RATIO ANALYSIS

OF
SQUARE PHARMACEUITCALS LTD.

Prepared for

Ryashad Ahmed
Lecturer, School of Business.
North South University.

Prepared by
M Mushfiqul Hossain Khan 053 443 030
M Ahsan Habib 053 439 030
Tarek Mahmud Bhuiyan 061 095 030
FIN- 254
Sec-09

NORTH SOUTH UNIVERSITY

Date of submission: 03/03/08

1
 TABLE OF CONTENT

Acknowledgement
03 Letter of Transmittal
04 Executive Summary
05 SQUARE’s Vision Statement
06 SQUARE’s Background
07 Our Objects
08
Ratio Analysis 09 - 20
Recommendation
21 Conclusion
22
Appendix 23 -28

2
 ACKNOWLEDGEMENT
ACKNOWLEDGE
First of all, we would like to thank Almighty God for giving us the strength
and knowledge for preparing this project. Secondly, we would like to thank
our respected instructor Riyashad Ahmed for allowing us to work in this
project and giving us all the necessary help and suggestions that we needed.

Then, we would like to thank the Information department of

SQUARE PHARMACEUTICAL LIMITED

For all the encouragement and that helped us complete this project

successfully. Lastly, we want to thank each other for being so cooperative

and for all their contribution. Thank you all.

3
 LETTER OF TRANSMITTAL
March 3, 2008
Mr. Riyashad Ahmed
Lecturer, School of Business.
North South University.
Dhaka - 1213
Subject: Submission of the project report.

Dear Sir,

We are glad to submit this report on ratio analysis of Square Pharmaceuticals Ltd. The
report deals with a study of ratios of last three years and from this report we can
understand the financial health of Square Pharmaceuticals Ltd. In the process, current
procedures have been reviewed, present flaws identified and thereby strategies formulate
and recommendations made.

We thank you for your sincere co-operation throughout the duration of the study. If you
need further clarification on any issue, we are at your disposal at any time of your
convenience.

We, therefore, would like to request you to accept my assignment and oblige us thereby.

Sincerely,
________________________________
M. Ahsan Habib
ID# 053-439-030

M Mushfiqul Hossain Khan

ID# 053-443-030

Tarek MAhmud Bhuiyan

ID# 061-095-030
________________________________

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________________________________

EXECUTIVE
SUMMERY
EXECUTIVE
SUMMERY
This report, entitled ‘Financial Statement Analysis for Square Pharmaceuticals Ltd.
covers different aspects of a financial sector for the company.

Generally this financial statement begins with a set of financial ratios analysis involves,

- comparing the SQUARE’s financial performance.

- evaluating trends in the SQUARE’s financial position over time.
- analysis also designed to reveal the strengths and weaknesses of the SQUARE.
- to show whether its financial position has been improving or deteriorating over time.

This Analysis helps management identify deficiencies and then take action to improve
performance

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 COMPANY VISSION STATEMENT

Vision

SQUARE’s see business as a means to the wellbeing of the investors, employees and
the society at large, leading to accretion of wealth through financial and moral gains
as a part of the process of the human civilization.

Mission

SQUARE’s mission is to provide quality & innovative healthcare relief for people,
maintain stringently ethical standard in business operation also ensuring benefit to
the shareholders and other stakeholders.

Objectives

SQUARE’s objectives are to conduct transparent business operations within the

legal & social frame work with aims to attain the mission reflected by our vision.

Corporate Focus

SQUARE’s vision, mission and objectives are to emphasis on the quality of product,
process and services leading to growth of the company imbibed with good
governance practices.

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 COMPANY BACKGROUND

SQUARE Pharmaceuticals was established in 1958 as a partnership firm. But

the revolution has begun when it incorporated itself in 1964 as a private
limited company. From then, SQUARE is one on the market leaders in the
pharmaceutical industry. The chairman of SQUARE Group is Mr. Samson H
Chowdhury who is a well reputed personality of the society. The origin of
SQUARE Group started from the district of Pabna. Still it has its largest plant
in there. After the liberation war period SQUARE group started to move
forward impressively. In 1974 they signed a Technical Collaboration
Agreement with Janssen Pharmaceuticals of Belgium (A subsidiary of Johnson
& Johnson International Ltd.). A Technical Collaboration Agreement with
F.Hoffman-La Roche & Co. Ltd. was 1982. In 1987 SQUARE was the pioneer
of pharmaceutical export from Bangladesh. In 1991 SQUARE was enlisted as
a public limited company and from 1995 it started its functioning in the
Dhaka and Chittagong stock exchange. Another important event for
SQUARE was the agreement with M/s. Bovis Tanvec Ltd. of UK for
implementation of Dhaka Plant in 1996. For its well reputation SQUARE
Pharmaceuticals won national export trophy in 1997 and awarded ISO-9001
certificate in 1998. Recently in 2004, SQUARE Signed agreement with
ROVIPHARM, Vietnam to manufacture and market SQUARE products under
license in Vietnam. Currently it has authorized capital of BDT1, 000 Million
and paid up capital of BDT496.8 Million. Total number of their
pharmaceutical plant employees is 2,073.

Reasoning behind selection

Right from the beginning SQUARE is holding its leading position in the
Bangladeshi Pharmaceutical Industry. It provides the market with a wide
selection of drugs across all major therapeutic classes, and also offers some
specialty medicines. This company is the pioneer of pharmaceutical
exporters from Bangladesh which started from 1987. SQUARE has very
weighted agreements with some well reputed companies like Johnson &
Johnson intl., F.Hoffman-La Roche & Co. Ltd., ROVIPHARM etc. For their smart

7
business process SQUARE won national export trophy in 1997 and awarded
ISO-9001 certificate in 1998. SQUARE also meets all national regulatory
requirements relating to its current businesses and ensures that current
Good Manufacturing Practices as recommended by World Health
Organization is followed for its pharmaceutical operations.

OUR
OBJECT

 To calculate liquidity, activity, profitability, debt and market ratio of the company in
pharmaceuticals industry.
 To analyze and interpret the ratio against consecutive three years ratio.
 Develop and analyze common size income statement of the three companies.
 Use Du Pont systems to analyze ROA and ROE.

To find financial problems of SQUARE Pharmaceuticals and to give them

suggestion.

8
 RATIO
ANALYSIS
9
RATIO ANALYSIS
Liquidity Ratio
31-03-2005 31-03-2006 31-03-2007 Remark
Remark

1.66 times 1.78 times 1.44 times Poor

Current Ratio
1.08 times 1.19 times 0.84 times Poor
Quick Ratio

Interpretation of Liquidity Ratio

Current Ratio:
 In the year 2007, Square Pharmaceutical has current assets were 1.44 times than
their current liabilities. In year 2006 and 2005, the company had sequentially 1.78
times and 1.66 times.
 It goes down in Square Pharmaceutical.
 Since the current asset decrease and current liabilities increase in year 2007
(except in case of year 2006). So the ratio goes down.

Quick Ratio:
 In the year 2007, Square Pharmaceutical has current assets without inventories were
0.84 times than their current liabilities. In year 2006 and 2005, the company had
sequentially 1.19 times and 1.08 times.
 It goes down in Square Pharmaceutical.
 Since the current asset decrease, at the same time inventories increase and current
liabilities increase in year 2007 (except in case of year 2006). So the ratio goes down.

10
 7

Graph of Current Ratio

Current Ratio

2
1.66 1.78
1.5 1.44
Times

1
0.5
0
2005 2006 2007
Financial Ratio

Graph of Quick Ratio/Acid Test Ratio

Quick Ratio/Acid Test Ratio

1.5
1.08 1.19
1
Times

0.84
0.5
0
2005 2006 2007

Financial Year

11
 Asset Management Ratio
31-03-2005 31-03-2006 31-03-2007 Remark

Inventory Turnover Ratio 4.66 times 4.54 times 4.93 times Good
Fixed Assets Turnover Ratio 2.30 times 1.16 times 1.10 times Poor
Total Assets Turnover Ratio 0.94 times 0.65 times 0.72 times Average
Day’s Sales Outstanding 18 days 17 days 16 days Good
Average Payment Period 10 days 8 days 5 days Poor

Interpretation of Asset Management Ratio

Inventory Turnover Ratio

 In the year 2007, Square Pharmaceutical has sold out and restocks its inventories
4.93 times. In year 2006 and 2005 it is 4.54 times and 4.66 times.
 It goes up in Square Pharmaceutical.
 Since, net turnover increased form previous years and also increase in stock. So the
ratio goes up. It is become favorable to the company.

Fixed Assets Turnover Ratio

 In the year 2007, Square Pharmaceutical has generated $1.10 worth of sales by
utilizing $1 worth of fixed assets. In year 2006 and 2005, it is $1.16 and $2.30.
 It goes down so it is unfavorable for Square Pharmaceutical.
 Because at the same time net turnover and fixed asset increase, so the ratio goes
down.

Total Asset Turnover Ratio

9
 In the year 2007, Square Pharmaceutical has generated $0.72 worth of sales by
utilizing $1 worth of fixed assets. In year 2006 and 2005, it is $0.65 and $0.94.

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 It is fluctuating for Square Pharmaceutical.
 Because at the same time net turnover and total asset increase at a close increasing
rate

Day’s Sales Outstanding

 In the year 2007, Square Pharmaceutical took on an average 16 days to collect from
their trade debtors. In year 2006 and 2005, it is 17 and 18 days.
 It is favorable for Square Pharmaceutical.
 Since net turnover and trade debtors amount increase sequentially, so it is logically
good.

Average Payment Period

 In the year 2007, Square Pharmaceutical took on an average 5 days to make
payment to the trade creditors. In year 2006 and 2005, it is 8 and 10 days.
 It goes down but it is unfavorable for Square Pharmaceutical.
 Because the account receivable duration should be below account payable. It means
collection of cash take more time then payment in every year in Square
Pharmaceutical.

Graph of Inventory Turnover Ratio

Inventory Turnover

5 4.93
5
Times

5 4.66
4.54
4
4
2005 2006 2007

Financial Year

Graph of Asset Turnover Ratio

13
 Fixed Asset Turnover

3
2 2.30

Times
1 1.16 1.10
-
2005 2006 2007

Financial Year

Graph of Total Asset Turnover Ratio

Total Asset Turnover

1.00 0.94
0.65 0.72
Times

0.50

-
2005 2006 2007

Financial Year

Graph of Average Collection Period

Average Collection Period

20
18 18.31
Days

17.31
16 15.71
14
2005 2006 2007

Financial Year

14
 Graph of Average Payable Period
Average Payable Period

15
10 9.69
Days

8.22
5 5.18
-
2005 2006 2007

Financial Year

Debt Management Ratio

31-03-2005 31-03-2006 31-03-2007 Remark
Total Debt to Assets Ratio 0.39 times 0.31 times 0.30 times Good
Times Interest Earned (TIE) 12.57 times 11.30 times 7.71 times Good

Interpretation of Debt Management Ratio

Total Debt to Assets Ratio

 In the year 2007, Square Pharmaceutical has total debt 0.30 times than their total
assets. In year 2005 and 2006, it was 0.39 times and 0.31 times
 In 2005 the company was in very risky position but in 2006 and in 2007 the has
improved.
 From the above condition, the company has a safe position in debt asset ratio. And it
is still decreasing. So it is favorable for Square Pharmaceutical.

Times Interest Earned Ratio (TIE)

 In the year 2007, Square Pharmaceutical company’s EBIT was 7.71 times higher
then their interest expense. In year 2005 and 2006, it is 12.57 times and 11.30 times.
 It goes down.
 Because interest expense goes down

15
 Graph of Total Debt to Total Asset Graph of Times- Interest- Earned
Ratio Ratio
Total Debt to Total Asset Times-Interest-Earned Ratio
Ratio
1 15.00
12.57
Percentage

0 0.39 10.00 11.30

Times
0.31 0.30 7.71
0 5.00
0 -
2005 2006 2007 2005 2006 2007

Financial Year Financial Year

Profitability Ratio
31-03-2005 31-03-2006 31-03-2007 Remark
Gross Profit Margin 40.75% 42.11% 43.09% Good
Net Profit Margin 23.55% 19.14% 17.37% Poor
Return on Assets (ROA) 21.08% 12.54% 12.43% Poor
Return on Equity (ROE) 50.08% 35.19% 31.86% Poor

Interpretation of Profitability Ratio

Gross Profit Margin

 In the year 2007, Square Pharmaceutical has earned $43.09 gross profit per $100
sales. In year 2006 and 2005 it is $42.11 and $40.75 per $100 sales.
 It has gone up.
 It increase because, gross profit has gone up so that’s way the ratio has gone up.

Net Profit Margin

 In the year 2007, Square Pharmaceutical has earned $17.37 net profit per $100
sales. In year 2006 and 2005 it is $19.14 and $23.55 per $100 sales.
 It has gone down,
 Since the net profit decreases from previous years so that the ratio also decreases. So
it is not favorable for Square Pharmaceutical.

Return on Asset (ROA)

 In the year 2007, Square Pharmaceutical had a net income of $12.43 by
utilizing $100 worth of total asset. In year 2005 and 2006 this particular company had net
income of $21.08 and $12.54 by utilizing $100 worth of total asset. 12

16
  It goes down and it is unfavorable for Square Pharmaceutical.
 Because the net income decreases, so the ratio decreases.

Return on Equity (ROE)

 In the year 2007, Square Pharmaceutical’s common shareholders had a
earning of $31.86 per $100 worth of common equity. In the year 2005 and 2006, it is $50.08
and $35.19 per $100 worth of common equity.
 It goes down and it is unfavorable for Square Pharmaceutical.
 Because the net income decreases and at the same time total common
equity increases, so the ratio decreases.

Graph of Gross Profit Margin Graph of Net Profit Margin

Gross Profit Margin Net Profit Margin
44 25.00
43 43.09
Percentage

20.00
Percentage

42 42.11
41 15.00
40.75
40 10.00 Series1
39
5.00
2005 2006 2007 -
2005 2006 2007
Fina ncia l Ye ar

Graph of Return on Asset (ROA) Graph of Return on Asset (ROE)

Return on Asset Return on Equity

30 60
50.08
Percentage
Percentage

20 21.08 40 35.19 31.86

10 12.54 12.43 20
0 0
2005 2006 2007 2005 2006 2007

Fina ncia l Ye ar Fina ncial Ye ar

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 Stock Market Ratio
31-03-2005 31-03-2006 31-03-2007 Remark

Earning per Share 290.70/share 195.56/share 218.61/share Average

Price-to-Earning Ratio (P/E) 12.74 times 17.59 times 16.03 times Good
Market to Book Value (M/B) 6.38 times 3.40 times 9.08 times Good

Interpretation of Stock Market Ratio

Earning per Share

In the year 2007, earning per share of Square Pharmaceutical was 218.61/share. In 2005 and
2006, it was 290.70/share and 195.56/share.

In 2005earning per share was relatively good than 2005. But in 2007 it has improved.

Price-to-Earning Ratio
 In the year 2007, the stock price per share of Square Pharmaceutical 16.03 times of
earning per share. In year 2005 and 2006, it was 12.74 times and 17.59 times.
 It goes up so it is favorable for Square Pharmaceutical.
 Because the market share price increase as because net income and other income
increase in Square Pharmaceutical.

Market to Book Value Ratio

 In the year 2007, Square Pharmaceutical’s market price per share was 9.08 times
then the book value per share. In year 2005 and year 2006 it was 6.38 times and 3.40 times.
 It goes up and it is favorable for Square Pharmaceutical.

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  Since, company’s net income goes up.

Graph of Price/ Earning Ratio Graph of Market/ Book Ratio

Price / Earning Ratio Market / B ook R atio

20 10
16
9.08
15 16.03
12.74 6.38
Times

Times
10 11.59 5
5 3.40
- -
2005 2006 2007 2005 2006 2007

Fina ncia l Year Fina ncial Ye a r

Graph of Earning per Share

Earning Per Share (EPS)
Per Share Income

400.00
300.00
200.00
Series1
100.00
-
2005 2006 2007

Other Equations
Extended Du Pont Equation Remark
Return on Equity (ROE) = Profit Margin ×Total Assets Turnover×
Unfavorable
Equity Multiplier
Unfavorable

= Net Profit × Sales × Total Assets

Sales Total Assets Equity

2005= 1,255,848,153 × 5,332,046,635 × 5,957,983,236

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 5,332,046,635 5,957,983,236 2,507,810,668

2006= 1,165,864,616 × 6,089,905,396 × 9,298,987,312

6,089,905,396 9,298,987,312 3,312,992,882

2007=1,303,242,840 × 7,500,811,349 × 10,486,940,004

7,500,811,349 10,486,940,004 4,089,979,175

Du Pont Equation

Return on Asset (ROA) = Profit Margin × Total Assets Turnover

= Net Profit × Sales

Sales Total Assets

2005= 1,255,848,153 × 5,332,046,635

5,332,046,635 5,957,983,236

2006= 1,165,864,616 × 6,089,905,396

6,089,905,396
9,298,987,312

2007= 1,303,242,840 × 7,500,811,349

7,500,811,349 10,486,940,004

20
 RECOMMANDATI
ON

Generally, financial statement analysis generally begins with a set of financial ratio
designed to disclose the strengths and weaknesses of a SQUARE as compare over year to
year position, and to show whether its financial position has been improving or failing
over time.

From the above sixteen ratio analysis of SQUARE PHARMACEUTICALS Ltd. our
recommendation for the investors is that the company financial wealth which was
unfavorable and not in good position for the company. We determined this decision about
SQUARE’s because of their deteriorating in liquidity ratio, assets management ratio, debt
management ratio except profitability ratio and stock market ratio.

If the company wants to improve the current financial position and increase stakeholder
response by investing more in the SQUARE, the company should make
 quick turnover of inventories,

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  account receivable,
 cash liquidity,
 total assets

Meanwhile, the company should make longer payment period than receiving period.
Square should limit their financial expenses and other expenses.

CONCLUSIO
N
CONCLUSIO
N
From overall financial analysis, we came to know how ratio analysis can help us to evaluate
the financial performance of the company. From this project we also learned to analyze the
value of different financial reports of different financial years and to improve forecasting
skills. We were able to gain specific knowledge about the financial strengths and weaknesses
of our selected company SQUARE Pharmaceuticals Ltd in the chosen industry. In
doing so, we have learnt about group dynamics as we function as part of a team.

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