Term Paper on

Performance Analysis of ‘Beximco Pharmaceuticals Limited’

Submitted to,
Farhana Rahman
Lecturer, Department of Organization Strategy and Leadership
FBS, University of Dhaka
Adjunct Faculty, FBS, BUP

Submitted by,
Asma Sadia (17221003)
Ekhtear Ahmed (17221039)
Samin Sakib (17221045)
Jesmin Sultana Sharna (17221063)
Sadia Jannat Ima (17221087)

Batch: 2 (A)
Department of Business Administration in Finance and Banking
 1. Introduction

Working capital management, which deals with the management of current assets and
current liabilities is very important in any firm as it directly affects the liquidity and
profitability of the firm. The management of current assets is sort of similar to that of fixed
assets in a sense that in both of the cases a firm tries to analyze their effects on its return
and risk. However, the management of these current and fixed assets tends to depend on
some certain important factors. As for example, time is one of the very important factors in
managing fixed assets, because of the fact that in capital budgeting and in the management
of current assets discounting and compounding techniques play a significant role.
Moreover, excessive liquidity that is, the large holding of current assets, especially cash,
strengthens the firm’s liquidity position and also reduce risk to a huge level but it comes
with a price and reduces the overall profitability of the firm. Then again, any sort of firm
faces a greater degree of flexibility while managing current assets. Both the levels of fixed
as well as current assets usually depend upon expected sales, but it is only current assets
which can be adjusted with sales fluctuations in the short run. In the today’s dynamic
business environment, survival of the organization is more uncertain even though the
companies are earning profit, unless they can’t meet the short-term obligations. Corporate
finance basically deals with three decisions such as capital structure decisions, capital
budgeting decisions, and working capital management decisions. Among these, working
capital is also known as life giving force for any economic unit and its management is
regarded among the most crucial functions of corporate management. Every organization
whether, profit oriented or not, irrespective of size and nature of business, requires
necessary amount of working capital. For maintaining liquidity, solvency, profitability and
lastly the survival of the business, working capital itself is the most crucial factor. There is
growing interest in the investigation of the relationship between working capital
management (WCM) and Firm performance. Working Capital Management directly affects
the profitability and liquidity of firms. The profitability liquidity tradeoff is important
because if working capital management is not given due considerations then the firms are
likely to fail and face bankruptcy. A large investment in current assets under certainty
would mean a low rate of return on investment for the firm, as excess investment in current
assets will generate opportunity costs but reduce risk on a greater extent. Then again, a
smaller investment in current assets, on the other hand, would mean interrupted production

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and sales, because of frequent stock-outs and inability to pay creditors in time due to
restrictive policy and might hamper the overall performance for any firm. All of the
independent components of working capital including cash, account receivables,
marketable securities and inventory management play a vital role in the performance of any
firm.

Generally, the WCM strategy practices of companies can broadly be divided into three
namely: conservative, moderate and aggressive WCM. A conservative strategy implies the
holding of more current assets relative to Working Capital Management practices and
profitability of enterprises. A company that practices conservative strategy is termed as
“risk averse” because it tries to make provision to cover any unforeseen circumstances. A
moderate WCM strategy, which is termed “middle-of-the road”, is a hybrid of both
aggressive and conservative strategies. An aggressive WCM strategy, which is termed as
“risk taker” ensures that a company keeps small proportion of current assets in relation to
fixed assets. The particular strategy chosen will ultimately determine the levels of current
assets and current liabilities kept by a company. The levels of current assets and current
liabilities kept will in turn have an effect on the profitability level. In a nutshell, the large
number of business failures have been attributed to the inability of financial managers to
plan and control properly the current assets and current liabilities of their firms making it
one of the most significant factors to ensure profitability and overall wealth maximization
of any firm.

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 2. Company Overview

Our motherland, Bangladesh has come a long way since her independence. Our country
had a successful journey in improving the key social indicators along with the wellbeing of
its people. Of this massive progress over the years, The Beximco Group of Companies has
been an integral part of it. The philosophy that Beximco holds is simple that is while
identifying opportunities, it has earmarked those particular industries which the country
needs most in order to make a vast progress along with improving living standards.
Beximco is also focused on those industries which gives Bangladesh a huge competitive
advantage in the international market.
Beximco Pharmaceuticals Ltd. (Beximco Pharmacy) is one of the leading manufacturers of
medicines and active pharmaceutical ingredients (APIs) founded in Bangladesh.
Incorporated in the late 70s, the journey of Beximco pharmacy began with being a
distributor, importing products from global multinational corporations like Bayer,
Germany and Upjohn, USA and sold them in the local market. They gradually started
manufacturing here in Bangladesh and distributed under licensing arrangement. Over the
years, the company has successfully managed to grow from strength to strength and today
it has become a leading exporter of medicines in the country. Moreover, the company have
also won National Export (Gold) Trophy a record number of four times. Benchmarked to
global standards, manufacturing facilities of the company have been accredited by the
major global regulatory authorities, and it has so far expanded its geographic footprint
across all the continents. Beximco Pharmaceuticals Ltd. currently has a portfolio of more
than 500 products and encompasses all of the major therapeutic departments, and it has
successfully differentiated itself from its competitors by offering technology driven
specialized products. The company is blessed with a dedicated workforce of around 3,000
people and the simple philosophy and principle on which it was founded remains the same
till date: producing premium-quality universal drugs and to make them affordable to our
people.

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 3. Findings and Analysis

In this section, the paper stated the industry average to compare with our company to know
about the actual financial health of Beximco Pharmaceutical limited along with trend
analysis. Average of our company and historical data are represented in excel sheet, also
the average of other pharmaceutical industries are collected. By the comparison of both
data of the time frame 207-2014 will also provide us the trend of their ratios over the time.

3.1 Return on Asset:

Return on Asset Analysis

7.49% 7.20% 7.01% 7.12%
8.00% 6.30%
4.92% 5.20% 5.37% 5.11% 5.27%
6.00%
3.68% 3.14%
4.00% 2.95%
2.83% 2.83%
2.00%
0.00%
-2.00% 2007 2008 2009 2010 2011 2012 2013 2014
-1.02%

Beximco Overall Industry Linear (Beximco)

Higher the ratio is better for company which attract the investor showing the efficiency
their asset to generate greater level of income.

Trend analysis: By these graphs it can be state that, from the year 2007-2014 Beximco has
a upward slopping trend in ROA ratio which means that the company earned a positive and
greater return from asset.

Industry analysis: If the graph looked over up to 2009 the ROA of Beximco was better in
comparison to the average ROA of the pharmaceutical industry. And from 2010-2014 the
ROA of Beximco was lower in comparison to the average ROA of the pharmaceutical
industry

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3.2 Return on Equity:

Return on Equity Analysis

20.00% 14.88% 17.08% 16.04%
14.58% 12.36%
10.00% 4.28% 5.22% 5.74% 6.58% 6.98% 7.17% 7.10% 7.31%
4.28%

0.00%
2007 2008 2009 2010 2011 2012 2013 2014
-10.00%
-1.20%
-12.25%
-20.00%

Beximco Overall Industry Linear (Beximco)

The higher the ROE is better for the company, which mainly indicated that how well a
company's management is spread the shareholders' capital, also measure the efficiency of
the company.

Trend analysis: By this graph it can be state that, Beximco has a medium high trend on this
ratio, the ratio is not so fluctuating over the time, contain a steady rate.

Industry analysis: According to the industry average, the performance of Beximco is not so
efficient, because in average the industry has a high ROE ratio. As Beximco has low ROE
ratio than average that means investors will be less interested to invest in this company.

3.3 Return on Capital Invested:

Return on Capital Invested

25.00% 22.19%
20.00% 17.30% 17.41%
14.00%
15.00% 11.29%
5.84% 10.46%
10.00% 6.00% 6.00% 6.00% 7.00% 7.00% 7.00%
4.00% 5.00%
5.00% 2.87%

0.00%
2007 2008 2009 2010 2011 2012 2013 2014
Beximco Overall Industry Linear (Beximco)

The higher the ROCI is better for the company, which mainly indicated that how well a
company's management is able to earn profit by investing in a profitable portfolio of its
long term borrowed capital and shareholders’ equity which ultimately attracts the potential
buyer.

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Trend analysis: According to the graph, the ROIC ratio of Beximco indicates that, their
return from capital investment was upward slopping over the year.

Industry analysis: From the graph, the ROIC ratio of Beximco was much lower than the
average industry ratio of ROIC, which indicates that their investment performance was not
up to the marks in compression to the industry.

3.4 Current Ratio:

Current Ratio Analysis

4
2.97
3 2.464 2.699 2.675
1.796 1.943 1.777
2 1.592 1.412 1.425 1.544 1.654
1.376 1.1 1.254
1 0.846

0
2007 2008 2009 2010 2011 2012 2013 2014
Beximco Overall Industry Linear (Beximco)

Current ratio measures the amount of liquid current asset that a company holds to meet up
the current liabilities. Both the too much and too less is not beneficial for a company and
the standard ratio is 2:1.

Trend analysis: from the graph, it can be state that, from the year 2009-2012 their current
asset was too much in comparison to the standard current ratio, which indicates in those
years they had a high level of idle asset.

Industry analysis: According to the graph, average industrial current ratio is quite better
than the Beximco.

3.5 Quick ratio:

Quick Ratio Analysis

3
2.237
1.834 1.88
2 1.674
1.481
1.247
0.893 0.716 0.743 0.826 0.967
1 0.521 0.613 0.647
0.632
0.225
0
2007 2008 2009 2010 2011 2012 2013 2014
Beximco Overall Industry Linear (Beximco)

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The standard of quick ratio is 1:1. A quick ratio higher than 1:1 indicates that the business
can meet its current financial obligations with the available quick funds on hand and the
lower one indicates that the company relies too much on inventory or other assets to pay
its short-term liabilities.

Trend analysis: According to the graph, in the year 2007 and 2008 the company relied much
on its inventory and other assets for paying short term liabilities. And from 2009 to 2014
an upward slopping quick ratio is observed and the ratios ware more than the standard that
means they had a good amount of available quick fund to meet up liabilities.

Industry analysis: From the graph the industry average was quite stable over the year and
the ratios were near to standard one. But the quick ratio of the Beximco was fluctuating
over the years.

3.6 Inventory Turnover Ratio:

Inventory Turnover Ratio Analysis

10 8.7
7.68

4.15 4.75 4.42 4.26

5 4.7
2.94 1.92 2.07 2.49
1.221.55 1.35 1.59 1.79

0
2007 2008 2009 2010 2011 2012 2013 2014
Beximco Overall Industry Linear (Beximco)

Inventory Turnover Ratio is one of the efficiency ratios which measures the number of
times, the average inventory is sold and replaced during the year.

Trend analysis: According to the graph, it is seen that, though the inventory turnover ratio
was upward slopping from 2007 to 2013 but in 2014 it goes downward.

Industry analysis: in comparison to the average industry ratio the turnover ratio of Beximco
was much less which indicates that their management performance was inefficient and
liquidity level was poor. It also indicates that may be their sales volume was low or too
much investment in inventory.

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3.7 Debtors turnover ratio:

Debtors' Turnover Ratio Analysis

15
10.84
9.17 8.57 8 8.777.89 8.68 8.7 8.47
10 7.74 7.998.12 7.72 7.7
5.84 6.09
5

0
2007 2008 2009 2010 2011 2012 2013 2014
Beximco Overall Industry Linear (Beximco)

A high debtors turnover ratio means the receivables are more liquid and can be collected
easily. And a low ratio indicates fewer liquid receivables and reduced liquidity level of the
company.

Trend analysis: from the graph, it can be seen that, their had a upward slopping debtors
turnover ratio over the year.

Industry analysis: in comparison to the industry average it can be observed that Beximco
had a quite good debtor’s turnover ratio which indicates their efficiency on receivable
collection than the companies of the industry.

3. 8 Creditors’ Deferral Period

Creditors' Deferral Period Analysis

80
57.5
60 49.735 47.304 46.91 45.95
49.735
37.52 34.54
33.41
40 30 26.36 25.13 24.41
23.99 21.1
20 15.29

0
2007 2008 2009 2010 2011 2012 2013 2014
Beximco Overall Industry Linear (Beximco)

Here, creditors’ deferral period means the average time that a company takes to pay its
creditors or suppliers. There is no time-bar but timeline should not be much higher as it’s
related to the firm’s reputation.

Trend Analysis: It can be seen from the graph that the time period is downward sloping
over the year which indicates that the firm is managing its operation in a better way.

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Industry Analysis: In comparison to the industry average it can be seen that the overall
industry is in better position than that of the Beximco to pay off their creditors and also
maintaining the operation efficiently.

3.9 Gross Operating Cycle

Gross Operating Cycle Analysis

400 347.02
258.22 314.68 303.12
284.35 269.02
300 283.65 266.11 237.75 236.59 193.42
209.78 187.18 176.25
200 163.18 143.13
100
0
2007 2008 2009 2010 2011 2012 2013 2014
Beximco Overall Industry Linear (Beximco)

Gross operating cycle refers to the time required to convert its inventories into cash or
receivables. Lesser the time is better for the firm.

Trend Analysis: From the above diagram it is observed that the gross operating cycle was
decreasing time to time. It indicates that the firm was performing more efficiently to convert
its all types of inventories into liquid.

Industry Analysis: Comparing to the firms belong to the same industry, it is visible that in
the year 2007 and 2008, Beximco was in almost equivalent position with the other firms.
In the next following years Beximco became more efficient in managing gross operating
cycle than that of the overall industry average.

3.10 Net Operating Cycle

Net Operating Cycle Analysis

400
291.75 277.11
300 210.92 216.85
234.61 178.85
234.61 180.24 189.68 200.68 151.66
202.21 163.83 152.64
200 138.78 122.03
100
0
2007 2008 2009 2010 2011 2012 2013 2014
Beximco Overall Industry Linear (Beximco)

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Net operating cycle is the time difference between the gross operating cycle and the for
which creditors remain outstanding.

Trend Analysis: In the diagram, it is been seeing that the net operating cycle is decreasing
over the time. It means that the firm is collecting the amount from its receivables efficiently
and also after that the firm is paying its payables or suppliers within a feasible timeline.

Industry Analysis: Till 2009, Beximco was maintaining similar level of net operating cycle
like other firms of the same industry. After that period, Beximco’s performance in net
operating cycle became more praiseworthy than the other firms.

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 4. Conclusion and recommendation

After analyzing the annual reports of Beximco Pharmaceuticals from the year 2007-2014,
it is observed that, over the year their performance was improving, but in comparison with
the industry average there performance is not up to the mark. In the findings and analysis
part some lacking of beximco are observed. So, to make the overall performance of the
company a standard one in comparison to the industry average Beximco should take some
initiatives so that the can overcome their lacking. Some of the identified recommendation
for the company are:

• As they have more idle liquid assets, so they can invest in some portfolios.
• Their ROA and ROE growth rate is less than that of the industry average so it
indicates that the management should strengthen their decision making so that they
invest in profitable sectors.
• The return against their capital investment is very low compared to the industry. So,
before investing the capital in any portfolios they should forecast the investment
decision properly so that the generation of return increases compared to other firms
in the industry.

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