Letter of Transmittal

October 23, 2022

Maliha Rabeta

Lecturer

Department pf Business Administration in Finance and Banking

Bangladesh University of Professionals

Mirpur Cantonment, Dhaka – 1216

Subject: Submitting term paper for the course “Principles of Accounting”

Ma’am

We want to draw your kind attention to the fact that we are now submitting the final term paper after
analyzing the financial statements of the company “Ibn Sina Pharmaceutical Industry ltd.” we have
made every effort to fully comprehend the work you have given us, to prepare the financial
statements for the most recent —- years, and to conduct ratio studies using the information at our
disposal.

We hope that you find our paper satisfactory, and we eagerly await your feedback for resolving any
shortcomings in our paper.

Sincerely

The members of Group 4

Section B
 Table of Contents

1. Orientation of the Report…………….……….……………………..….4

Executive Summary………………………….….…………………………4
1.1 Origin of the Report…………………….…….………………………4
1.2 The Objective of the Report…………………….……………………4
1.3 The Scope of the Report…………………………….………………...4
1.4 Limitation of the Report……………………………………………...4
2. The Ratio Analysis…………………………………………………………4
Ratio Analysis………………………………………………………………4
2.1 Current Ratio………………………………………………………..4
2.2 Acid Test Ratio……………………………………………………...4
2.3 Leverage Ratio………………………………
2.4 Gross Margin Ratio……………….
2.5 Net Profit Margin Ratio………….
2.6 Inventory Turnover Ratio………….
2.7 Accounts Receivable Turnover Ratio………….
2.8 Return on Asset Ratio…………..
2.9 Return on Investments Ratio……..
3. Ratio Analysis of Ibn Sina Pharmaceuticals Industry ltd.
4. Conclusion.
 Chapter One
Orientation of the Report

Executive summary

The title of our term paper is “Analysis of Financial Statements of Ibn Sina Pharmaceuticals
Industry ltd.” The Ibn Sina Pharmaceuticals industry Ltd. is a leading pharmaceutical company in
Bangladesh. The company was incorporated as a public limited company in 1990, July 17. Besides
contemporary medicines, it is also encouraging natural herbal/unani medicines. Hence, it’s
manufacturing plant is broadly divided into two principal units, i.e. Pharmaceuticals Manufacturing
Plant and Natural Medicine Manufacturing Plant. In this report we will introduce the background of
Ibn Sina Pharmaceuticals Industry ltd. Firstly. Then secondly we will discuss the ratio analysis,
thirdly we will describe the analysis. Finally we will analyze all the information and findings. Here
we will describe the ratio analysis of Ibn Sina Pharmaceuticals Industry ltd. At last we will give
some conclusions and recommendations.

1.1Origin of the report

This report is prepared as an academic requirement of the course (Principles of
Accounting) of Bangladesh University of Professionals(BUP). This term paper is
assigned by Maliha Rabeta, Lecturer, Finance & Banking Department.

1.2The Objective of the Report

The study's main objective is to develop financial knowledge about ratios and financial
statements at a practical level and analyze it to understand Financial Statements better.

 To have an overview of the analysis of the company.

 To define all characters of Ratio Analysis.
  To gain practical knowledge for making a career in Finance Research
Sector.

1.3Scope of the report

The report is being conducted for having a different point of view of the company’s
Financial Attitude.

1.4 limitations of the report

During the study of this report we have faced the following problems
• Time was short for this large study.
• Some information was not available in the financial database.
 Chapter Two
The Ratio Analysis

Ratio Analysis: A ratio analysis expresses the relationship among selected items of financial
statement data. A ratio expresses the mathematical relationship between one quantity and
another. The relationship is expressed in either a percentage, a rate, or a simple proportion. The
study of financial conditions and performance through ratios is derived from financial statements
or other financial or nonfinancial information items. The Balance Sheet and the income
statement are essential, but they are only the starting point for successful financial management.
Apply Ratio Analysis to Financial Statements to analyze the success, failure, and progress of
business
There are three types of financial ratio-

1. Liquidity ratio
2. Proficiency ratio
3. Solvency ratio

2.1 Current Ratios

The Current Ratio is one of the best-known measures of financial strength.
Total Current Assets Current Ratio = Current Assets/Current Liabilities.

2.2 Quick Ratios

The Quick Ratio is sometimes called the "acid-test" ratio and is one of the best liquidity
measures.
Acid Test: Net Sales – Inventories /Total Current Liabilities

2.3 Leverage Ratios

This Debt/Worth or Leverage Ratio indicates the extent to which the business is reliant on debt
financing (creditor money versus owner's equity

Debt/Worth Ratio: Net Total Liabilities /Net Worth

2.4 Gross Margin Ratio
This ratio is the percentage of sales dollars left after subtracting the cost of goods sold from net
sales. It measures the percentage of sales dollars remaining (after obtaining or manufacturing the
goods sold) available to pay its overhead expenses. Comparing your business ratios to similar
businesses will reveal your business's relative strengths or weaknesses. The Gross Margin Ratio is
calculated as follows:

Gross Margin Ratio = Gross Profit/Net Sales

(Gross Profit = Net Sales - Cost of Goods
Sold)

2.5 Net Profit Margin Ratio

This ratio is the percentage of sales dollars left after subtracting the Cost of Goods sold and all
expenses, except income taxes. It provides an excellent opportunity to compare your company's
"return on sales" with the performance of other companies in your industry. It is calculated before
income tax because tax rates and tax liabilities vary from company to company for various
reasons, making comparisons after taxes much more difficult. The Net Profit Margin Ratio is
calculated as follows:

Net Profit Margin Ratio = Net Profit before Tax/ Net Sales

2.6 Inventory Turnover Ratio

This ratio reveals how well inventory is being managed. It is essential because the more times
inventory can be turned in a given operating cycle, the greater the profit. The Inventory Turnover
Ratio is calculated as follows:

Inventory Turnover Ratio = Net Sales /Average Inventory at Cost

2.7 Accounts Receivable Turnover

This ratio indicates how well accounts receivable are being collected. If receivables are not
collected reasonably by their terms, management should rethink its collection policy. If
receivables are excessively slow to convert to cash, liquidity could be severely impaired. The
Accounts Receivable Turnover Ratio is calculated as follows:

Net Credit Sales/365 days a Year= Daily Credit Sales

Accounts Receivable Turnover (in days) = Accounts Receivable/Daily Credit Sales

2.8 Return on Assets

This measures how efficiently profits are generated from the assets employed in the business
compared with the ratios of firms in a similar business. A low ratio compared to industry
averages indicates an inefficient use of business assets. The Return on Assets Ratio is calculated
as follows:
Return on Assets = Net Profit before Tax/Total Assets

2.9 Return on Investment Ratio

The ROI is perhaps the most important ratio of all. It is the percentage of return on funds
invested in the business by its owners. In short, this ratio tells the owner whether or not all the
effort put into the business has been worthwhile. Suppose the ROI is less than the rate of return
on an alternative, risk-free investment such as a bank savings account. In that case, the owner
may be wiser to sell the company, but the money in such a savings instrument, and avoid the
daily struggles of small business management. The ROI is calculated as follows:
Return on Investment = Net Profit before Tax /Net Worth
 Chapter 3
Ratio Analysis

 Current Ratio-
2021 2020 2019 2018
Current Assets= 1,384,872,309 1,051,192,582 964,225,218 859,761,961

Current Liabilities= 1,154,966,399 1,297,984,134 1,144,311,664 1,062,536,232

Current Ratio= 1.199058527 0.809865509 0.842624652 0.809160135

Analysis- The current ratio over the period is decreasing. This indicates the lack of current assets,
and if continued at this pace, it will soon be unable to pay the current liability because of the lack
of liquid assets.

 Acid Test Ratio-

2021 2020 2019 2018

Current Assets – 1,384,872,309 - 1,051,192,582 - 964,225,218 - 859,761,961 -
Inventory = 781,760,330 642,870,107 522,185,354 465,017,832

Current Liabilities= 1,154,966,399 1,297,984,134 1,144,311,664 1,062,536,232

Acid Ratio= 0.522190065 0.314582023 0.386293243 0.371511217

Analysis- This ratio measures a company’s ability to pay short term debts. In this case we can see
that over the years this number is not very good. In 2018 it is 0.37 to begin with. The next year it
increased slightly. The later year it decreased drastically. In 2021 it went to 0.52 and it increased
quite a bit. But in the long run the company will not be able to repay its short term debts.
 Inventory Turnover-

2021 2020 2019 2018

Cost of Goods 4,275,324,899 3,595,065,328 3,102,151,141 2,764,720,036
Sold=
Average 712315218.5 582,527,730.5 493,601,593 364,606,035
Inventory=
Inventory Turn 12.75947121 13.13193807 6.284726761 8
Over=

Analysis- Inventory turnover means that how many times can the available inventory be sold.
The higher the better. In this company’s case the inventory turnover ratio started from 8 in 2018
and gradually increased and in 2021 in became highest 12.75 times. This means the company can
expect better sales every year.

 Profit Margin-

2021 2020 2019 2018

Net Income= 497,850,813 397,731627 336,297,710 452,139,737

Net Sales= 7,376,042,094 6,191,628,639 5,263,963,344 4,657,350,011

Profit Margin= 6.7% 6.4% 6.3% 9.7%

Analysis- Initially profit margin means that how much profitable the company is. In this
company’s case here, the percentage of 2018 was 9.7%. but later in the year of 2019,2020 &
2021 the percentage was stuck between 6.7% and 6.3%. So we can analyze that the company is
not doing very well.

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 Asset Turnover

2021 2020 2019 2018

Net Sales 7,376,042,094 6,191,628,639 5,263,963,344 4,657,350,011

Average total 3,648,518,860 3,135,052,634 2,635,104,254 2,298,279,275

Assets
Asset Turnover 2.021653821 1.974968003 1.997630013 2.026450859

Analysis- Asset Turnover means that the company can use the assets to generate profits or not.
from 2018 to 2021 there is very little change. This means that the company’s efficiency has not
changed at all.

 Return On Assets-

2021 2020 2019 2018

Net Income= 497,850,813 397,731627 336,297,710 452,139,737

Average Total 3,648,518,860 3,135,052,634 2,635,104,254 2,298,279,275

Assets=
Return On 13.64% 12.68% 12.76% 19.67%
Assets=

Analysis- Return on assets is a profitability ratio that provides how much profit a company can
generate from its assets. In other words, return on assets (ROA) measures how efficient a
company's management is in earning a profit from their economic resources or assets on their
balance sheet. In 2018 the percentage was 19.67% this was the highest there ever was.
Afterwards from the year 2019 to 2021 the parentage stuck between 13 to 12%. This shows that
the company’s the companys efficiency decreased over the years.

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 Return On Common Stockholders-

2021 2020 2019 2018

Net Income 497,850,813 397,731627 336,297,710 452,139,737
Average common 1166085905 1352752487 1630296768 1971078564
stock holders’
equity
Preferred dividend 0 0 0 0

Return on common 25.25778638 24.39627158 24.86025443 38.77413622

stockholder’s
equity=

Analysis- The return on common equity ratio measures how much money common shareholders
receive from a company compared with how much they invested originally. The number was
38.77 in the year 2018. But from the next year it went down to 24.86. Later year the number
hasn’t changed much in 2021 it went a little up and it was 25.25. So we can see that tha number
might fell in the first year but for 3 years it is in a stable position.

 Debt To Asset Ratio

2021 2020 2019 2018

Total 1,695,544,319 1,659,336,275 1,350,175,457 151,991,884

Liabilities=

Total Assets= 3,855,404,305 3,441,633,415 2,828,471,852 2,441,736,656

Debt to asset 0.4397837905 0.4821362635 0.4773515621 0.4974033858

ratio

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 Analysis- The debt-to-total-assets ratio shows how much of a business is owned by
creditors (people it has borrowed money from) compared with how much of the
company's assets are owned by shareholders. We can see in the ratio that the number is
pretty same over the years. So it is conclude that the amount of assets is more than half
the percentage.

Conclusion
By analyzing the given information we can say that to company is not much liquid in some
places. But it is highly efficient in keeping its inventories. Though the ability to pay short term
loans is not that impressive. But it still went through COVID-19 unharmed because it is a
pharmaceuticals company. But for the short term loan and liquidity problem the company’s
income is falling.

Resources:

http://www.ibnsinapharma.com/investors/financial-report/

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