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Financial Analysis

Financial Analysis

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Published by api-3715493
ratio analysis, financial analysis
ratio analysis, financial analysis

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Published by: api-3715493 on Oct 14, 2008
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03/18/2014

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Brief History of Square Pharmaceuticals & Liquidity Ratios
BRIEF HISTORY

Square Pharmaceuticals Ltd. is a renowned company in Bangladesh. It is a
flagship company in the pharmaceutical industry which has reached this
mountain of success by fighting many potential competitors like BEXIMCO
Pharma, INCEPTA, ACME, RENETA, OPSONIN, SK+F, SANOFI-AVENTIS etc. It
initially started as a Partnership in 1958. It was incorporated as a Private Ltd.
Company in 1964 and converted into Public Limited Company in 1991. Its
initial public offering started in Dhaka and Chittagong stock exchange
simultaneously in 1995. 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.

RATIO ANALYSIS

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's financials 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. Asset management ratios
3. Debt management ratios
4. Profitability ratios
5. Market value ratios

LIQUIDITY RATIOS

Liquidity ratios are the first ones to come in the picture. These ratios actually show the relationship of a firm\u2019s cash and other current assets to its current liabilities. Two ratios are discussed under Liquidity ratios. They are:

1. Current ratio
2. Quick/ Acid Test ratio.

1. Current ratio: This ratio indicates the extent to which current liabilities are
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 accrued expenses (principally wages).

Current Ratio=Current Assets/Current Liabilities
Following table shows the Current ratios of Square Pharmaceuticals in
different years:
Year
2005-06
2004-05
2003-04
Current ratio
1.78 times
1.66 times
1.62 times
Following graph shows the change of Current ratios over different periods:

From the analysis, we can see that in 2003-04 the current assets were 1.62
times than the current liabilities that has not fluctuated much through out
these three years. A minimal increase is seen in 2004-05 and it went up to
1.66 times which kept slightly increasing and resulted at 1.78 times in 2005-
06. The reason for such stability can be there not investing remarkably on
assets and not making any huge loan or financing from outside. If we take a
closer look on the balance sheet, this assumption gets a more realistic touch.
Year by year assets have gone slightly up and the liabilities as well, but
proportionately assets were a littler higher than the liabilities which actually
reflected as a marginal increase in the ratio.

2. Quick/ Acid Test ratio: This ratio indicates the firm\u2019s 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
Following table shows the Quick/ acid test ratios of Square Pharmaceuticals
in different years:
Year
2005-06
2004-05
2003-04
Quick ratio1.19 times
1.08 times
.98 times
Following graph shows the change of Current ratios over different periods:

Analysis of this ratio speaks in a same language as current ratio. In 2003-04,
the quick ratio was .98 times which increased very silently just like current
ratio and resulted as 1.19 times in 2005-06. Both of these ratios portray the

idea that square has so far an almost constant liquidity position which is
good at some point, but at the same token it can be said that they have not
been able to improve them-selves. Standing at this point, we can make an
assumption that may be their profit margin was not so high that they can
make some investments paying off the liabilities that could result in an
increase in assets and decrease in liabilities to make the liquidity position far
better. This assumption can only be proved as we go on analyzing their
financial statement and calculate the profitability ratios.

Asset Management Ratios of Square Pharmaceuticals
ASSET MANAGEMENT RATIOS

Asset management ratios are the financial statement ratios that measure
how effectively a business uses and controls its assets. Below are discussed
five types of asset management ratios:

1. Inventory turnover ratio
2. The days sales outstanding
3. Average payment period
4. Fixed asset turnover ratio
5. Total asset turnover ratio

1. Inventory turnover ratio: The ratio is regarded as a test of efficiency and
indicates the rapidity with which the company is able to move its
merchandise.

Inventory turnover ratio = Gross Turnover / Inventories
Following table shows the Inventory Turnover ratio of Square
Pharmaceuticals in different years:
Year
2005-06
2004-05
2003-04
Inventory
Turnover
R a tio
5.27 times
5.41 times
6.89 times

Analysis shows a gradual declination of Inventory Turnover Ratio over the
last three yeas. In 2003-04, the ratio was 6.89 times, then it rapidly declined
to 5.41 times in following year and dropped further to 5.27 times in the year
2005-06.

The company\u2019s balance sheets show increase of inventory with declining
turnover every year. Declining inventory turnover commonly indicates that
the company is not being able to flush its inventory very well as it was doing

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