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Executive Summary

Ratios are used in much of our daily life. We buy cars based on miles per gallon, we evaluate
baseball players by earned run and batting average; basket ball players by field goal and foul
shooting percentage, and so on. These are all ratios constructed to judge comparative
performance. Financial ratios serve a similar purpose, but we must know what is being measured
to construct a ratio and to understand the significance of the resultant number. Financial ratios
are used to weight and evaluate the operating performance of firm. To judge comparative
performance here discussed on different ratios of SQUARE Pharma. Square Pharmaceutical
Limited Bangladesh is one of the leading pharmaceuticals in Bangladesh. Its journey to the
growth and prosperity has been no bed of roses. From the inception in 1958, it has today
burgeoned into one of the top line conglomerates in Bangladesh. 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. In
this report, we have tried to focus on the financial performance of the company during the fiscal
year of 2013-2009. We have used financial ratios to determine its performance in short term and
long term period. The firm had a strong financial backbone as it uses less debt for investment,
uses its asset efficiently for producing goods. Sales had increases on regular basis over past the
years. In one word based on our analysis this firm can be an example in certain financial segment
for other company. Though, the firm pays fewer cash dividends than past fiscal years, which
might be disliked by investors. But it must be added that the company had been increasing its
the number of outstanding share regularly and also provide bonus share to its shareholder. The
companys fiscal year is based on April to March. And regularly hold annual general meeting and
publishes financial report both annually, half yearly and quarterly.

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Company Profile
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. The sales turnover of Square Pharmaceuticals Limited (SPL) was more than Taka 11.46
Billion (US$ 163.71 million) with about 16.43% market share having a growth rate of about
16.72%.
Vision - We 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.
Mission -Our 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.

Objective- Our objectives are to conduct transparent business operation based on market
mechanism within the legal & social frame work with aims to attain the mission reflected by
our vision.

Subsidiary Company:
Square Cephalosporin Ltd.
Square Biotechs Ltd.
Square Multi fabrics Ltd

Associate Company:
Square Textiles Ltd.
Square Knit Fabrics Ltd.
Square Fashions Ltd.
Square Hospitals Ltd.

Top Management: Board of Directors


As per provisions of the Article of Association, Board of Directors holds periodic meetings to
resolve issue of policies and strategies, recording minutes/decisions for implementation by the
Executive Management.
Executive Management
The Executive Management is headed by the Managing Director, the Chief Executive Officer
(CEO) who has been delegated necessary and adequate authority by the Board of Directors. The
Executive Management operates through further delegations of authority at every echelon of the
line management. The Executive Management is responsible for preparation of segment
plans/sub-segment plans forever profit centers with budgetary targets for every items of goods &
services and are held accountable for deficiencies with appreciation for exceptional performance.
These operations are carried out by the Executive Management through series of committees,
sub-committees, ad-hock committees, standing committees assisting the line management.

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Financial Statement Analysis of Square Pharmaceuticals Ltd.

SHORT TERM LIQUIDITY RATIO ANALYSIS


Current Ratio is one of the most widely used tests of financial strength, and is calculated by
dividing Current Assets by Current Liabilities. This ratio is used to determine if your business is
likely to be able to pay its bills. Obviously, a minimum acceptable ratio would be 1:1; otherwise
your company would not be expected to pay its bills on time. A ratio of 2:1 is much more
acceptable, and the higher, the better. Also known as "liquidity ratio", "cash asset ratio" and
"cash ratio".
The Current Ratio formula is:

(Figures in Thousands)
Year
Current
Asset
Current
Liabilities
Current
Ratio

2013

2012

2011

2010

2009

5,996,698

6,745,980

7,022,214

4,774,311

3,843,513

3,792,438

4,252,935

4,668,189

2,216,744

2,640,869

1.58

1.59

1.50

2.05

1.45

Source: Annual report of SPL from year 2009-2013

2.5
2.05
2
1.58

1.59

1.5

1.5

1.45
Current Ratio

Current Ratio

0.5
0
2013

2012

2011

2010

2009

Analysis Result:

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From the trend it can be concluded that Squares current assets are increasing and current
liabilities are decreasing. So, its liquidity position is relatively stronger compare to others. On
average the current ratio of Square Pharmaceuticals Limited Bangladesh was 1.63 during fiscal
year (FY) 2000-2013. According to current ratio, it must be assumed that Square
Pharmaceuticals Limited Bangladesh was successful to meet its short term obligations very well
for the past fiscal years and will maintain a successful healthy financial performance in coming
years. .But only in 2009-2010 the current ratio was 2.05 which were acceptable if the square
pharmaceutical company maintain that ratio it may good for further investment.
Quick Ratio is sometimes called the acid test ratio because it concentrates on only the more
liquid assets of your business. It is calculated by dividing the sum of Cash and Receivables by
Current Liabilities. It excludes inventories or any other current asset that might have
questionable liquidity. Depending on your history for collecting receivables, a satisfactory ratio
is 1:1.

(Figures in Thousands)
Year
Current
Asset
Current
Liabilities
Inventory
Quick Ratio

2013

2012

2011

2010

2009

5,996,698

6,745,980

7,022,214

4,774,311

3,843,513

3,792,438

4,252,935

4,668,189

2,216,744

2,640,869

2,503,683
0.92

2,687,818
0.95

2,541,688
0.96

2,207,078
1.15

2,098,755
0.66

Source: Annual report of SPL from year 2009-2013

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1.4
1.2
1
0.8

Quick Ratio

0.6
0.4

0.92

0.95

0.96

1.15

Quick Ratio
0.66

0.2
0
2013

2012

2011

2010

2009

Analysis Result:
We calculate quick ratio to see the real picture of liquid asset. Quick ratio is always less than
current ratio. Quick ratio is more stringent than current ratio. In 2010-11ratio was 0.96 that
means the company has not more liquidate money, because it was less 1.
Square Pharmaceuticals Limited Bangladesh had an average of 0.92 for
the fiscal year 20132009.0.91 is an unhealthy figure for a firm. Alongside, the higher the figure, the
better opportunity for the firm to eliminate its current liabilities without relying
on its inventory. By analyzing the current asset and inventory of this
pharmaceuticals firm, on average the total inventory is 44.40% of its current
assets between FY 2013 and 2009 and this refers that the firms current asset
consists a large portion of inventories. Therefore the firm will need to increase
the figures of other accounts, under its current asset and reduce the
dependency on inventories to meet short term obligations. In addition, Current
assets without the inventories portion decreased by 4.54% between the fiscal
year of 2013 and 2009 and the inventories of Square pharmaceuticals Limited
Bangladesh has increased by 64.41% at the same time. The firm had the worst
quick ratio figure in 2009 but eventually it has increased in 2010 due to a
decline in its short-term bank loans.
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Net Working Capital to Total Assets Ratio:


Net Working Capital to Total Assets ratio is defined as the net current assets (or net working
capital)

of

corporation

expressed

as

percentage

of

its

total

assets.

Formula:
Net Working Capital to Total Assets = (Net Working Capital / Total Assets) * 100% (Note: Net
Working Capital = Current Assets - Current Liabilities)
Year
Current
Asset
Current
Liabilities
Net working
Capital
Total Assets
Net Working
Capital to
Total Assets

(Figures in Thousands)
2010
2009

2013

2012

2011

5,996,698

6,745,980

7,022,214

4,774,311

3,843,513

3,792,438

4,252,935

4,668,189

2,216,744

2,640,869

2,204,260

2,493,045

2,354,025

2,557,567

1,202,644

23,447,646

21,453,785

19,444,410

15,029,500

13,251,243

0.09

0.11

0.12

0.17

0.09

Source: Annual report of SPL from year 2009-2013

0.17
0.18
0.16
0.14
0.12
0.11
0.12
0.09
0.1 0.09
0.08
0.06
0.04
0.02
0
1
2
3
4
5

Net Working
Capital to Total
Assets
Net Working
Capital to Total
Assets

Analysis Result:
Net Working Capital to Total Assets ratio shows a firm ability of short-term liquidity. A positive
Net Working Capital shows that the firm have meet the short term obligations and more likely to
have a flat operation in future. As stated before, this firms current asset had increased by
18.42% between the fiscal year of2013-2009 but at the same time the current liabilities had
decreased by 1.95 %.Due to this difference between current asset and current liabilities the firm
was able to have a positive Net Working Capital. In addition, Square Pharmaceuticals Limited
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Bangladesh Total Asset had increased by 61.63% between the FY 2013 and 2009 and Net
Working Capital had increasedby44.42% in the same period. The firm faced its highest Net
Working Capital to Total Assets ratio figure in FY 2010.
Cash Ratio: Cash ratio is a companys ratio of cash and cash equivalents to its total current
liabilities. This formula is most often used to gauge a business liquidity. Potential investors or
creditors frequently look to cash ratio when determining a companys capacity to repay debts
including how much it could feasibly repay, and how much time it would need to do so.
(Figures in Thousands)
Year
Cash
Current
Liabilities
Cash Ratio

2013
93,240,787

2012
58,692,026

2011
37,030,175

2010
25,872,769

2009
29,345,774

3,792,438

4,252,935

4,668,189

2,216,744

2,640,869

0.24

0.13

0.07

0.12

0.11

Source: Annual report of SPL from year 2009-2013

0.3
0.25

0.24

0.2
0.15

Cash Ratio

0.13

0.1

0.12

0.11

0.07

Cash Ratio

0.05
0
1

Analysis Result:
The Cash ratio is an indicator of a companys liquidity that further refines both the current ratio
and the quick ratio by measuring the amount of cash. Cash cover the current liabilities. In 200910 cash ratio was commendable but in2010-11 it is slightly below.
Cash ratio reflects firms ability to pay its current liabilities, using its most
liquidate asset such as Cash and cash equivalents only. By evaluating the
current asset and cash and cash equivalents of this, on average the cash and
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cash equivalents was 5.87% of its current assets between FY 2013 and 2009
and this refers that the firms inventories consist a large portion in its current
asset. For the betterment of the firm, it should try to increase its cash and cash
equivalents. This would help to establish a good foundation to attract investors
since many investors take cash ratio under deliberation for investing in a firm.
The firm experienced its worst cash ratio figure in2011 and by 2013 it had
comparatively reached to a better state of cash ratio.

LONG TERM LIQUIDITY RATIO ANALYSIS


Debt to equity Ratio: A measure of a company's financial leverage calculated by dividing its
total liabilities by stockholders' equity. It indicates what proportion of equity and debt the
company is using to finance its assets.

(Figures in Thousands)
Year
Total Debt
Total
Equity
Debt to
equity
Ratio

2013
313,421,158
18844,746,18
4

2012
508,778,060
16266,884,25
5

2011
655,645,734
13817,708,99
9

0.17

0.03

0.04

2010
1032,633,160

2009
44,975,608

11721,331,851

10,044,685

0.08

0.04

Source: Annual report of SPL from year 2009-2013

Debt to equity Ratio


0.04
0.08
0.04 0.03

2013

2012

2011

0.17

2010

2009

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Equity multiplier is a financial leverage ratio which is calculated by dividing total assets by the
shareholders equity. It tells about assets in dollar per dollar of equity. The higher the ratio the
lower the financial leverage and the lower the ratio the higher the financial leverage.
Formula:
Total Assets
Total Equity
Year
2013
2012
2011
2010
2009
Total Asset
23,447,646
21,453,785
19,444,410
15,029,500
13,251,243
Total Equity 18844,746,184 16266,884,255 13817,708,999 11721,331,851 10,044,685
Equity
1.25
1.32
1.40
1.28
1.31
Multiplier

Equity Multiplier =

Equity Multiplier
1.45

1.4

1.4
1.35
1.3
1.25

1.32
1.25

1.28

1.31

Equity Multiplier

1.2
1.15
2013 2012 2011 2010 2009

Source: Annual report of SPL from year 2009-2013

Analysis Result:
On average the equity multiplier of Square Pharmaceuticals Limited Bangladesh
was 1.40daringly 2013-2009. Since we have portrayed before that the
companys equity had increased by staggering 80.48% and total Asset had
increased by 61.63% between the FY 2013 and 2009, the company do not rely
on debt for its investment. The equity multiplier shows a firms assets per 1 unit
of equity.

ASSET MANAGEMENT (TURNOVER) RATIO ANALYSIS

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Inventory turnover is the ratio of cost of goods sold by a business to its average inventory during
a given accounting period. It is an activity ratio measuring the number of times per period; a
business sells and replaces its entire batch of inventory again.
Formula
Inventory turnover ratio is calculated using the following formula:
Cost of Goods Sold

Inventory Turnover =

Average Inventory
(Figures in Thousands)

Year
COGS
Inventory
Inventory
Turnover

2013
1022344
2,503,683

2012
9167253
2,687,818

2011
7703661
2,541,688

2010
6561288
2,207,078

2009
5672565
2,098,755

0.40

3.41

3.03

2.97

2.70

Source: Annual report of SPL from year 2009-2013

3.41

3.5

3.03

2.97

2.7

2.5
2

Inventory Turnover

1.5

Inventory Turnover

1
0.5

0.4

0
2013 2012 2011 2010 2009

Analysis Result:
Square Pharmaceuticals Limited Bangladesh had an average cost of goods sold value of
4,976,753,344 BDT during FY 2013-2009. Inventory turnover represents firms cost of goods
sold per inventory. The cost of goods sold had increased for the company by 86.11% between
2013 and 2009 and the ending inventory had increased by 64.42% in the same period. On
average the cost of goods sold had increased at a rate of 16.83% annually during FY 2013 and
2009.
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PROFITABILITY RATIO ANALYSIS


(Figures in Thousands)
Year
Profit
Margin
Return on
Assets
Return on
Equity

2013
0.19
0.13
0.18

2012

2011

2010

2009

0.17

0.17

0.19

0.18

0.12

0.11

0.14

0.14

0.18

0.16

0.19

0.18

OPERATING PROFITABILITY:
Gross profit Margin:
This is the most common calculation on your P&Lit is simply your Gross Profit divided by
Net Sales. Often, different industries will have standard guidelines that you can compare your
businesss numbers to. It is also desirable to watch your trends and not let this number move too
far from your target.
(Figures in Thousands)
Year
Gross
Profit
Net Sales
Gross
Profit
Margin

2013

2012

2011

2010

2009

7,736,011,4
23
17,959,489,
496

6,887,171,6
23
16,054,425,
243

5,767,763,4
59
13,471,424,
469

4,901,289,9
25
11,462,578,
410

4,148,230,59
5
9,820,796,56
8

43.07%

42.90%

42.82%

42.76%

42.24%

Source: Annual report of SPL from year 2009-2013

Gross Profit Margin


43.20%43.07%
42.90%
43.00%
42.82%
42.76%
42.80%
42.60%
42.24%
42.40%
42.20%
42.00%
41.80%

Gross Profit Margin


Linear (Gross
Profit Margin)

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Analysis Result:
Gross profit margin indicates that how efficient the management is in using its labor & raw
materials in the process of production. But it is higher in 2013.
Net Profit Margin:
This calculation is simply Net Pre-tax Profit divided by Net Sales. Other than wanting this
number to be as large as possible, I usually dont pay too much attention to it because it includes
too many non-operating costs (depreciation, amortization, etc.) to be of any real analysis value.
(Your banker may be interested however.)
(Figures in Thousands)
Year
Net
income
Net Sales

2013

2012

2011

2010

2009

3,341,424,7
83
17,959,489,
496

2,897,710,6
41
16,054,425,
243

2,532,054,5
50
13,471,424,
469

2,087,871,7
91
11,462,578,
410

1,890,052,92
9
9,820,796,56
8

18.60%

18.04%

18.80%

18.22%

19.25%

Net profit
Margin

Source: Annual report of SPL from year 2009-2013

Net profit Margin


Net profit Margin

18.60%
2013

18.80%
18.04%
2012

2011

19.25%
18.22%
2010

2009

Analysis Result:
Net profit margin measures the percentage of each operating income\revenue TK. remaining
after all costs and expenses. The higher the firms net profit margin, the better position a company
are. Here we can see that, in year 2010-11 the ratio was18.80% which was less compare to the
year2008-09.
(Figures in Thousands)
Year
Return on
Equity

2013
18.32%

2012
17.81%

2011
19%

2010
16.62%

2009
17.77%
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( ROE )
Return on
Asset ( ROA
)

Earnings
Per
Share

13.02%

13.74%

14.26%

10.88%

12.43%

9.01

7.82

68.30

56.30

51.00

Source: Annual report of SPL from year 2009-2013

Analysis Result:
The return on equity (ROE) is a measure of the rate of return flowing to the banks stockholders.
It approximates the net benefit that the stockholders have received from investing their capital in
the bank. Generally higher this return, the better of this owner. Here we can see that the roe the
company is relatively low to the year of 2010.
The Return on asset is primarily an indicator of managerial efficiency. Here we can see that ROE
of Year 2010-11 is comparatively low than the year2008-09.
Earnings per share are a easy measurable instrument of an institution. More the earning per share
holders will get more benefit. Here we can see that earning per share is less than the previous
years.

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Value of Unlevered Firm


Square pharmaceuticals EBIT had increased by 87.20% during FY 2006-2010 and average BIT
of each year was approximately 2,483,706,253 BDT. In FY 2010 EBIT was highest among last 5
(five) FY about 3,275,183,812 BDT. During this year the tax rate was 24.85%and unlevered cost
of capital was 12.84%. As a result, square pharmaceuticals value of unlevered was
19,169,008,059 BDT
Value of Levered Firm
Square pharmaceuticals value of unlevered was 19,169,008,059 BDT in FY 2010. The amount of
total debt 2,231,167,169 BDT and the tax rate was 24.85%. So the firms value as a levered firm
was 19,723,453,100 BDT in FY 2010.
Present Value of Tax Shield
Square pharmaceuticals Limited Bangladesh had a cost of debt of 7.21% in FY 2010. The
amount of total debt 2,231,167,169 BDT and the tax rate was 24.85%. Present value of Tax
Shield was 554,445,041 BDT

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In 2010 the value of the farm was 46,521,197,669 BDT, which was 4.80% debt financed and
95.20% equity financed. The value of the firm will be higher if they borrow more because of the
tax shield but it also increases the cost of bankruptcy. After borrowing, from a certain level the
value of the firm will decline. The chances of bankruptcy of the firm increases as soon it borrows
more. So the optimal capital structure is at that point on which firms value is higher and WACC
is lower.

Financial strength and weaknesses of SPL:

In this section the strengths and weaknesses for the companies have been summarized. Square
Pharmaceuticals Ltd.
Strengths:
Liquidity position is relatively stronger compare to others.
Company management has proven efficiency in managing its inventory.
Companys management has dealt proficiency with its collection policies
Company is generating sufficient volume of business given its total investment
Operating expenses are going down signifying the companys efficiency.
Weaknesses:
Company does not use its fixed assets efficiently and intensively.
Company is not able to meet its annual interest cost.

Conclusion
From the total financial statement analysis, we can summarize that for the last year 2012, even
though Square Pharmaceuticals Ltd. deteriorated in all the ratios, but still holding the better
position compared to Beximco Pharmaceuticals Ltd (the best alternative forgone) and this has
been reflected through the increment in share price and in P/E and M/B ratios. The firm gained
the trust of the investors. Square Pharmaceuticals Ltd might have good news that is not reflected
in other ratios but investors know.
Therefore we can come to the conclusion that Square Pharmaceutical Ltd is a better company to
invest on. So that is the financial statement analysis on Square Pharmaceuticals Ltd. Bangladesh.

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Reference
1. www.squarepharma.com.bd
2. www.wikipedia.com
3. www.investopedia.com
4. Fundamentals of Corporate Finance by Ross,
Westerfield, Jordan. 9th edition

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