Question 1

Using the figures in the annual report of Renata Ltd. analyze the liquidity, profitability and
efficiency of Renata by providing a description of the movement in each of the ratios for
Renata and an explanation of what this movement tells you about Renata.

Liquidity Analysis of Reneta Pharma LTd.:

Liquidity ratios are special type of financial metrics which help to identify the capacity of debtor
to pay off the short term debt obligation without the need of external financing. There are
different types of Liquidity ratios; such as current ratio, quick ratio, and operating cash flow
ratio. Liquidity ratios identify if the firm has enough short term asset to meet up its short term
liabilities.

1. Current Ratio = Current Assets/ Current Liabilities

Current Ratio of Reneta Pharma LTd.

2016 2017 2018

1.3:1 1.8:1 2.2:1

2. Acid Test Ratio or Quick Ratio= Current Assets- Inventory / Current Liabilities

Acid Test Ratio or Quick Ratio of Reneta Pharma LTd.

2016 2017 2018

0.7:1 1.0:1 1.4:1
 Liquidity Analysis of Reneta Pharma LTd.
2.5

1.5

0.5

0
Current Ratio Acid Test Ratio

2016 2017 2018

Interpretation: Reneta Pharma Ltd. has enough liquid assets to back up for its short term debt.
Most importantly the increasing numerical value of liquidity analysis from 2016 to 2018 is a
positive sign, that in case of short term debts, Reneta will be able to cover up quickly for it.
However, value of current ratio in 2018 which is above 2, versus the acid test ratio in 2018, may
indicate that the inventory of Reneta are probably not being used properly, and they may have
excess amount of inventory stored.

Profitability Analysis of Reneta Pharma Ltd.:

Profitability ratios are special types of financial metrics to identify the capacity of a business to
generate earnings in comparison to its revenue, operating costs, Total Asset and Shareholder’s
equity in different time period. They help to understand how much profitable the firm is with
respect to different metrics.

1. Gross Profit Margin= (Gross Profit/ Revenue) x 100

2016 2017 2018

51% 51% 50%

2. Net Profit Margin= (Net Profit/ Revenue) x 100

 2016 2017 2018
15% 16% 17%

Profitability Ratio of Reneta Pharma Ltd.

Net Profit Margin

Gross Profit Margin

0% 10% 20% 30% 40% 50% 60%

2016 2017 2018

Profitability Analysis of Beximco Pharma Ltd.:

2018
Gross Profit Margin= (Gross Profit/ 46%
Revenue) x 100
Net Profit Margin= (Net Profit/ Revenue) 14%
x 100

Profitability Analysis of Beximco Pharma Ltd.

Net Profit Margin

Gross Profit Margin

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

Column1
Interpretation:

Gross Profit Margin over the three years are fairly high for Reneta Pharma, and had been quite
constant, indicating cost of sales were managed quite efficiently in respect to revenue earned.
Net Profit margin over the three years was high as well, again indicating all the expenses were
managed properly with respect to its revenue earned, and the pattern of net profit margin had
been increasing meaning their profitability had been increasing.

These figures indicate high profitability of Reneta. Moreover, Beximco Pharma belonging from
the same industry had lower gross profit margin and net profit margin than Reneta Pharma,
meaning that Reneta Pharma’s profitability is better than Beximco Pharma in 2018.

Asset Efficiency Analysis of Reneta Pharma Ltd.:

Asset Efficiency Ratio measures the ability of a business to use its assets and liabilities to
generate sales.

1. Asset Turnover = Total Revenue/ Average Sales

2016 2017 2018

0.45 0.9 0.95

2. Average Collection Period= 365/(Credit Sales or Sales / Average Accounts Receivable)

2016 2017 2018

102days 46 days 41 days
 Asset Efficiency Analysis of Reneta Pharma Ltd.

0.95

Asset Turnover 0.9

0.45

0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1

2016 2017 2018

A s s et Effi ciency A nalys is of R eneta Phar m a

Ltd.
2016 2017 2018
120
100
80
60
40
20
0
Average Collection Period

Asset Efficiency Analysis of Beximco Pharma Ltd.:

2018
Asset Turnover= Total Revenue/ Average 0.46:1
Sales
Average Collection Period= 365/(Credit 51days
Sales or Sales / Average Accounts
Receivable)
 Asset Efficiency Analysis of Beximco Pharma Ltd.

Averrage Collection Period 51

Asset Turnover
0.46

0 10 20 30 40 50 60

2018

Interpretation:
Asset turnover ratio: of Reneta had been increasing numerically from 2016 to 2018, showing
that managers efficiency is using assets to turn produce sales are increasing, even in comparison
with Beximco Pharma in the year 2019, RenetaPharma’s efficiency in using assets were high.
Moreover from 2017 there was a huge increase in the asset turnover ratio, which indicates assets
were being used more efficiently.

Efficiency in collection of Payments: Manager’s efficiency in collection of payments due had

been increasing significantly from year 2016 to 2018, also compared to Beximco Pharma in
2018, manager’s efficiency of Reneta Pharma in terms of payment collection were high as
Reneta Pharma takes lesser time for collection of receivables.

Capital Structure Analysis of Reneta Pharma Ltd.:

Capital ratios are financial metrics that help us to understand if the company has the capacity to
continue its operations for a longer period of time by analyzing the debt obligation of the firm
with shareholder’s equity, Total Assets and earnings of the company. Capital ratios are also
called leverage ratios or gearing ratios. These ratios analyze if the company has the ability to pay
its long term debt. Potential business lenders use it to judge the long term debt repayment
capacity of a firm.

1. Equity Ratio = Shareholder’s Equity / Total Assets

 2016 2017 2018
0.63 0.68 0.73

2. Debt to Equity= Total Liability/ Shareholders Equity

2016 2017 2018

0.59 1.45 0.32

Capital Structure Analysis of Reneta Pharma Ltd.

0.32
Debt to Equity 1.45
0.59

0.73
Equity Ratio 0.68
0.63

0 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6

2016 2017 2018

Interpretation:
The capital structure analysis shows, as of Equity Ratio, Reneta has financed majority of its
assets through shareholder equity. Moreover, numerically the value of it has been increasing
from 2016 to 2018, signaling that Reneta is focusing to finance maximum portion of its assets
using shareholder equity, and not by debts. Thus overall the equity ratio tells that Reneta has a
good capital structure.

Question 2

Do a DuPont analysis of Renata Pharma Ltd and explain the result.

DuPont Analysis of Reneta Pharma Ltd.:
1. Return on Equity= Net Profit/ Total Equity

2016 2017 2018

12% 21% 21%

2. Return on Asset = Net Profit/ Total Asset

2016 2017 2018
0.07% 14% 15%

Dupont Analysis of Reneta Pharma

25%

20%

15%

10%

5%

0%
Return on Equity Retuen on Asset

2016 2017 2018

DuPont Analysis of Reneta Pharma Ltd.:

2018
Return on Equity= Net Profit/ Total 9%
Equity

Return on Asset = Net Profit/ Total 6%

Asset
 DuPont Analysis of Beximco Pharma

Return on Asset

Retuen on Equity

0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%

2018

Interpretation:
Return on Equity: of Reneta Pharma had been increasing in 2017 and 2018, in comparison with
indicating Reneta’s profit generation from its shareholders’ investment had increased. Moreover,
in comparison with Beximco Pharma it is still in a better position in terms of Return on Equity.
Return on Assets In comparison with Reneta’s overall resources, the percentage of profit it is
earning in the last three years have been increasing, also if compared with Beximco Pharma, it is
earning a lot more profit in respect to its assets.

Question 3

You are considering buying shares of Renata. Explain whether you should proceed with your
decision. In your valuation the share price of Renata use Discounted Free Cash Flow method.
Estimate the Free Cash Flow of the company for the years 2019~2023 using discount rate of 8%,
and for the reaming years of the company life with a constant sales growth of 3%.
Income Statement   103%      
2019 2020 2021 2022 2023
Sales 22,22 22,88 23,57 24,28 25,00
0,887,11 7,513,73 4,139,14 1,363,31 9,804,21
9 3 5 9 8
Less Cost of Sales 11,06 11,39 11,73 12,09 12,45
5,965,90 7,944,88 9,883,23 2,079,72 4,842,11
7 4 1 8 9
Gross Profit 11,15 11,48 11,83 12,18 12,55
4,921,21 9,568,84 4,255,91 9,283,59 4,962,09
2 8 4 1 9
Sales and Admin 5,66 5,83 6,00 6,19 6,37
expense 4,886,27 4,832,86 9,877,84 0,174,18 5,879,41
5 3 9 5 0
Depreciation 1 1 1 1 1
39,607,9 43,796,2 48,110,1 52,553,4 57,130,0
98 38 25 29 32
Other Income 2 2 2 3 3
74,885,4 83,132,0 91,626,0 00,374,7 09,386,0
92 57 18 99 43
Other expenses 4 4 4 4 4
11,535,2 23,881,2 36,597,7 49,695,6 63,186,5
24 81 19 51 20
Profit before Tax 5,21 5,37 5,53 5,69 5,86
3,777,20 0,190,52 1,296,23 7,235,12 8,152,18
7 3 9 6 0
Tax 1,39 1,39 1,39 1,39 1,39
 0,415,07 0,415,07 0,415,07 0,415,07 0,415,07
7 7 7 7 7
Net Profit 3,82 3,97 4,14 4,30 4,47
3,362,13 9,775,44 0,881,16 6,820,04 7,737,10
0 6 2 9 3
Balance          
Sheet
Cash 7 8 8 8 8
98,213,0 22,159,4 46,824,2 72,228,9 98,395,8
39 30 13 39 08
Receivables 2,26 2,33 2,40 2,47 2,55
5,753,66 3,726,27 3,738,06 5,850,20 0,125,71
6 6 4 6 2
Inventories 4,17 4,29 4,42 4,55 4,69
2,321,02 7,490,65 6,415,37 9,207,83 5,984,06
2 3 2 3 8
Other Current Assets 5,10 5,25 5,41 5,57 5,74
1,093,31 4,126,11 1,749,89 4,102,39 1,325,46
6 5 9 6 8

Total Current Assets 12,33 12,70 13,08 13,48 13,88

7,381,04 7,502,47 8,727,54 1,389,37 5,831,05
3 4 9 5 6
Property, plant and 11,86 12,21 12,58 12,96 13,35
equipment 3,855,47 9,771,13 6,364,26 3,955,19 2,873,85
0 4 8 6 2
Total Non-current 11,86 12,21 12,58 12,96 13,35
assets 3,855,47 9,771,13 6,364,26 3,955,19 2,873,85
0 4 8 6 2
Total assets 24,20 24,92 25,67 26,44 27,23
1,236,51 7,273,60 5,091,81 5,344,57 8,704,90
3 8 7 1 8
Current liabilities 5,32 5,97 6,65 7,34 8,05
4,825,94 8,259,33 1,295,71 4,523,19 8,547,50
5 1 8 7 1
Non-current liabilities 5 6 7 8 8
91,647,3 64,251,0 39,032,8 16,058,1 95,394,1
27 37 58 33 67
Total liabilities 5,91 6,64 7,39 8,16 8,95
 6,473,27 2,510,36 0,328,57 0,581,33 3,941,66
2 7 6 0 7
Share Capital 8 8 8 8 8
05,356,7 05,356,7 05,356,7 05,356,7 05,356,7
50 50 50 50 50
Retained Earnings and 17,47 17,47 17,47 17,47 17,47
reserves 9,406,49 9,406,49 9,406,49 9,406,49 9,406,49
1 1 1 1 1
Total Equity 18,28 18,28 18,28 18,28 18,28
4,763,24 4,763,24 4,763,24 4,763,24 4,763,24
1 1 1 1 1

Net Income
3,823,36 3,979,77 4,140,88 4,306,82 4,477,73
2,130 5,446 1,162 0,049 7,103
Depreciation
139,607, 143,796, 148,110, 152,553, 157,130,
998 238 125 429 032
Change in Working
Capital 7,012,55 6,729,24 6,437,43 6,136,86 5,827,28
5,098 3,144 1,830 6,178 3,556
Capital Expenditure
3,559,15 3,665,93 3,775,90 3,889,18 4,005,86
6,641 1,340 9,280 6,559 2,156
Free Cash Flow
509,571, 1,060,25 1,627,46 2,211,69 2,813,44
671 9,881 8,737 3,859 5,734
Discounted Cash flow
(@ 8%) 471,825, 909,001, 1,291,93 1,625,66 1,914,78
621 955 7,155 1,012 3,893
Total Discounted Cash  
flow 6,213,20
9,635
Total Outstanding Share  
8,063,57
0
Intrinsic Value
 771
Current Market Share
Price 1,171

2019 2020 2021 2022 2023

Earnings Per Taka 474 Taka 493 Taka 514 Taka 534 Taka 555
Share = Net
Profit / Total
Outstanding
Share

Interpretation & Decision: Even though the earnings per share had been increasing, we still
should not spend on Reneta’s share, as the current market share price is Taka 1171, and intrinsic
value is Taka 771. Which means the share is overvalue, and hence wouldn’t be a wise decision to
spend in here.