
and Renata Limited to prepare the report.

RATIO CALCULATIONS

Workings:
All the calculations are done for the ratio shown in below:

Liquidity Ratios
1. Liquidity Ratio = Current Asset/Current Liabilities (Current Asset and Current Liabilities are
taken from balance sheet)
2. Quick or Acid Ratio = Current Asset-Inventories/Current Liabilities (Current Asset,
Inventories, Current Liabilities are taken from balance sheet)

Activity or Asset Management Ratios

3. Inventory Turnover = Cost of Good Sold/Inventory (COGS is taken from income
statement, and Inventory from balance sheet)
4. Fixed Asset Turnover = Cost of Good Sold/Fixed Asset (COGS is taken from income
statement and Fixed Asset from balance sheet)
5. Total Asset Turnover = Total Operating Income/Total Asset (Total Operating Income Total
Asset is taken from income statement and Total Asset from balance sheet)
6. Average collection period (period average) = Accounts receivable/Average sales per day .
[Average sales per day = Annual sales/ 360]
7. Average payment period (period end) = Accounts payable/ Average purchases per
Day.
[Average purchases per day = Annual purchases/ 360]

Debt Management Ratios

7. Debt Ratio = Total Liabilities/ Total Asset (Total Liabilities, Total Asset are taken from
balance sheet)
8. Times Interest Earned = EBIT/Interest paid on borrowing (EBIT, and Interest are taken
from Income sheet)
9. Fixed payment coverage = EBIT + Lease payment/ Interest + Lease payments +
{(principal payments + Preferred stock dividends) * [1/(1-T)]}

Profitability Ratios
10. Gross Profit Margin = Sales Cost of goods sold/ Sales (Sales or Turn over and Cost of
goods sold are taken from Income statement)
11. Operating Profit Margin = Operating Profits / Sales (Sales and Operating Profits are taken
from Income statement)
12. Net Profit Margin = Earnings Available for Common stockholders/ Sales (Sales and
Earnings available for common stockholders are taken from Income Statement)
13. Earnings per Share = Earnings Available for common stockholders/ Numbers of Shares of
common stock outstanding. (EACSH is from income statement and No. Of common stock
is from Balance sheet)
14. Return On Total Assets = Earnings Available for common stockholders /Total Assets
(EACSH is taken from Income sheet and Total Asset is taken from balance sheet)
15. Return On Equity = Earnings Available for common stockholders /Common Stock Equity
(EACSH is taken from Income sheet and Common stock Equity is taken from balance
sheet)

Market Value Ratios

16. Price/Earnings Ratio = Market Price Per Share of common stock / Earnings Per Share
(Price Per Share taken from News paper and EPS from Income statement)
17. Market/Book Ratio = Market/Book = Common Stock Equity / Number of Shares of
Common Stock Outstanding (Number of Shares of Common Stock Outstanding = Total
Common Equity / num of Shares where Total Common Equity is taken from balance
sheet)

Industry
Ratio

BEXIMCO

SQUARE

RENATA

Average

Liquidity
Current Ratio
Quick Ratio

1.40
0.72

1.78
1.19

1.75
0.74

1.64
0.88

Activity
Inventory Turnover
Average Collection Period
Average Payment Period
Total Asset Turnover

1.05
84.38
92.83
0.30

2.63
14.67
7422.43
0.76

2.13
36.31
103.74
1.26

1.94
45.12
2539.67
0.78

Debt
Debt Ratio
Times Interest Earned Ratio
Fixed-Payment Coverage Ratio

0.38
3.26
2.54

0.31
11.30
3.65

0.39
13.78
5.82

0.36
9.45
4.00

Profitability
Gross Profit Margin
Operating Profit Margin
Net Profit Margin
Earnings Per Share (EPS)
Return On Total Assets (ROA)
Return On Common Equity

0.47
0.22
0.15
6.36
0.04

0.36
0.22
0.16
234.67
0.13

0.48
0.20
0.12
239.71
0.15

0.44
0.21
0.14
160.25
0.11

(ROE)

0.09

0.27

0.25

0.20

Market
Price/Earnings (P/E) Ratio
Market/Book (M/B) Ratio

9.09
0.83

0.40
0.11

0.42
0.11

3.30
0.35

RATIO ANALYSIS

Liquidity Ratios

The liquidity of a firm is measured by its ability to satisfy short-term obligations. Two basic
measures are Current and Quick ratio.

Current Ratio
The current ratio measures the firms ability to meet its short-term obligations. The higher a firms
current ratio, the more liquid a firm is considered to be.
The industry average for the three pharmaceuticals companies is 1.64.
For Beximco Pharma, we found that, current assets recorded Tk.3495849163, and current
liabilities of Tk.2501824568. Thus the current ratio calculated is 1.40. Compared to industry
average, liquidity of Beximco Pharma is little bit low. This indicates problem within the companys
cash management system.
For Square Pharmaceuticals Limited, we found that, current assets recorded Tk.4031684955,
and current liabilities of Tk.2260755481. Thus the current ratio calculated is 1.78. Compared to
the industry average, Square Pharmaceuticals Limited is very liquid. Still its higher from the
industry average, so the company may hold excessive cash, account receivable or inventory.
For Renata Limited, we found that, current assets recorded Tk.672355277, and current liabilities
of Tk.384140329. Thus the current ratio calculated is 1.75. Compared to industry average, the
liquidity is good enough. That means companys cash management system is working good.

Quick (Acid-Test) Ratio

Inventory is excluded in calculating quick ratio. The quick ratio provides a better measure of
liquidity when a firms inventory cannot be easily converted into cash.
The industry average is 0.88.
Inventory for Beximco Pharma account for Tk.1683722059, and the quick ratio calculated is thus
0.72. It is quite low from the industry average. This indicates low current assets and problems for
the company.
Inventory for Square Pharmaceuticals Limited account for Tk.1342365478, and the quick ratio
calculated is thus 1.19. It is quite over the industry average though the stock of inventory is very
high. As a pharmaceuticals company it seems quite good.
Inventory for Renata Limited account for Tk.388384007, and the quick ratio calculated is thus
0.74. It is also quite low from the industry average. That means company is not running smoothly.

Activity Ratios
Activity ratios measure the speed with which various accounts are converted into sales or cashinflows or outflows

Inventory Turnover
Inventory turnover commonly measures the activity, or liquidity, of a firms inventory.
The industry average for textile mills in Bangladesh is 1.94.
For Beximco Pharma, Cost of Goods Sold is Tk.1768522363. So, inventory turnover is 1.05. As it
is lower than the industry average, so the inventory management of the company is not working
well.
For Square Pharmaceuticals Limited, Cost of Goods Sold is Tk.3525402669. So, inventory
turnover is 2.63. As it is more than the industry average, the firm is operating fairly. But still the
company may have lower level of inventory which may cause stock outs and lost sales.
For Renata Limited, Cost of Goods Sold is Tk.829197436. So, inventory turnover is 2.13. So it is
also higher than the industry average. This indicates companys operations are working smoothly
but they may have lower level of inventory.

Average Collection Period

The average collection period is useful in evaluating credit and collection policies.
The industry average is 45.12
For Beximco Pharma, the accounts receivable is Tk.779798943, and an average sale per day is
Tk.9241729.372. So, average collection period is 84.38 days. This is much over the industry
average. The company could lose opportunities for investment in the delayed days.
For Square Pharmaceuticals Limited, the accounts receivable is Tk.288732137, and an average
sale per day is Tk.19682092.08. So, average collection period is 14.67 days. This is lower than
the industry average. This may shows good accounts receivable management but it also shows
strictness on the payers that may create problems in future.
For Renata Limited, the accounts receivable is Tk.162224078, and an average sale per day is
Tk.4468210.664. So, average collection period is 36.31 days. This is also lower than the industry
average. So, the company may be little bit strict to the payers.

Average Payment Period

This ratio shows how quickly the firm is paying of its debts.

The industry average is 86.01 days.

For Beximco Pharma, the accounts payable is Tk.271922585, and an average purchase per day
is Tk.2929188.397. So, average payment period is 92.83 days. This is way beyond the industry
average. Company could be facing interest on the payables.
For Square Pharmaceuticals Limited, the accounts payable is Tk.528180353, and an average
purchase per day is Tk.8594147.428. So, average payment period is 61.46 days. This is lower
than the industry average. So, it indicates good accounts payable management but still the
company is losing the benefits of paying later and investing in other activities.
For Renata Limited, the accounts payable is Tk.43799293, and an average purchase per day is
Tk.422184.3444. So, average payment period is 103.74 days. This is also over the industry
average. So, company could be facing interest on the payables.

Total Asset Turnover

Total asset turnover indicates the efficiency with which the firm uses its assets to generate sales.
The industry average counts for 0.78.
For Beximco Pharma the total asset turnover was 0.30. Compared to the industry average it is
quite low. So, the companys failed to use its assets efficiently.
For Square Pharmaceuticals Limited the total asset turnover was 0.76. It is close to the industry
average. So, the company uses its assets effectively but it can be done more appropriately.
For Renata Limited the total asset turnover was 1.26. Compared to the industry average it is quite
well. So, the companys assets have been efficiently used.

Debt Ratios
It indicates the amount of other peoples money being used to generate profits.

Debt Ratio
This ratio measures the proportion of total assets financed by the firms creditors.
The industry average for Bangladesh textile industry is 0.36.

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Debt Ratio for Beximco Pharma is 0.38. It is close to the industry average but still higher. The
firm thus has a high degree of indebt ness and more financial leverage
Debt Ratio for Square Pharmaceuticals Limited is 0.31. It is lower than the industry average. This
indicates that the company has financed a low portion of its assets with its debt. Thus the
company has more scope to look for funds from investors.
Debt Ratio for Renata Limited is 0.39. It is also higher than the industry average but close to it.
Infact, this company has more debts compared to other firms.

Times Interest Earned Ratio

The times interest earned ratio measures the firms ability to make contractual interest payments.
The industry average is calculated 9.45.
For Beximco Pharma the ratio is 3.26. It is lower than the industry average. This indicates less
capability of meeting the interest of the company.
For Square Pharmaceuticals Limited the ratio is 11.30. This is higher than the industry average.
So, the company is able to meet its interest.
For Renata Limited the ratio is 13.78. Compared to the industry average and the other
companies, Renata Limited is quite better off and quite able to meet its interests.

Fixed Payment Coverage Ratio

The fixed payment coverage ratio measures the firms ability to meet all fixed payment
obligations, such as loan interest and principal, lease payments and preferred stock dividends.
The industry average is 4.00.
For Beximco Pharma the ratio is 2.54. It is lower than the industry average. Compared to other
companies this company is rather than risky to invest.
For Square Pharmaceuticals Limited the ratio is 3.65. It is closer to the average but still lower. So,
little bit risk is still remaining.
For Renata Limited the ratio is 5.82. Compared to the industry average the ratio is quite good.
Comparatively there is a low risk for owners and lenders in Renata Limited.

Profitability Ratios

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There are many measures of profitability. As a group these measures enable the analyst to
evaluate firms profits with respect to a given level of sales, a certain level of assets, or the
owners investment.

Gross Profit Margin

The Gross Profit Margin measures the percentage of each sales taka remaining after the firm has
paid for its goods
The industry average is 44%
Beximco Pharma has a margin of 47%. It is higher than the industry average. This high
percentage reflects a relatively low cost of goods sold.
Square Pharmaceuticals Limited has a margin of 36%. This high percentage reflects a relatively
low cost of goods sold.
Renata Limited has a margin of 48%. This is also higher than the industry average. It indicates
low cost of goods sold.

Operating Profit Margin

The operating profit margin measures the percentage of each sale taka remaining after all costs
and expenses other than interest, taxes and preferred stock dividends are deducted.
The industry average is 21%.
The operating profit margin for Beximco Pharma is 22%. This is higher than the average. So, the
company is running good operating profit.
The operating profit margin for Square Pharmaceuticals Limited is 22%. So, the company is also
running good operating profit.
The operating profit margin for Renata Limited is 20%. It is lower than the industry average. So,
the company should look for more profit.

Net Profit Margin

The net profit margin measures the percentage of each sales taka after all costs and expenses.
High percentage is always preferable.
The industry average is 14%.
The net profit margin for Beximco Pharma is 15%. This is higher than the average. So, the
company seems to be quite profitable.

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The net profit margin for Square Pharmaceuticals Limited is 16%. This is higher than the average.
Comparing to other companies, it profits more.
The net profit margin for Renata Limited is 12%. This is lower than the average. So, the company
should look for more profit.

Earning Per Share (EPS)

EPS is a very important fact for any financial report. It represents the number of taka earned
during the period on behalf of each outstanding share of common stock.
The industry average is 160.25
EPS for Beximco Pharma is 6.36. This is much less than the industry average. This company in a
bad shape and has very few scope of attracting more stockholders
EPS for Square Pharmaceuticals Limited is 234.67. This company has a high EPS thus showing
more potential on profits per stock.
EPS for Renata Limited is 239.71. It is more than the average. So, it is showing more potential on
profits per stock.

Return on Total Assets (ROA)

This ratio measures the overall effectiveness of management in generating profits with its
available assets. The higher a firms return on total assets, the better for the company.
The industry average is 11%.
ROA for Beximco Pharma is 4%. It is lower than the average. So, the return is less for this
company.
ROA for Square Pharmaceuticals Limited is 13%. So, it provides higher returns on assets.
ROA for Renata Limited is 15%. It is higher than the average which indicates higher return on
assets compared to other companies.

Return on Common Equity (ROE)

This ratio measures the return earned on the common stock holders investment in the firm. The
higher this return, the better off is the owners.
The industry average is 20%.
ROE for Beximco Pharma is 9%. It is lower than the average. This companys high return on
equity suggests great profitability.

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ROE for Square Pharmaceuticals Limited is 27%. So, it provides higher returns on assets.
ROE for Renata Limited is 25%. It is higher than the average. So, it has greater profitability.

Market Ratios
Market ratios relate a firms market value, as measured by its current share price, to certain
accounting values.

Price/Earning Ratio (P/E)

This ratio is commonly used to measure the amount that the investors are willing to pay for each
taka of the firms earnings.
The industry average is 3.30
The ratio for Beximco Pharma is 9.09. It means that the investors were paying 9.09 TK for each 1
TK of earnings.
The ratio for Square Pharmaceuticals Limited is 0.40. It means that the investors were paying
0.40 TK for each 1 TK of earnings.
The ratio for Renata Limited is 0.42. It means that the investors were paying 0.42 TK for each 1
TK of earnings.

Market/Book (M/B) Ratio

This ratio provides an assessment of how investors view the firms performance.
The industry average is 0.35
The ratio for Beximco Pharma is 0.83. This is higher than the average. So, the investor expects
more from this company.
The ratio for Square Pharmaceuticals Limited is 0.11. Its less from the average. So, expiation
decreases.
The ratio for Renata Limited is 0.11. This is also less than average and so expectation also
deceases.

Common Size Income Statement

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Common-Size Income Statements

For Pharmaceutical Companies
For The Year Ended December 31,
2005

Beximco

Square

Renata

Sales revenue
Less: Cost Of Goods Sold (COGS)
Gross Profit Margin

100.00%
53.16%
46.84%

100.00%
49.75%
36.19%

100.00%
51.55%
48.45%

Less: Operating Expenses

Selling Expense
General And Administrative
expenses
Depreciation Expense
Total Operating Expenses
Operating Profit Margin

25.07%
21.49%

13.89%
11.26%

29.80%
16.39%

3.33%
0.25%
25.07%
21.77%

2.39%
0.23%
13.89%
22.30%

13.11%
0.30%
29.80%
19.70%

Less: Interest expense

Net Profit Before taxes
Less: Taxes
Net Profit After taxes
Less: Preferred stock dividends
Net Profit Margin

6.67%
14.59%
0.12%
14.71%
1.03%
13.67%

1.97%
21.64%
5.18%
16.45%
2.87%
13.58%

1.43%
17.37%
5.40%
11.97%
1.00%
10.97%

DU PONT SYSTEM

15

Relate ROA and ROE

ROA =

Earnings available to common stockholder/ Total Asset

(Earnings available to common stockholder/ sales) * (Sales / Total Asset)

Net Profit Margin * Total Asset Turnover

ROE =
=

Earnings Available to common stockholder/ Common stock Equity

(Earnings available to common stockholder/ Total Asset) * (Total Asset/ Common
stock Equity)

ROA * FLM (Financial Leverage multiplier)

Analysis
Beximco Pharma
ROE (9%) = ROA (4%) * FLM (2.25)
A low ROE that results from a low ROA reflects significant problem in the total asset turnover.
Comparing it with the industry average we can conclude a major problem of sales.

Square Pharmaceuticals Limited

ROE (27%) = ROA (13%) * FLM (2.08)

16

Though ROE and ROA is quite better off compared to the industry, ROA is quite low compared to
other profitable companies. This suggests a problem in total asset turnover, which indicates a
huge stock of assets. The company is in stocking more assets than they require.

Renata Limited
ROE (25%) = ROA (15%) * FLM (1.67)
A comparatively low ROA points out low net profit margin. This is the result of low earnings
available for common stock holders and sales compared to other profitable companies.

CONCLUSION
17

Beximco, Square Pharmaceuticals and Renata are three of the most popular companies in the
pharmaceutical industry of Bangladesh. By carrying out a ratio analysis of these companies, we
ere able to get an inside overview of the operation of the firm and match them with their
reputation. Clearly each company is distinct in setting their operation policies and matching the
expectations of the stockholders. There are still many changes to hope for in these companies as
time puts new challenges in front of them.

Suggestions
18

After completing the analysis part we have recommended some suggestions, which they may
follow:
1. Beximco Pharma should try and increase its quality and thus increase sales. Beximco
Pharma policies should be considered to increase ROE and thus attract more stockholders.
2. Asset management of Square Pharmaceuticals Limited should be improvised to meet the
requirements. This will help them to solve their problems.
3. Company should focus in increasing their sales and earnings available to common stock
holders.

What we have learned from this project

Nothing goes completely with books. Infact, practical scenario is naturally much more
complicated. In the future, when we will enter the commercial life, we have to relate our
knowledge with the practical scenario. This project is opportunity to practice such kind of
activities. This project gave us an opportunity to learn several important aspects about the finance
of a company. Through this project we have learned several financial processes like how to
prepare common size income statement and calculate ratios from the figures of the companys
balance sheet and income statement. We have also learned to evaluate financial ratios to analyze
and monitor a firms performance. Thus we succeed to relate the practical scenario with the
contents of our textbook.

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