1.

INTRODUCTION
In this part we will introduces this term paper. A general background of the subject and the company is followed by the term paper purpose and questions. The questions are followed by the rationale of this term paper.

1.1 Background
Performance evaluation of a company is usually related to how well a company can use it assets, shareholder equity and liability, revenue and expenses. Financial ratio analysis is one of the best tools of performance evaluation of any company. In order to determine the financial position of the company and to make a judgment of how efficiently the company run its operation ,

utilize its asset and generate profit ratio analysis technique is very useful. We will measure the performance of the Square Pharmaceuticals Limited Bangladesh. Square Pharmaceuticals

Limited Bangladesh is the largest pharmaceutical company in Bangladesh and it has been continuously in the 1st position among all national and multinational companies since 1985. It was established in 1958 and converted into a public limited company in 1991.Square Pharmaceuticals Ltd., the flagship company, is holding the strong leadership position in the pharmaceutical industry of Bangladesh since 1985 and is now on its way to becoming a high performance global player.

1.2 Purpose of this term paper:

The purpose of this study is to evaluate the performance and future prospects of square pharmaceutical limited Bangladesh.

1.3 Term Paper Questions:

What is the performance of the company related to liquidity ratios? What is the performance of the company related to Asset management ratios? What is the performance of the company related to debt management ratios? What is the performance of the company related to Profitability ratios? What is the performance of the company related to Market value ratios?
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3. RATIONALE
The reason behind choosing SQUARE Pharmaceuticals Limited is, the firm is enlisted in local stock market (DSE), It 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, and another aspect for choosing this firm is all the annual report like income statement, balance sheet, cash flow statement is available.

4. LITERATURE REVIEW:
In this phase we will summarize the literature we use. These are presented below. Essential of managerial finance by Besley and Brigham In this book the writers discuss about financial ratio analysis for performance evaluation. It analysis is typically done to make sense of the massive amount of numbers presented in company financial statements. It helps evaluate the performance of a company, so that investors can decide whether to invest
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in that company. Here we are looking at the different ratio categories in different books and annual report of the company on different aspects of performance such as profitability ratios, liquidity ratios, debt ratios, asset management ratio, market value evaluation ratios. The writer of the book discusses that liquid position deals with the question of how well the company is able to meet its current obligation. Assets are converted into cash in a short period of time that are concerns to liquidity position. About asset management ratio the writers discusses that it measure how effectively a company uses and controls its assets. About debt ratio the writers discusses that Debt Management Ratios attempt to measure the firm's use of Financial Leverage and ability to avoid financial distress in the long run. About profitability ratio the writers of the book discusses that the Profitability Ratio Analysis of Income Statement and Balance Sheet are used to measure company profit performance the income statement and balance sheet are two important reports that show the profit and net worth of the company. It analyses shows how the well the company is doing in terms of profits compared to sales. About market value ratio the writers discusses that The market value ratios relate the market stock price to its earning and book value per share. They give management an indication of what investors think of the companys future prospects based on its past performance.

5.METHODOLOGY
In this part of the term paper we will discuss the data collection method and data analysis method.

5.1 Data collection:

Most of our data is from a secondary source. The main source of our data is from the financial report 2009-2010 .We have collected it from square pharmaceutical limited, Glaxo smith pharmaceutical limited, Aci pharmaceutical limited website. limited and Reneta pharmaceutical

5.2 Data analysis:

We used ratio analysis as our only tool for measuring the firms performance. . Firstly we calculate the ratios of square pharmaceutical limited then we compare the ratios with industrial average. Because industrial average data were not readilyavailable, we chose to use the average ratios of a purposive sample of 4 firms,(Squire pharmaceutical, Glaxosmithpharmaceutical, Aci pharmaceutical limited and Reneta pharmaceutical limited) of the industrial average, as pro-xi for the industrial average.

6.EXPECTED OUTPUTS
In this term paper we will compute all the ratios with the help of annual report like income

statement, balance sheet, cash flow statement of square pharmaceutical limited and compare with industry average and try to analyze and understand the present, future growth of this firm.

BALANCE SHEET
As at 3 1 M a r c h 2010

ASSETS:
Non-Current Assets: 10,255,189,084
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Property, Plant and Equipment-Carrying Value Capital Work-in-Progress Investment - Long Term (at Cost) Current Assets: Inventories Trade Debtors Advances,Deposits and Prepayments 358,250,076 Investment in Marketable Securities (at Cost) Short Term Loan Cash and Cash Equivalents TOTAL ASSETS 4,774,311,194

5,630,791,822 634,347,093 3,990,050,169

2,207,078,082 508,249,174

221,269,226

1,220,736,941 258,727,695 15,029,500,278

SHAREHOLDERS' EQUITY AND LIABILITIES: Shareholders' Equity: Share Capital Share Premium General Reserve Tax Holiday Reserve Retained Earnings 1,509,030,000 2,035,465,000 105,878,200 1,101,935,237 6,802,071,388 11,554,379,825

Non-Current Liabilities: Long Term Loans - Secured Deferred Tax Liability Current Liabilities: Short Term Bank Loans Long Term Loans - Current Portion Account Receivable 394,715,915

1,258,376,052 1,032,633,110
225,742,942 2,216,744,401

736,443,848 462,090,211

Liabilities for Expenses Liabilities for Other Finance

Total liabilities 3,475,120,453 Shareholders Equity

56,463,570
567,030,857

11,554,379,825

TOTAL SHAREHOLDERS' EQUITY AND LIABILITIESTk15,029,500,278

INCOME STATEMENT
For the Year Ended 31 March 2010

TOTA SALES Less: Value Added Tax

13,279,141,757 1,816,563,347
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NET SALES COST OF GOODS SOLD GROSS PROFIT Operating Expenses:

11,462,578,410 (6,561,288,485) 4,901,289,925 (2,211,670,939) (1,687,210,447) (524,460,492) 2,689,618,986

Selling and Distribution Expenses Administrative Expenses PROFIT FROM OPERATIONS Other Income Financial Expenses NET PROFIT BEFORE WPPF Allocation for WPPF NET PROFIT BEFORE TAX Provision for Income Tax Provision for Deferred Income Tax NET PROFIT AFTER TAX

585,564,826 (308,861,107) 2,966,322,705 (141,253,462) 2,825,069,243 (688,499,602) (48,697,850) 2,087,871,791

(Transferred to the Statement of Changes in Equity) Earnings Per Share (EPS) Tk. 138.36 15,090,300

Number of Shares used to compute EPS

Net income available to common stockholder 2,087,893,908

7. FINDINGS AND RATIO ANALYSIS:

7.1 Liquidity Ratio:
Liquidity ratio refers to the ability of a company to interact its assets that is most readily converted into cash. Therefore a firms liquid positiondeals with the question of how well the company is able to meet its current obligation. Assets are converted into cash in a short period of
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time that are concerns to liquidity position. However, the ratio made the relationship between cash and current liability. The Liquidity ratio we can satisfy on the two ratios, those are: 1. Current ratio 2. Quick ratio or acid test

Current ratio:The

current ratio is calculated by dividing current assets by current

liabilities. Current asset includes inventory, trade debtors, advances, deposits and repayment, investment in marketable securities in short term loan, cash and cash equivalents, and current liabilities are comprised short term banks loan, long term loans-current portion, trade creditors liabilities for other finance etc. Current ratio provides the best single indicator of the extent to which the claims of short term creditors are covered by the assets that are expected to be converted to cash fairly quickly, it is the most commonly used measure of short term solvency.

1.

= =2.15 times Industry average =1.85 times

Analysis: Square pharmaceuticals current ratio is 2.15 and the industry average is 1.85 times
that is its liquidity position is strong. The firm can meet its current obligation easily compare to other firms in the industry.

Quick ratio:Quick ratio or acid test ratio is estimating the current assets minus inventories
then divide by current liabilities. It is easily converted into cash at turn to their book values and it also indicates the ability of a company to use its near cash. Inventories typically are the least liquid of a firms current asset, so they are the asset on which losses are most likely to occur in the event of a quick liquidation. Therefore, a measure of the firms ability to pay off short term obligations without relying on the sale of inventories is important.
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2. Quick ratio=

= = 1.158 times Industry average = 0.96 times Analysis: Square pharmaceuticals quick ratio is 1.158 times and the industry average is 0.96 times that is its quick ratio position is little higher than other firms in the industry. The difference suggests that the firms inventory level is relatively lower than other firm. Other firms in the industry are holding more inventory than square pharmaceutical limited. The firm is liquidating its inventory for paying off its current liabilities.

7.2 Asset Management Ratio:

Asset management ratios are most notable ratio of the financial ratios analysis. It measure how effectively a company uses and controls its assets. It is analysis how a company quickly converted to cash or sale on their resources. It is also called Turnover ratio because it indicates the asset converted or turnover into sales. Finally, we can recognize the company can easily measurement their asset because this ratio made up between assets and sales. If the firm have too many assets, their interest expenses will be too high; hence, their profit will be less. On the other hand, because production is affected by the capacity of assets, if assets are too low, profitable sales might lost because the firm is unable to manufacture enough products.

Following are discussed seven types of asset management ratios: 1) 2) 3) 4) Inventory turnover Days sales outstanding Fixed asset turnover Total asset turnover
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Inventory turnover ratio:Inventory

turnover ratio, defined as how many times the

entire inventory of a company has been sold during an accounting period, is a major factor to success in any business that holds inventory. It shows how well a company manages its inventory levels and how frequently a company replenishes its inventory. In general, a higher inventory turnover is better because inventories are the least liquid form of asset.

1.

Inventory turnover ratio=

=
=2.97times Industry average = 2.83 times

Analysis:Square pharmaceuticals inventory turnover ratio is higher than the industry average
.It suggests that the firm manage its inventory better and replenishes its stock frequently than other firms in the industry.

Days sales outstanding: A measure of the average number of days that a company takes
to collect revenue after a sale has been made. A low DSO number means that it takes a company fewer days to collect its accounts receivable. A high DSO number shows that a company is selling its product to customers on credit and taking longer to collect money.

2.

Days sales outstanding

=
= 12.39 days Average daily sales=
10

=
= 31,840,495.58 Industry average = 41.03 days

Analysis: The days sales outstanding position is far better than industry average that suggests
the firm takes only 12.39 days to collect is account receivable.

Fixed asset turnover ratio:The fixed-asset turnover ratio measures a company's ability
to generate net sales from fixed-asset investments - specifically property, plant and equipment (PP&E) - net of depreciation. A higher fixed-asset turnover ratio shows that the company has been more effective in using the investment in fixed assets to generate revenues.

3.

Fixed asset turnover ratio

=
=2.03 times

Industry average = 3.92 times

Analysis:square pharmaceuticals fixed asset turnover ratio is almost half of the industry
average. The ratio suggests that the firm is ineffective in using its plant property equipment to generate its revenue.

Total asset turnover ratio: The total asset turnover ratio measures the ability of a
company to use its assets to generate sales. The total asset turnover ratio considers all assets including fixed asset, like plant and equipment, as well as inventory and accounts receivable.The lower the total asset turnover ratio, as compared to industry average, the more sluggish the firm's sales.
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4. Total asset turnover ratio =

=0.76 times Industry average = 1.13

Analysis: The firm is struggling to generate its sales by using its total asset as its total
turnover ratio is lower than the industry average.

7.3 Debt Management Ratio:

Debt Management Ratios attempt to measure the firm's use of Financial Leverage and ability to avoid financial distress in the long run. These ratios are also known as Long-Term Solvency Ratios. Debt is called Financial Leverage because the use of debt can improve returns to stockholders in good years and increase their losses in bad years. Debt generally represents a fixed cost of financing to a firm. Thus, if the firm can earn more on assets which are financed with debt than the cost of servicing the debt then these additional earnings will flow through to the stockholders.

Debt ratio:

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 lower the company's reliance on debt for asset formation, the less risky the company is. On the other hand, the higher ratio means a company has high insolvent risk since excessive debt can lead to a heavy debt repayment burden.

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1. Debt ratio =

= =23.12% Industry average = 40.53%

Analysis: square pharmaceuticals debt ratio is 23.12% that means, its 23.12% asset financed
by the creditors. Comparing to industry average its debt ratio position is better than the other firms in the industry.

7.4 Profitability Ratio:

Profitability ratios are classes of financial metrics that used to assess a business's ability to generate earnings as compared to its expenses and other relevant costs incurred during a specific period of time. For most of these ratios, having a higher value relative to a competitor's ratio or the same ratio from a previous period is indicative that the company is doing well.

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

1. Net Profit Margin 2. Return on Asset 3. Return on Equity

Net profit margin:

Net profit margin ratio is a ratio of profitability calculated as net

income divided by revenues, or net profits divided by sales. It measures how much out of every dollar of sales a company actually keeps in earnings. A higher profit margin indicates a more profitable company that has better control over its costs compared to its competitors. 1. Net profit margin =
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=18.21% Industry average = 12.42%

Analysis:
firms.

Square pharmaceuticals profit margin is 18.21% which is better than industry

average. This ratio indicates that it have a very good control over its cost than the competitor

Return on total asset:Return on total asset is a ratio that measures a company's earnings
before interest and taxes (EBIT) against its total net assets. The ratio is considered an indicator of how effectively a company is using its assets to generate earnings before contractual obligations must be paid. The greater a company's earnings in proportion to its assets the more effectively that company is said to be using its assets. 2. Return on total asset =

=13.89% Industry average = 13.29%

Analysis:Return on

total asset of the firm is almost similar to industry average. The ratio

suggests that the firm effectively using its asset to generate earnings before contractual obligation like tax, interest must be paid.

Return on equity: The amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability by revealing how much profit a company

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generates with the money shareholders have invested. It tells the rate that shareholders are earning on their shares.

3. Return on equity =

= 18.07% Industry average =19.88%

Analysis: The firm returns 18.07% net income of shareholders equity. The firms return on
equity is almost same as the industry average that indicates share holders are making similar profit like other firms shareholders are making.

7.5 Market value:

The market value ratios relate the market stock price to its earning and book value per share. They give management an indication of what investors think of the companys future prospects based on its past performance. Earnings per share: The price earnings ratio shows how much investor willingly to pay for per share. It is the portion of a company's profit allocated to each outstanding share of common stock. Earnings per share serve as an indicator of a company's profitability.

4. Earnings per share =

=138.36 tk per share

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Industry average = 295.5 tk per share

Analysis: The Eps of square pharmaceutical limited is 138.36 taka that means investor is
willingly to pay for per share as the same amount. Eps of the firm is less than industry average that indicates the firms profitability is relatively lower than other firms in the industry. The investor has to take risk to invest the firm.

Book value per share:The ratio of stocks market price to its book value gives another
indication how investors regard the company. It is somewhat similar to the earnings per share, but it relates the stockholder's equity to the number of shares outstanding, giving the shares a raw value. 5. Book value per share =

= =765.68 tk Industry average = 3701.17 tk

Analysis: The book value per share is less than the industry average which indicates interms
of stock investment it unsafe to invest in square pharmaceutical limited

Industrial Average Calculation: Table:1

Sl Ratios Square Glaxo smith
2.15 times 1.158 times 2.97times 3.11times 1.68times 3.40times 1.05times .60times 3.13times 1.11times .414times 1.85times

ACI

Reneta

Industrial Average
1.85 times .96times 2.83times

no: Name:
1 2 3 Current ratio Quick ratio Inventory turnover ratio

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Days sales outstanding

15.96 days

48.75days

65.59days

33.83days

41.03days

Fixed asset turnover ratio

2.03 times

8.66times

3.02times

1.98times

3.92times

Total asset turnover ratio

0.76 times

1.77times

1.016times .995times

1.13times

7 8

Debt ratio Net profit margin

23.12% 18.21%

31.60% 10.7%

65.53% 4.08%

41.89% 16.72%

40.53% 12.42%

Return on total asset

13.89%

19.02%

4.148%

16.69%

13.29%

10

Return on equity

18.07%

27.82%

5%

28.65%

19.88%

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Earnings per share

138.36tk

26.88tk

12.2tk

471.06tk

295.205tk

12

Book value per share

765.68 tk

725tk

372tk

12942tk

3701.17tk

Table: 2 SL Ratio Ratio values Industrial Average 1 2 3

Current ratio Quick ratio Inventory turnover ratio 2.15 times 1.158 times 2.97 times 1.85 times .96times 2.83times

Comments

high ok ok
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4 5 6 7 8 9 10 11 12

Days sales outstanding Fixed asset turnover ratio Total asset turnover ratio Debt ratio Net profit margin Return on total asset Return on equity Earnings per share Book value per share

15.39 days 2.03 times 0.76 times 23.12% 18.21% 13.89% 18.07% 138.36 tk 765.68 tk

41.03days 3.92times 1.13times 40.53% 12.42% 13.29% 19.88% 295.205tk 3701.17 tk

low high high low low ok ok low low

8. LIMITATIONS
There is some limitation of our study. When we used the main methods of ratio analysis for performance evaluation of pharmaceutical company, we faced different kinds of problem. Some of those problems are mentioned below.

Time constraint: The study has been conducted in a short time frame.
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Data unavailability: Industrial average was unavailable. For ratio calculation we rely
only annual reports that all the companies published in their website.

Limitations of ratio analysis technique: Ratio analysis technique has some its
own limitations for evaluating performance of a company. Ratios do not always show the real picture of the company because different company does different accounting practices. Sometime companies use window dressing technique for hiding the real picture.

9. CONCLUSION
The conclusion chapter is directly connected to the term paper questions. The analysis will be summarized in order to answer the term paper questions. In our term paper we have seek five questions for measuring the performance of square pharmaceutical limited. First we have measured the liquidity position of the company which indicates that its liquidity position is in good shape. The firm can must its current obligation easily. Second we measured how effectively
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the company uses and control its assets. The analysis indicates that the company manages its inventory better, the company collects its Account receivable in quick time but the company is ineffective in using its revenue. Third, we measured how the company uses of financial leverage and its ability to avoid financial distends in the long run. The analyses suggest that the company has less potential risk. The company has less debt relative to its asset. Forth we measured how profitable is the company to invest. The analyses suggest that the company have good control over its cost. The company generates enough earning to pay its contractual obligation like tax, interest and the company makes good profit that can attract investor. Fifth thought current EPS and book value is lower than other companies the companys future prospects are bright.

10. RECOMMENDATION
The company can increase its inventory level to generate more production as the company replenishes its stock quickly. The company should use its plant property equipment more effectively.

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