Answer to the question 1

Profitability

Every firm is most concerned with its profitability. Beximco pharmaceuticals & Reneta
pharmaceuticals are the largest leading pharmaceuticals companies in Bangladesh. These two
companies are no exception. One of the most frequently used tools of financial ratio analysis is
profitability ratios. They are used to determine the company's bottom line for its managers and
its return on equity to its investors. On the other hand, profitability Measure the income or
operating success of a company for a given period of time. Management has to have a measure
of profitability in order to steer the business in the right direction. 

Gross Profit Margin

Gross profit margin = Gross profit / sales ( sales- Cost of good sold = gross profit / sales)
For reneta company
For 2019-20 , Gross profit 11,531,114,720 , For 2018-19 Gross profit 22,220,887,119
Sales 12,632,907,753 sales 11,065,965,907

So for 19-20 , 0.91% gross profit margin has been emerged & 2.008 % . The gross profit
margin, which is the amount of sales revenue that can be devoted to utilities, inventory,
and manufacturing costs is consecutively 0.91% , 2.008% of sales. This indicates the
profit distorted than the previous year. So, It has been sold more than last year. The larger
the gross profit margin, the better for the company.

For beximco
2019-20 Gross profit 11,899,100,146 18-19 Gross profit 10,620,343,025
Sales 13,712,847,509 sales 12,196,286,770

So for 19-20 , 0.86% gross profit margin has been emerged & . The gross profit margin, which
is the amount of sales revenue that can be devoted to utilities, inventory, and manufacturing costs
is consecutively.for beximco , the gross profit margin is gradually increased from the previouis
year . The larger the gross profit margin, the better for the company and beximco financial year
stood at Tk370.60 crore, a 41.28% increase from Tk262.31 crore for the same period of
the last year . Growth 12.3%. from the previous year.
Return on Equity (ROE): Net income / stockholders equity

Return on Asset (ROA): Net income/ average total asset

ROE: Sustainable growth rates and dividend growth rates can be estimated using ROE.
Although there may be some challenges for baximco. ROE can be a good starting place for
developing future estimates of a stock’s growth rate and the growth rate of its dividends. In
2020 , return on equity is 10.18% which is moderate growth than the previous year 10.63%.
people often use risk free interest rate i.e one year fixed deposit rate as benchmark for ROE. On
the other hand, reneta pharmaceuticals ROE for the current year is 19.2% which is not consistent
with the previous year ROE which is 20.9%.and here, the previous year ROE is best for the
company

ROA: Return on assets (ROA) is an indicator of how profitable a company is relative to its total
assets. ROA gives a manager, investor, or analyst an idea as to how efficient a company's
management is at using its assets to generate earnings. ROA is displayed as a percentage; the
higher the ROA the better. For baximco , in2020, 16.79 % return on asset this is weak than
previous and its good thing for the company. Besides, 2019, 11.75% that’s higher . I think , the
management of the compay is very efficient to get maximum return on profit,

Reneta is struggling with the ROA. In2020 , 10 % and 2019 11.10 % which is higher .The ROA
figure gives investors an idea of how effective the company is in converting the money it invests
into net income. The higher the ROA number, the better, Reneta pharmauciticals management
looks fragile because the company is not earning more money on less investment.

When we compare between two companies , beximco pharmaceuticals . ROE & ROA shows
how well the company uses investment funds to generate earnings growth .

Net profit margin : Net profit / sales × 100

Net profit margin is a ratio that used to calculate the parcentages of profit from its total revenue.
Beximco's net profit margin ratio has increased slightly this time compared to last year but
Reneta’s net profit margin ratio is reversed which indicates companies vulnerability, faces sort of
loses. Actually it measures the amount of net profit a company obtains per taka of revenue the
company gained.

Beximco pharma (2020) Reneta pharma (2020)

Net profit margin = Net Profit Margin =

3544483000/25611947000 4129595803/ 12632907753 ×100

=0.138×100 =13.8% =32.7%

Beximco phrama 2019

Reneta pharma (2019)
=3040403000/22816630000 × 100
3823362130/ 11065965907
=13.3%
=34.60%

Actually the ratio differentiate the beximco

two years Net profit margin  helps both
pharma from reneta pharma by industry and
companies investors assess company's
size of business. as a general rule of
management is generating enough profit from
thumb,10% net profit margin is
its sales whether operating cost are being
considered average, a 20% margin is
contained.
considered high which is good and a
5% margin is low.
  Gross profit margin generally higher gross profit margin which means the company has
more cash to pay for indirect & other costs. The calculation says , beximco’s gross profit
margin is consistent with the previous year. (46.5%) & reneta pharma’s gross profit
margin are 20.5% & 19.5 % which indicates reneta’s has more cash than previous year to
pay for indirect and other cost such as interest , one time expenses. This makes it an
important ratio for helping shareholders assess a financial health.

Asset Efficiency ratio :

Asset Turnover Ratio : Sales/ Average Total Assets

The asset turnover ratio measures the efficiency of a company's assets in

generating revenue or sales.

Turnover ratio of the company

Beximco pharma Reneta pharma

2020 52% 31%
2019 88% 32%

Here , average total asset = Beginning asset + Current asset ÷ 2

Beximco pharma
2020 25611947000 /49666417150 × 100 = 52 %
2019 22816630000 /25873373180 × 100 = 88%
Similarly asset turnover ratio can be found In this way .

Typically, the asset turnover ratio is calculated on an annual basis. The higher the asset turnover
ratio, the better the company is performing. Beximco pharma is ahead of the two companies. But
the previous year ratio (beximco) is significant than the Current year. That is what happened to
Reneta also.

Days inventory

Days Inventory = 365 ÷ (Purchase/ Average Inventories)

Average inventory = beginning inventory + ending inventory ÷2

Reneta pharmaceuticals

2020 365 ÷ (3595065328 / 4649472631 ) = 472.05

2019 365 ÷ (3102151141 / 3965041314 ) = 466.53

We can find beximco pharma’s days inventory ration in this way

Beximco pharma Reneta pharma

2020 157.96 472.05
2019 88.64 466.53
Days inventory also known as "Inventory Days of Supply, which means too much of inventory
Which has remained lazy in the company, obviously its very risky. Here the highest days
inventory in reneta pharma. In2019. 466.53 but in 2020 , the rate goes up 472.05 which indicates
the company holds huge inventory before selling it. In this case, as expected, Beximco can be
said to be good. In the days inventory, the lower is the better. But for both companies
inventories are relatively high. In this year inventories include large amount of finished goods,
packing materials and stock in transit.

Average Collection Period :

Beximco pharma Reneta Pharma

2020 47.32 106.23
2019 385.8 111.55

The average collection period which is a particular time passes before the company collects its
accounts receivable. From these 2 years annual report , beximco pharma did great job to collect
most of all accounts receivables, that means to ensure the beximco has enough cash available to
take care of its new term financial responsiblilities. On the other hand , reneta has same
efficiency but two of them , beximco’s average collection period is important for doing its
business.

Average payment period

The table are shown average payment period of two companies

 Beximco pharma Reneta pharma
2020 196.00 80.48
2019 513.86 79.96

In general, the standard credit term is 0/90 – which facilitates payment in 90 days . As

the average payment period increases, cash should increase as well, but working capital remains
the same. For baximco pharma . the previous year payment period is higher than the current
year.This ratio indicates , baximco , Compared to last year, they have paid for to their supplier
comparatively fast that mens its indicates the company’s liquidity . on the contrary, reneta
pharma has done well in the current year.

Liquidity:

Current ratio :

Beximco pharma Reneta pharma

2020 1.15 2.53
2019 1.04 2.67

The table shows that the average current ratio of Beximco is 1.095 times which is lower than
Renata. Renata stands at average 2.6 times . Reneta owns the highest ratio because it shows a
consistency in its ratio. There is a significant balance between current assets and current
liabilities. This balance can be maintained due to significant changes in short term borrowings,
accrued expenses, income tax payable and short term investment & cash equivalents. Renata’s
values more than 1.5 times which indicates higher more liquidity for the company but indicates
unprofitable, From this point of view, Beximco is much better than reneta.

Quick Ratio :

Beximco pharma Reneta pharma

2020 0.63 1.68
2019 0.58 1.77
From the table, it is found that the average quick ratio of Beximco is 0.64. and Renata again in
position by 1.72.

Reneta has the highest ratio. From the analysis, It is found that in 2020, inventories as well as
short term borrowings are decreasing. In 2008, inventories and spares & supplies increased. On
the other hand, current liabilities (short term & income tax payables) increase much more than
current assets. In 2019, though purchase of inventory increases but cash and short term
investment also increases highly. again purchase of inventories and spares & supplies decreases
the ratio. Besides that, short term borrowings, creditors and income tax payables also increase.

Beximco’s average ratio is 0.64 times. The analysis describes that purchase of inventories are
high over the five years. Besides that, year by year assets have gone slightly up and the liabilities
as well, but proportionately liabilities are a little higher than assets which actually reflected as a
marginal decrease in the ratio.

Capital Structure :

Beximco pharma Reneta pharma

Debt to equity equity ratio

2020 53% 1.53 35% 1.35

2019 65% 1.65 32% 1.32

Lower Debt to equity Ratio indicates strong financial position. Reneta pharma has a bankruptcy
risk is higher compared to beximco pharma. However, beximco pharma managed to reduce their
D/E ratio in 2020 compared to 2019.

The equity ratio is a leverage ratio that measures the portion of company resources that are
funded by contributions of its equity participants and its earnings. Both company have similar
ratio. Both banks belong to similar Equity ratio zone. Lower equity ratio indicates lower
dependence on debt. . It shows a declining trend.

Market Performance Ratio :

EPS :

Beximco pharma Reneta pharma

2020 0.87 46.62
2019 0.75 47.47

From this analysis, It is found that the average EPS ratio of Beximco is 81 times, Renata is
47.045 times a.

Calculating the EPS ratio, It is observed that over the two years, Beximco performs a good
strategic move. In 2019, its EPS ratio increases. Though it’s EPS decline this year, but its share
price increases. In 2020, its share price raises as well as EPS also rises. In 2019, its share prices
declines from Tk.167.7 to Tk.155.8, that’s why a small decline is seen but EPS increases in the
year. But in 2020, the ratio is drastically changes. Because in this year share prices falls down.
Renata shows consistency in its ratio. The reason behind such consistency is that, over the five
years there is no significant changes in the company’s share prices and EPS.

NAV ( Net asset value) :

Beximco pharma Reneta pharma

2020 80.12 243.14
2019 72.96 206.40

NAV is calculated by dividing the total value of all the cash and securities in a fund's portfolio,
minus any liabilities, by the number of outstanding shares . here reneta’s values are Higher than
the baximco’s . & higher value indicates higher intrinsic value of the company.

 Overall analysis : This research about performance evaluation of pharmaceutical

company considering four questions. As this study two largest pharmaceutical
companies and mentioned that the ratio analysis is the best one tools for pharmaceutical
companies. As this study two important liquidity ratio- current ratio and quick ratio.
According to current ratio and quick ratio, it is found that Beximco is in a good liquidity
position than the other two companies. It means that the company has the ability to meet
its short term financial obligations. On the other hand, Renata has relatively higher debt.
 Debt depends on different sectors such short term borrowing, long term borrowings, trade
creditors, accrued expenses etc. That’s way both company is going to bed debt for
liquidity position. In the asset management ratio, study on four ratios. According to
accounts receivables and inventory turnover ratio, baximco is in the better position than
the other two company. Because Baximco effectively uses and control its assets and
manages its inventory. Renata has higher receivables. According to fixed asset and total
asset turnover, Renata is in the good position. It utilizes its assets efficiently against sales.
There are no significant changes in both reneta and Beximco. There fixed assets
increases year by year where sales increases relatively low.
Question 2 :

DuPont analysis (also known as the DuPont identity, DuPont equation, DuPont Model or
the DuPont method) is an expression which breaks ROE (Return on Equity) into three
parts.
Return on equity = profit margin × total asset turnover × financial leverage
Return on equity = profit margin/(net income /net sales ) × Total asset turnover /(net sales
÷average total asset) × financial leverage / ( total asset÷ total equity)