Performance Evaluation of Square pharmaceutical Limited On the basis of Audit Test and

Audit Evidence.

Square Pharmaceutical Ltd. 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 SPL was more than Taka 11.46 Billion (US$ 163.71 million) with about 16.43%
market share (April 2014 March 2015) having a growth rate of about 16.72%.

Square symbolizes a name a state of mind. But its journey to the growth and prosperity has
been no bed of roses. From its 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.

Square now has one of the largest and competent sales force and large distribution network of its
own, operated from 18 different locations throughout the country. A most dynamic skilled and
dedicated marketing team comprising of pharmacists and doctors are at the core of the marketing
operation. These highly skilled professionals play a crucial role in providing the necessary
strategic guideline for the promotion of its product.

Objective of the Study

General Objective:

The main objectives of the study are to learn how to audit procedure done by the company. This
report is also covers some other information which is related to finance and accounts functions of
Square Pharmaceuticals Ltd. The specific objectives are given below:

Specific Objectives:

To know about the Financial Condition and Audit Procedure of Square pharmaceutical
Limited.
To have an idea about the Internal Audit and Internal Control procedure of Square
pharmaceutical Limited.
To have an idea about the operations of finance and accounts department of Square
pharmaceutical Limited.

To know about the companys mission, vision, objectives, values and principles.
To assess the performance of Square pharmaceutical Limited and compared to its
competitor, , through analyzing financial ratios.
Methodology of the Study

For smooth and accurate analysis Financial Condition and Audit Procedure of Square
pharmaceutical Limited I have decided to impute secondary sources of information.

Secondary data:

Second-hand, published accounts are called secondary sources. They are called secondary sources
because they are created after primary sources and they often use or talk about primary sources.

Secondary sources often have many copies which we collected from

Annual report of companies

Files & Folders
Daily diary
Various publications of companies,
Website

Introduction to the Square Group

Square Pharmaceuticals Limited has extended her range of services towards the highway of global
market. It pioneered exports of medicines from Bangladesh in 1987 and has been exporting
antibiotics and other pharmaceutical products. This extension in business and services has
manifested the credibility of Square Pharmaceuticals Limited.

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.

Concerns of Square Group

Performance Evaluation of Square pharmaceutical Limited On the basis of Audit Test and Audit
Evidence.

Financial Condition and Audit Procedure

This Project contains two (02) parts. These are,

1. Financial Analysis.
2. Internal Audit and Internal Control Procedure.

Financial Analysis: Financial analysis refers to an assessment of the viability, stability and profitability of
a business. Financial analysts often compare financial ratios (of solvency, profitability, growth, etc.).
Comparing financial ratios is merely one way of conducting financial analysis.In this we try to compare
financial ratio with Skf Pharmaceuticals.

Internal Audit Procedure: It contains different aspects of performing an internal audit and how it is
done. Also some basic guidelines for Internal Audit.

Work of Internal audit

1) Monitoring internal controls ;
2) Examining financial and operating information ;
3) Review of the economy, efficiency and effectives of operation ;
4) Review of compliance with laws, regulations, and other internal requirement ;
5) Special investigation for instance into respected fraud.

Objective of the Analysis:

To know financial strength and weakness of the Square pharmaceutical Limited through
calculating some ratios.
To learn how to implement different financial tools in real life analysis.
To deciding whether the present financial position of Square pharmaceutical Limited.

Methodology of the Analysis:

Financial Analysis of Square pharmaceutical:

Financial ratios are useful indicators of a firms performance and financial situation. Financial
ratios can be used to analyze trends and to compare the firms financials to those of other firms.
 Uses of Ratio Analysis: Ratios are used both internal and external analyst:

1. Internal Uses
Planning
Evaluation of management
Focus on investment for various assets and assets efficiency
Understanding how suppliers of funds analyze the firm

2 External Uses
Credit granting by the financial institution of individual
Performance monitoring
Investment decisions
Policy making decision
Focus on the profitability and long term health of the firm
Focus on the long term cash flow of the firm
Focus on the liquidity of the firm

Categories of Financial Ratio

Financial ratios can be classified according to the information they provide. The
following types of ratios are used Evaluation of Square pharmaceutical Limited.

There are some ratio which is considered the most important ratio in financial analysis when
ratio analysis is considered. These categories are:

Liquidity Ratio: This gives a picture of a companys short term financial situation or
solvency.
Debt Management Ratio: It shows the extent that debt is used in a companys capital
structure.
Profitability Ratio: It uses margin analysis and show return on sales and capital
employed.

Liquidity Ratios:

Liquidity ratios are the first ones to come in the picture. These ratios actually show the
relationship of a firms cash and other current assets to its current liabilities. Two ratios
are discussed under Liquidity ratios. They are:
1. Current ratio
2. Quick/ Acid Test ratio.
Current Ratio

This ratio indicates the extent to which current liabilities are covered by those assets
expected to be converted to cash in the near future. Current assets normally include cash,
marketable securities, accounts receivables, and inventories.

Current Ratio= (Total Current Liabilities /Total Current Assets)

Analysis:

Year Current Current Inventories Current Quick Ratio

Assets (I) Liability (II) (III) Ratio IV= I
II V = (I III)
II
2009 3,843,512,855 2640868554 2098755231 1.46 0.66
2008 4,411,836436 3500845103 2026736322 1.26 0.68
2007 3682510712 2555566286 1544191798 1.44 0.84

Interpretation:

Current ratio of Square Pharmaceuticals Ltd. shows that the ability of the company to meet the
current liabilities with available current assets was decreased in the year 2008 and again
increased n 2009.

Quick Ratio:

This ratio indicates the firms liquidity position as well. It actually refers to the extent to which
current liabilities are covered by those assets except inventories. Companies with less than
1 cannot pay their current liabilities and should be looked at with extreme care.

= ( )/

Analysis:

Year Current Current Inventories Current Quick Ratio

Assets (I) Liability (II) (III) Ratio IV= I
II V = (I III)
II
2009 3,843,512,855 2640868554 2098755231 1.46 0.66
2008 4,411,836436 3500845103 2026736322 1.26 0.68
2007 3682510712 2555566286 1544191798 1.44 0.84
Interpretation:

The Quick ratio shows the decreasing trend. It indicates that the company is so much depends
on the inventories to meet the current liability. Their ratio is so much weak to cover an
unexpected draw down of liabilities.

Inventory Turnover:

Inventory turnover ratio is also inconsistent. So it means that company management is not able to
manage its inventory efficiently all the time

= /

Analysis:

Inventory Turnover Ratio

Year Cost of Goods Inventory (II) Inventory Turnover

Sold (I) ratio III = I II
2009 5672565973 2098755231 2.70
2008 4856061933 2026736322 2.40
2007 4268447662 1544191798 2.76

Interpretation:

Inventory turnover ratio, defined as how many times the entire inventory of a company has been
sold during an accounting period, is a major factor to success in any business that holds
inventory.

Overall Performance Evaluation on Liquidity Ratio:

Debt-Management Ratios:

It indicates what proportion of equity and debt the company is using to finance its assets. The data
of SPL has an average of 28% debt equity ratio which is good.

= /

Analysis:

Interpretation:

Times Interest Earned:

Higher value of times interest earned ratio is favorable meaning greater ability of a business to
repay its interest and debt. Lower values are unfavorable. A ratio of 1.00 means that income before
interest and tax of the business is just enough to pay off its interest expense. That is why times
interest earned ratio is of special importance to creditors.

= /

Analysis:

Interpretation:

Overall Performance Evaluation on Debt-Management Ratio:

Profitability Ratios:

Profitability is the net result of a number of policies and decisions. Profitability ratios
show the combined effects of liquidity, asset management and debt on operating
results.
Profitability Ratio can be divided into the following parts:
Gross Profit Margin
Net Profit Margin
Return on Investment Ratio
Return on Equity

Gross Profit Margin

Gross profit margin is a financial metric used to assess a company's financial
health and business model.

Analysis:

Year Gross Profit (I) Net Sales (II) Gross Profit Margin

III = I II
2009 4148230595 9820796568 0.42
2008 3401781806 8257843739 0.41
2007 3232363687 7500811349 0.43
Interpretation: It indicates what the company pricing policy is and what the true mark-up
margin are. The results may skew if the company has very large range of products. This is very
useful when comparing against the margins of previous year. A 33% gross margins means
products are marked up 50% and so on.

Net Profit Margin:

Net profit margin is the percentage of revenue left after all expenses have been deducted
from sales. The measurement reveals the amount of profit that a business can extract from
its total sales.

(Net profits Net sales) x 100 = Net profit margin

Analysis:

Year Profit After Tax (I) Net Sales (II) Net Profit Margin

III = I II
2009 1890052929 9820796568 0.19
2008 1381863093 8257843739 0.17
2007 1303242840 7500811349 0.17

Interpretation:

The main reason that the profit margin declined is high cost. High cost, in turn, generally occurs
due to inefficient operations. It indicates what proportion of sales contributes to the income of
the company.

Return On Investment Ratio:

The return on assets ratio, also called the return on investment ratio (ROI), is a
profitability measure that evaluates the performance of a business or investment, or the
potential return from a business.

ROI = (Net Profit / Cost of Investment) x 100

Analysis:

Year Profit After Tax (I) Asset (II) ROI = I II

2009 1890052929 13251242856 0.14
2008 1381863093 12703127420 0.11
 2007 1303242840 10486940004 0.12

Interpretation:

Square Pharmaceuticals Tend analysis of ROI ratio shows that after 2007, it decreased but for
the next year it increased. Profit in 2007 is 12%, in 2008 is 11% and in 2009 is 14%. The
company should take necessary steps to maintain this trend.

Return on Equity:

The return on equity measures the return earned on the owners investment in the company.
Generally the higher the returns the better off are the owners. The owners of square
pharmaceutical are having a very good return on equity.

= /( )

Analysis:

Year Profit After Tax (I) Shareholder Equity ROE

(II)
III = I II
2009 1890052929 9949397634 0.19
2008 1381863093 8417040705 0.16
2007 1303242840 7333257612 0.18

Interpretation:

It indicates what return a company is generating on the owners equity investment. For high
growth the company should expect a higher ROE. Average ROE over past few year can give a
better idea of the historical growth. Sometimes ROE is referred to as stockholders return on
investment, it tells the rate that shareholders are earning on their shares. The ROE ratio tells us
how much profit they earn from the investment of the shareholders have made in their company

Asset Turnover:

Square Pharmaceutical Limiteds the total assets turnover ratio reflects how efficiently the company
is using its total assets to generate sales. The total asset turnover ratio of SPL is stable. It means that
company is generating sufficient volume of business given its total investment.

= /

Analysis:
Interpretation:

Return on Assets:

The return on total assets (ROA) is often called the companys return on investment. It measures
the overall effectiveness of management in generating profits with its available assets. The higher
the companys return on total assets the better. The data represents here gives us an impression
that Square Pharmaceutical is doing satisfactorily good.

= /

Analysis:

Interpretation:

Overall Performance Evaluation on Profitability Ratios.

Internal Audit

Definition

Audit Test

An audit test is a procedure performed by either an external or internal auditor in order to assess the
accuracy of various financial statement assertions.