fin 408 final.docx

Ratio Analysis Of Pharmaceuticals & Chemicals Companies

Name: Tahmina Ahmed Priyanka

ID : 2008-1-10-043

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Beximco Pharmaceuticals Ltd.

Company Profile:

Beximco Pharmaceuticals Ltd (BPL) is a Public Limited Company that started its journey back in the 1970’s.It.It is a leading manufacturer of pharmaceutical formulations and Active Pharmaceutical Ingredients (APIs) in Bangladesh. The company is the largest exporter of pharmaceuticals in the country and its state-of-the-art manufacturing facilities are certified by global regulatory bodies of Australia, European Union, Gulf nations, Brazil, among others. Beximco Pharma is the flagship company of Beximco Group, the largest private sector industrial conglomerate in Bangladesh, and remains the only Bangladeshi company with an AIM listing on the London Stock Exchange. Beximco Pharma aspires to become a nationally admired and globally reputed generic pharmaceutical company, committed to enhancing human health and life.

Different types of ratios based on the financial statement of BPL are discussed below with graphs and figures.

Year

Particulars 2006 2007 2008 2009 2010

Inventory Turnover1.14 1.14 1.16 1.50 1.93

Average Number of days inventory in stock 319 320 314 245 190Receivables Turnover

6.28 6.10 6.79 8.25 11.00Average Number of days receivable outstanding 58 60 54 44 33Payable Turnover

12.09 11.59 12.92 19.08 21.85Average Number of days payable outstanding 30 31 28 19 17

2

i) Short term Activity Ratios

1) Activity Analysis


i) Short term activity ratios:

Inventory Turnover Ratio:

It measures the efficiency of firm in inventory management as in how many times inventory is turned over in a year. Here, higher ratio is good and indicates inventory is turned over quickly and does not remain idle in the firm. From the graph it can be seen that the firm was efficient to turn over its inventory from 2006-2010.There was a constant inventory turnover that is 1.14 in both 2006 and 2007.In 2008 the inventory turnover ratio improved to 1.16 and 1.50 in 2009.However, the firm most efficiently managed their inventories in 2010 that is 1.93.It was the highest among the five years.

Average no of days inventory in stock

2006 2007 2008 2009 20100

50

100

150

200

250

300

350

Average Number of days Inventory In Stock

Average Number of days Inven-tory In Stock

It measures number of days inventory is held until it is sold. Here, lower ratio is better as it indicates less time required to complete one turnover. The Average no of days inventory in stock was 319days in 2006,320days in 2007,314 days in 2008,245days in 2009 and 190days in 2010.From here it can be stated that the firm was efficient to turnover its inventory in the year 2010 and comparatively it took long time for them to complete 1 turnover in 2007.

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Receivable Turnover Ratio : This ratio indicates how many times receivable is turned over in a year. Receivable turnover starts at the point where inventory turnover ends. It measures the effectiveness of the firm’s credit policies. Higher the ratio indicates the efficiency in credit management of a company.

From the graph it can be stated that the firm was efficient enough to collect their turnover quickly from 2006-2010.The receivable turnover was 6.28 in 2006,6.10 in 2007,6.79 in 2008,8.25 in 2009 and 11 in 2010.The firm was able to quickly turnover their receivables most efficiently in 2010 and comparatively it took more time for them in 2006.

Average number of days receivable outstanding

It shows the number of days firm requires to collecting the receivables after selling inventory. Here, lower ratio is better for the company as it indicated the firm will collect their receivables quickly. The Average no of days inventory in stock was 58 days in 2006,60 days in 2007,54 days in 2008,44 days in 2009 and 33 days in 2010. From here it can be stated that the firm will

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collect their receivables quickly in the year 2010 and comparatively it will take m0re time to collect receivable in 2007.

Payable Turnover:

This ratio measures that how many times payable will be turned over in a year. Here, lower ratio is better as it indicates payables are turned over less frequently and the firm has more time to pay their payables. The payable turnover was 12.09 in 2006, 11.59 in 2007, 12.92 in 2008, 19.08 in 2009 and 21.85 in 2010. Here a fluctuation in the payable turnover can be noticed from the year 2006-2008.The payable was turnover more very quickly in the year 2010, but in the year 2007 the payable turnover was the lowest.

Average no. of day’s payable outstanding

2006 2007 2008 2009 20100

5

10

15

20

25

30

35

Average Number of days Payables Outstanding

Average Number of days Payables Outstanding

It measures that, how many days company can defer its payment. It shows the length of time between purchase of raw material and payment. Here, higher ratio is better, as it indicates firm is

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purchasing on longer credit period and therefore gets more time to pay the payables. The Average no. of days payables outstanding was 30 days in 2006, 31 days in 2007, 28 days in 2008, 19 days in 2009 and 17 days in 2010.The firm got more time to pay the payables in 2006 and less time in 2010.

ii) Long term Activity Ratios

Year

Particulars 2006 2007 2008 2009 2010

Fixed Asset Turnover 0.43 0.40 0.34 0.38 0.43

Total Asset Turnover 0.31 0.30 0.27 0.24 0.30


Fixed Asset Turnover ratio: This ratio measures that, how efficiently firm manages its fixed asset. And higher ratio indicates efficiency of firm. The fixed asset turnover ratio was 0.43 in 2006, that decreased to 0.40 in 2007 and it kept decreasing to 0.34 in 2008.However the firm

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managed to increase it to 0.38 in 2008.Finally in 2010 the firm was most efficient to manage its fixed asset, where the turnover ratio was 0.43.This thing also happened in year 2006.

Total Asset Turnover Ratio: Total asset turnover ratio measure the efficiency in managing total assets. Higher the ratio is better for the company. The total asset turnover ratio has not change much in the five years. In 2008 the firm was most efficient in utilizing their total assets. The ratio was 0.31 in 2006, that fluctuated and decreased to 0.30 in 2007,0.27 in 2008 and 0.24 in 2009.However,they efficiently to utilized their total assets in case of generating sales in 2010,the ratio was 0.30.

Year

Particulars 2006 2007 2008 2009 2010

Operating Cycle 377 380 367 289 223

Cash Cycle 347 348 340 270 206

Current Ratio 1.33 1.80 1.10 2.98 2.46

Cash ratio 1.16 1.49 0.91 2.68 2.14

Quick Ratio 0.40 0.36 0.22 0.75 0.91

CFO from operation 0.55 0.36 0.45 0.36 0.81

Operating Cycle:7

2) Liquidity Analysis


2006 2007 2008 2009 20100

50

100

150

200

250

300

350

400

Operating Cycle

Operating Cycle

It shows the sum of number of days inventory in stock and number of days receivables outstanding.So the operating cycle was 377 days in 2006, 380 days in 2007,367 in 2008,289 days in 2009 and 223 in 2010.It was highest in 2007 and least days in 2010.The operating cycle is improving.

Cash Cycle:

It shows the the time lenghth between the collection of receivables and payment of payables.Shorter the cash cycle better for th firm.Here,it can be seen the cash cycle is lowest in year 2010,that is 206 days and it took highest number of days in 2007 that is 348.However,the cash cycle was 347days in 2006 ,then decreased to 340 days in 2008 and increased to 270 days in 2009.

Current Ratio:

8


20062007

20082009

2010

0

0.5

1

1.5

2

2.5

3

1.33

1.80

1.09

2.98

2.46

Curent Ratio

Curent Ratio

It measures how much current assets form have to pay out its current liabilities.Higher the ratio better for the firm,as it indicates good liquidity position for th firm. The current ratio was 1.33 in 2006 that decreased to 1.80 in 2007.However there in 2008 it decreased to 1.09, which was the lowest amongst all the years. The firm had the highest Current ratio in 2009 which is 2.98.The firm somewhat managed to keep its current ratio to 2.46 in 2010.

Cash Ratio:

The cash ratio measures liquidity depending only on cash and marketable securities excluding inventory and prepaid expense.Here,we can see a fluctutation in cash ratio.The firm’s cash ratio was 1.16 in 2006,1.49 in 2007,.91 in 2008.However it had more secured liquidity position without depending on inventory and prepaid expense on 2009,the ratio was 2.68.However,the cash ratio was 2.14 in 2010.

Quick Ratio:

9


It measures firm’s ability to pay its current liabilities using its current assets without depending on inventory and prepaid expenses.Here we see the firm’s Quick ratio was .091 in 2010 this was highest,and lowest quick ratio in 2008 which was 0.22.Moreover the ratios fluctuated from 0.40 in 2006 to 0.36 in 2007 .Although it was lowest in 2008 but it increased to 0.75 in 2009.

Cashflow from operations:

20062007

20082009

2010

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

0.55

0.360.45

0.36

0.81

Cashflow from operations

Cashflow from operations

The firm’s cash flow from operations was .055 in 2006 then it decreased to 0.36 in 2007.However it slightly increased to 0.45 in 2008 and again decreased to .036 in 2009.In 2010 the firm’s cash flow from operations was the highest that is .081.

103) Long term Debt and Solvency Ratios


Year

Particulars 2006 2007 2008 2009 2010

Debt to total capital 0.33 0.31 0.29 0.45 0.25

Debt to equity 0.50 0.49 0.42 0.83 0.34

Time Interest Earned Ratio

2.95 2.57 4.00 3.46 2.47

Capital Expenditure 1.13 1.29 0.99 0.73 0.79

CFO to Debt 0.35 0.16 0.27 0.09 0.38

Debt to Total Capital:

2006 2007 2008 2009 20100

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

0.5

0.330.315

0.30

0.45

0.25

Debt to total capital

Debt to total capital

This ratio measures what proportion of total capital is financed by total debt.Here,lower the ratio is better for company’s shareholder, because it indicates that the shareholder of the firm have more claim over firm’s total assets than the external claims. The debt to total capital for the year was somewhat stable in 3 consecutive years from 2006-2008.The ratio was 0.33 in 2006 that decreased to .032 in 2007 and furthermore it decreased to 0.30 in 2008.However the firm took more debt in 2009 and the ratio was 0.45 which is the highest among the five years. In 2010, the ratio was 0.25 that means less portion of total capital is financed by debt.

Debt to Equity:

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20062007

20082009

2010

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

0.500.45

0.42

0.83

0.34

Debt-to Equity

Debt-to Equity

It measures for every 1 dollar of equity how much liability the shareholder bears. Higher ratio indicates higher the risk for the firm. The debt to equity ratio was 0.50 in 2006, that decreased to 0.45 in 2007 and .42 in 2008.The firm had the highest debt to equity ratio in 2009 which was .83, which indicate for every Tk 1 of equity held stockholders are bearing liability of Tk .83.The firm had lowest risk in 2010 as the ratio was 0.34.

Time Interest Earned:

It measures the ability of the firm to pay its interest expense.Higher the ratio better for the firm,because higher ratio indicates more protection available for creditors.The TIE ratio for the firm was 2.95 in 2006,2.57 in 2007,4.0 in 2008,3.46 in 2009 and 2.47 in 2010.Highest protection was available for creditors in 2009 and lowest protection in 2007.

Capital Expenditure ratio

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This measures how much cash flow is available to meet capital expenditure. The firm had highest cash flow available to meet its capital expenditure in 2007 where the ratio is 1.29 and lowest in 2009 where the ratio was 0.74.However, the capital expenditure ratio was 1.13 in 2006, that declined to .099 in 2008 and 0.79 in 2010.

CFO to debt

It measures how much cash flow available to pay its debt. The CFO to debt is .35 in 2006,.16 in 2007,0.27 in 2008,.09 in 2009 and .38 in 2010.All the ratios are less than 1,it indicates firm is hardly able to pay debt.

134) Profitability Analysis


Year

Particulars 2006 2007 2008 2009 2010

Gross Margin 47% 45% 50% 47% 49%

Operating Margin

20% 18% 25% 21% 25%

Margin before Interest and Tax

20% 18% 25% 21% 25%

Pretax Margin 14% 11% 18% 18% 21%

Profit Margin 12% 9% 14% 13% 16%

EPS 4.11 2.8 3.61 3.5 5.17

Gross Margin:

It shows the relationship between level of sales and manufacturing cost. Higher ratio is better. From the above it can be seen that Beximco Pharmaceuticals has higher ratio trends of gross margin. The gross margin for the year 2006 was 47%, that decreased to 45% in 2007.They experienced the highest gross margin in 2008 which was 50%.However the firm’s gross margin

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i) Return on Sales


decreased to 47% and again as it was efficient to maintain COGS at lower cost, so Gross Margin increased to 49%.

Operating Margin:

2006 2007 2008 2009 20100

0.05

0.1

0.15

0.2

0.25

0.3

0.200.18

0.24

0.21

0.25

Operating Margin

Operating Margin

It shows the profitability of a company considering the core business or central operations. It does not consider profit from other peripheral areas. Higher ratio indicates higher profitability of the company. The profit margin for the company was 20% in the year 2006,that decreased to 18% in 2007.However,it increased to 24% in 2008,anf then again it decreased to 21% in the year 2009.The company faced the highest operating margin in 2010,which was 25%.

Margin before Interest and Tax:

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It shows the profitability of the company from total operations both core and peripheral, without considering finance cost and tax. From the above chart a fluctuation in the margin can be observed. The margin before interest and tax for the company was 20% in the year 2006, that decreased to 18% in 2007.In 2007, it faced the lowest margin. However, it increased to 25% in 2008, and then again it decreased to 21% in the year 2009.The company had 25% operating margin in 2010, which was the highest among the five years.

Pretax Margin:

20062007

20082009

2010

0

0.05

0.1

0.15

0.2

0.25

0.14

0.11

0.18 0.180.21

Pretax Margin

Pretax Margin

It shows the profitability of a company considering the core, peripheral operation and capital structure. The higher the ratio, the better the firm is. The graph shows a positive trend as the company progress it operations from 2006-2010.The pretax margin is 14% in 2006,then it gradually declined to 11% in 2007.However,it increased to 18% in 2008,following an increase in the following years. The margin increased to 17% in 2009 and had the highest profit margin i.e. 21% from all the operations in 2010.

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Profit Margin:

It shows the overall profitability of the company after considering investment, financing and tax. The graph shows, there has been a substantial growth in the overall profitability of the company. There was a slight fluctuation in profit margin in 2006-2009, which was 13%, 9%, 14% and 13% respectively. It had highest profit margin in 2010 which was 16% and the lowest profit margin in 2007, which was 9% .

EPS

EPS is the earnings that shareholders earned per shares. In the graph it can be seen that there is a fluctuation in EPS over the five years. The EPS was 4.11 in 2006 that decreased to 2.8 in 2007.However, it increased to 3.61 in 2008 and slightly varied to 3.5 in 2009.The shareholders earned highest per share in 2010, the EPS was 5.17.

17 ii) Return on Investment


Year

Particulars 2006 2007 2008 2009 2010

Return on Assets 5% 4% 6% 6% 10%

Return on Equity 6% 5% 7% 8% 9%

Return on Total Capital

5% 4% 6% 6% 10%

Return on Assets:

It shows how efficiently the firm utilizes its assets and generate return for its shareholders and credtors.The return on assets for the firm was 5 % in 2006, 4% in 2007, 6% in 2008, 6% in 2009 and 10% in 2010.From the graph it can be seen that the firm efficiently utilized its assets and generated more return in 2010 and the return was least in 2007.

Return on Equity:

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It shows the return of the firm generated by the contribution of equity investors. The higher ratio shows a good use of equity of the firm. The ROE was 6.5% in 2006,that declined to 4.8 %in 2007,and again increased to 6.8% in 2008.However the ROE was 7.9% in 2009 and highest ROE was reported in 2010 which was 8.5%.

Return on Total Capital:

The return on Total Capital for the firm was 5 % in 2006, 4% in 2007, 6% in 2008, 6% in 2009 and 10% in 2010.From the graph it can be seen that the firm efficiently utilized its total capital and generated more return in 2010 and the return was least in 2007.

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LEVERAGE EFFECT

Year

Particulars 2006 2007 2008 2009 2010

Operating Leverage

2.32 2.49 2.00 2.30 1.94

Financial Leverage

1.43 1.64 1.40 1.15 1.20

Total Leverage

3.31 4.08 2.82 2.65 2.33

Degree of Operating Leverage is found by dividing Gross Profit by Earnings before interest and taxes. It measures, for a given change in sales how much EBIT will change.

In 2006, DOL is 2.32, this means, if sales change by 100% then EBIT change by 232%.Morevoer for any change in sales will bring 2.32 times change in EBIT.


In 2008, DOL is 2.00, this means, if sales change by 100% then EBIT change by 200%.Morevoer for any change in sales will bring 2 times change in EBIT.


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Degree of Financial Leverage is found by dividing Earnings before interest and tax by Earnings before tax. It measures the percentage change in Earning per Share (EPS) resulting from a given percentage change in earnings before interest and tax (EBIT).

In 2006, DFL is 1.43, which means 1% change in EBIT; the EPS would have been changed by 1.43%.




In 2010, DFL is 1.20, which means 1% change in EBIT; the EPS would have been changed by 1.20%

Degree of Total Leverage (DTL):

From the degree of total leverage we can find how a give change in sales will affect earnings per share. The formula for calculating DTL is DTL= DOL X DFL

In 2006, DTL is 3.31, this means, if sales change by 1% then EPS will change by 3.31%.





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Name: Raisa Taslim

ID: 2008-1-10-084

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Company Profile:

The Company started its operations as Pfizer (Bangladesh) Limited in 1972. For the next two decades it continued as a highly successful subsidiary of Pfizer Corporation. However, by the late 1990s the focus of Pfizer had shifted from formulations to research. In accordance with this transformation, Pfizer divested its interests in many countries, including Bangladesh. Specifically, in 1993 Pfizer transferred the ownership of its Bangladesh operations to local shareholders, and the name of the company was changed to Renata Limited.

In a gesture of corporate charity, Pfizer donated shares so that, along with a partial payment from the SAJIDA Foundation, 51% ownership of Renata Limited would be held by the Foundation. Today SAJIDA’s microfinance and micro-insurance programs support over 107,120 members and their families; thus far cumulative loan disbursement totals BDT 5,750 million. Currently, SAJIDA’s health program covers over 1 million beneficiaries by delivering services through two 70 bed hospitals, panel doctors in SAJIDA’s micro finance branches, and mobile health teams. To date, the SAJIDA Foundation holds the majority ownership in Renata Limited

RENATA Companies main business is the Manufacture and Marketing of Human Pharmaceuticals and Animal Therapeutics. They have two production sites. One is the Mirpur Site of 12 Acres and other is Rajendrapur Site with 17 Acres.

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Short Term Activity Ratios

Ratio 2006 2007 2008 2009 2010Inventory Turnover

1 1.40 1.64 1.96 3

Average No. Days Inventory

In Stock

346 260 221 186 141

Receivables Turnover

6.17 8.12 9.90 12.50 16.32

Average No. Days Receivables

Outstanding

59 45 37 29 22

Payable Turnover

23.9 40.11 14.60 84.35 92.05

Average No. Days Payables Outstanding

15.22 9.09 24.98 4.32 4

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Activity Ratio Analysis


Inventory Turnover Ratio: -

From the inserted table we can find out that the inventory turnover is going up from 1 to 3 during

the time span from 2006 to 2010. The table shows the highest turnover of inventories in 2010

which is 3. The lowest turnover process has been done in 2006 which is 1, indicating the face

that at that year they fail to manage their inventory effectively. The turnover consecutively has

increased from the year 2006 to 2010.

2006 2007 2008 2009 20100

1

2

3

1.05626265982979

1.402294838923421.6480136929164

1.96539453297574

2.59681057235846

Inventory Turnover ratio

Inventory Turnover ratio

So, we can say that the company is efficient in inventory management. In year 2006, the

inventories were piled up and remain idle. In 2010 the ratio was higher.

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Average No. Days Inventory In Stock:

2006 2007 2008 2009 20100

50

100

150

200

250

300

350345.55798844467

260.287629868353

221.478742299815

185.713348580128

140.557037115149

Average No. of days Inventory In Stock

Average No. of days Inventory In Stock

From the inserted graph we can see that the inventory turnover takes long time to be sold from

2006 to 2009. In 2006 the highest ratio is 345.5 means 346 days which shows that the inventories

kept higher days in the stock just to sell which decreases the profitability of the firm. In 2010 the

lowest days are taken to sell the inventories. The numbers of days are not highly fluctuating

every year. It proves the efficiency of the inventory management.

Receivable Turnover Ratio :

2006 2007 2008 2009 20100

2

4

6

8

10

12

14

16

18

6.17935783699998

8.12331535827608

9.90420342343145

12.5038243027465

16.3170497759104



The receivable turnover ratio is consistently higher in most of the years. The receivables are

frequently collected in 2010 which is 16.32. But in 2006 the lowest ratio shows firm’s

inefficiency to collect the piled credit collection. The consistently higher ratio trend shows that

the firm is efficient in firm’s credit policy and collects its receivables quickly.26


Average number of day’s receivable outstanding :

2006 2007 2008 2009 20100

10

20

30

40

50

60

70

59.0676263825503

44.932393228848

36.8530395020438

29.1910691611227

22.369239844991

Average No. of days Receivables Outstanding

Average No. of days Receivables Outstanding

The above graph shows that the length of time the firm takes to collect its receivables from last

five years. The receivable collection period should be lower so that the firm can early turnover

the receivables into cash. The graph shows that the lowest ratio of collection period is 22.36 days

in 2010. The highest time taken to collect receivables was 59 days in 2006. But from 2006 to

2010, the ratio decreased, indicating that the firm is efficient in receivable collection.

Payable Turnover :

2006 2007 2008 2009 20100

10

20

30

40

50

60

70

80

90

100

23.9788233162637

40.1172396470403

14.6091057009147

84.355720209306292.0506831901198

PayableTurnover

PayableTurnover

This ratio measures that how many times payable is turned over in a year. Lower the ratio is

better because then the company pay its creditor less frequently. The payable turnover ratio was

very high in 2009 and 2010. In 2008 the ratio was 14.6 which show less frequently credit

payment. But in 2010 the payment trend was the highest which is 92.05.

Average no. of day’s payable outstanding:27


2006 2007 2008 2009 20100

5

10

15

20

25

30

15.2217644371414

9.09833286665143

24.9844177646785

4.326914631211133.96520685507717

Average No. of days Payables Outstanding

Average No. of days Payables Outstanding

The graph shows the trend of lower time span to pay the creditors. The higher the ratio, the better

the firm is to manage its credit policy and to maintain lower cash cycle. The number of the days

is higher in 2008 which is 24.98. The less time period is shown in 2009.

Long-Term (Investment) Activity Ratios

Ratio 2006 2007 2008 2009 2010Fixed Asset

Turnover

2.79 3.18 3.04 2.79 1.98

Total Asset

Turnover

1.08 1.17 0.97 1.012 0.99

Fixed Asset Turnover ratio:

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2.79759932

3.18025387978176

3.04577807037522

2.79361877242178

1.98486045287876

Fixed Asset Turnover

20062007200820092010

Fixed asset turnover ratio shows the firm’s ability to generate sales or perform its operation

through its given level of fixed assets. The graph shows that the turnover of sales by fixed assets

has stability in last five years. The highest sales were generated by fixed assets in 2007 which is

3.18. Then the ratio started to slowed down from 2008 to 2010. But the lowest turnover

happened in 2010 which was 1.98.

Total Asset Turnover Ratio:

29


2006 2007 2008 2009 20100

0.2

0.4

0.6

0.8

1

1.2

1.4

1.085121338999991.17595487372889

0.977077426453751

1.012817007234140.995382435299382

Total Asset Turnover


This ratio measures by utilizing its total assets how much sales the company generates. Higher

the ratio is better for the company, because higher the ratio indicates that the company is

efficient to utilize the assets in case of generating sales. The highest turnover is shown in 2007

which is 1.17. From 2006 to 2007 the turnover was significantly increased and showed excellent

performance in utilization of total asset to generate sales. Then the ratio declined again increased

from 2009 to 2010.

30Liquidity Ratio Analysis


Cash Cycle:

2006 2007 2008 2009 20100

50

100

150

200

250

300

350

400380.646791510957

265.10278345016243.722676100945

130.548697531944

70.8755937700203

Cash cycle

Cash cycle

After deducting the days of payable outstanding from operating cycle we get cash cycle. Shorter the cash cycle is, higher the collection process of the company and delay of payment. The cash cycle is decreasing from 2006 to 2010from the inserted graph. In 2006 it was 381 which is the highest cash cycle among five years. It’s a good sign.

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Liquidity Analysis

Ratio 2006 2007 2008 2009 2010Cash cycle 381 265 244 131 71

Current Ratio

1.48 1.37 1.14 1.16 1.11

Quick Ratio 0.45 0.37 0.34 0.33 0.35

Cash Ratio 0.15 0.10 0.08 0.08 0.09

Cash flow from

operation ratio

0.29 0.85 0.31 0.71 0.60


Current Ratio: Current ratio is the measurement of the ability to pay the financial obligations with the given of current received.

2006 2007 2008 2009 20100

0.2

0.4

0.6

0.8

1

1.2

1.4

1.61.48623777588016

1.3779612593578

1.146702594013541.165549710844641.11458550669295

current ratio

current ratio

Current ratio indicates the liquidity position of a firm and Renata Company’s decreasing current

ratio refers that the firm decreases its liquidity position. it has been started to decrease in year

2007 to 2010. If current ratio increases it shows better liquidity position but at cost of

profitability.

Quick Ratio:

2006 2007 2008 2009 20100

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

0.50.45638651537518

8

0.374580845223119 0.34977023203437

1 0.332179453803312

0.351121093903415

quick ratio

quick ratio

Since not all the elements of current asset of a firm cannot be readily converted into cash, quick ratio eliminates those components which cannot be converted into cash i.e. prepaid expenses and depreciation. From the above table we can identify that in 2006 the firm has Tk. 0.456 quick

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assets to pay its 1 taka current liability which started to decrease after that from 2007 to 2010.This gives indication that firm may face liquidity problem in near future.

Cash Ratio:

2006 2007 2008 2009 20100

0.02

0.04

0.06

0.08

0.1

0.12

0.14

0.16

0.154927106632867

0.103019851725494

0.0876803807996407

0.0882524817223425

0.0927139610923008

cash ratio

cash ratio

The most conservative measure of liquidity position is cash ratio which considers only cash and

cash equivalents to measure the liquidity position. Here Renata Company cash ratio was lower in

2008 which point out that firm has worse liquidity position considering the cash ratio.

CFO from Operation:

2006 2007 2008 2009 20100

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

0.293603099983546

0.854467128077623

0.318349446973838

0.719385408489847

0.609409402464066

cash flow from operation

cash flow from operation

Renata Company generated little cash flow from operation. There is a huge variability and

fluctuation in the cash flow from operation. In 2006 the ratio was .02; in 2007 it increased to 0.8.

Than the ratio again decrease into .03 in 2008 and again increase in 0.7 at 2009 and decrease to

0.6 in 2010 again.

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Long Term Debt and Solvency Ratio

Ratio 2006 2007 2008 2009 2010Debt to Total

Capital0.44 0.40 0.47 0.42 0.41

Debt to Equity 0.80 0.68 0.90 0.74 0.72

Time Interest Earned (TIE)

10.17 9.57 8.40 9.74 11.17

Capital Expenditure

ratio

0.86 1.46 0.76 1.57 1.18

CFO to Debt 0.24 0.69 0.28 0.62 0.53

Debt to Total Capital Ratio:

2006 2007 2008 2009 20100.36

0.38

0.4

0.42

0.44

0.46

0.48

0.447055586864491

0.407141798515149

0.47439882143736

0.426884364471718 0.41894594424140

8

Debt to total capital ratio

Debt to total capital ratio

This ratio explains the proportion of External claim over firm’s total assets or total capital.

Lower the Ratio is better for company’s shareholder, because it indicates that the shareholder of

the firm have more claim over firm’s total assets than the external claims. From the ratio table

34

Long Term Debt and Solvency Ratio


we see that from 2006 to 2009 the firm has always had less than 50% debt in its capital structure.

It shows shareholders always having to bear less amount of risk in prospect of magnifying return.

Debt to Equity Ratio:

2006 2007 2008 2009 20100

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

10.80850005216515

70.68674397603919

4

0.902583252828112

0.744848575066751 0.72101027449925

5

Debt to equity ratio

Debt to equity ratio

This ratio shows how much debt a company has compared to its equity. Higher the ratio

indicates higher the risk for the company. Renata Company had highest debt to equity ratio in

year 2008 with 90%.

Time interest earned ratio:

2006 2007 2008 2009 20100

2

4

6

8

10

12

10.170313099.57222824146223

8.40468160750237

9.74255666343944

11.1711635308932

Time Interest Earned


From the inserted graph we can see that the firm has consecutively been higher from the year

2006 to 2007 than slightly fall down at 2008.After that it increases again. This ratio shows firms

ability of the firm to pay its interest expense by its operating income. Higher the ratio indicates

35


higher solvency to pay out interest. The increasing trend of the time interest earned ratio shows

more safety measure on protection available for creditors. The firm will not fail to pay the

interest in the near future.

Capital Expenditure ratio:

2006 2007 2008 2009 20100

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

0.860543276984901

1.46716723700287

0.760899873076924

1.57824960389681

1.18297337706914

Capital expenditure ratio

Capital expenditure ratio

This ratio shows how much cash flow is available to pay its capital expenditure. From the graph

we can see that at year 2009, the ratio is highest with 1.57 indicating the fact that at that year

Renata Company become more solvent and at year 2006, the ratio is lowest with 0.86 indicating

the fact that at this year company is less able to pay its capital expenditure.

CFO to debt Ratio:

2006 2007 2008 2009 20100

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.243578091353836

0.698336050081202

0.278715604266679

0.61683798288503

0.5265633546414

CFO TO Debt ratio

CFO TO Debt ratio

CFO to debt Ratio indicates the actual cash in hand to pay out the debt obligations of the firm.

The entire ratio is less than 1. It means the firm has inadequate cash flow for debt repayment

after capital expenditure. There is a huge fluctuation in ratio.

36


Return on Sales

Ratio 2006 2007 2008 2009 2010

Gross Margin 0.49 0.48 0.50 0.53 0.52

Operating Margin

0.50 0.49 0.51 0.53 0.52


0.21 0.22 0.24 0.25 0.26

Pretax Margin 0.18 0.18 0.20 0.21 0.22

Profit Margin 0.13 0.13 0.14 0.15 0.17

Contribution Margin

0.49 0.48 0.50 0.53 0.52

EPS 133.96 185.85 239.64 333.9 471.06

Gross Margin:

37

Profitability Ratio


2006 2007 2008 2009 20100.46

0.47

0.48

0.49

0.5

0.51

0.52

0.53

0.54

0.492465619000002 0.48744212860650

9

0.505941757355555

0.533293589394456 0.52746332889155

9

Gross margin

Gross margin

The above graph shows gross margin which indicates the relationship between sales and

manufacturing expenditures. Renata Company has higher ratio trends of gross margin. The

highest gross margin is 0.53 in 2009 which means it is able to generate higher sales from

operations. It also means increasing efficiency to control its cost of goods sold.

Operating Margin:

2006 2007 2008 2009 20100.47

0.48

0.49

0.5

0.51

0.52

0.53

0.54

0.509515859

0.492072603647888

0.510932569519019

0.535357436475453

0.528640488524219

Operating Margin

Operating Margin

The ratio measures the profitability of the firm from its core operations. This profitability

measure excludes the effect of Investment, Financing and Tax Position. The ratio declines at the

beginning years. But from 2007 it started to increase and in 2009 the ratio was highest

which .0.53 which was the highest pick was. In 2010 the ratio goes a little down to 0.52.


38


2006 2007 2008 2009 20100

0.05

0.1

0.15

0.2

0.25

0.3

0.2097928730.21711855421399

6

0.237392346816662

0.248547497996809 0.25780660557314

Margin before i/r & tax

Margin before i/r & tax

There is almost no fluctuation in the margin before interest and tax. The ratio measures firms’ ability to pay interest and tax after deducting all operating expenses. The lower ratios of 2006 and 2007 shows lower cash in hand to pay the interest and tax whereas the higher ratios of 2008, 2009 and 2010 shows higher ability to pay interest and tax.

Pretax Margin:

2006 2007 2008 2009 20100

0.05

0.1

0.15

0.2

0.25

0.1801193250.18413046829776

2

0.197401302787886

0.210993738802864

0.221912173055578

Pretax margin

Pretax margin

Pretax margin shows the profitability of a company considering the core, peripheral operation

and capital structure. The higher the ratio, the better the firm is. The graph tells us that the ratio is

in good position and the company is in profit in most of the years from 2006 to 2010. In 2009

and 2010 the ratio improved.

Profit Margin:

39


2006 2007 2008 2009 20100

0.02

0.04

0.06

0.08

0.1

0.12

0.14

0.16

0.18

0.125604415

0.132557187060321

0.140188140235976

0.154720807124834

0.167264307082414

Profit margin

Profit margin

Net profit margin shows the profitability of the whole company considering the core and

peripheral operation, capital difference and tax difference. The profit margin has increasing trend

in last five years. In 2007 and 2008, the ratio was lower But it gradually increase from 2008 to

2010 showing firm’s efficiency to improve the profitability.

Earnings per Share:

2006 2007 2008 2009 20100

50

100

150

200

250

300

350

400

450

500

133.96

185.85

239.64

333.9

471.06

EPS

EPS

EPS is the symbol of net income the firm generates from its operation. The EPS is counted with net income dividing by number of share outstanding. The EPS has increased in a increased manner from 2006 TO 2010.In 2010 EPS increased to 471.06, which is the highest.

40

Return on InvestmentRatio 2006 2007 2008 2009 2010

Return on Assets (ROA)

0.13 0.17 0. 23 0.30 0.41

Return on Total

Capital (ROTC)

0.025 0.034 0.045 0.06 0.081

Return on Equity (ROE)

0.038 0.051 0.067 0.09 0.124


Return on Asset:

2006 2007 2008 2009 20100

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

0.130.17

0.23

0.3

0.41

ROA

ROA

This ratio shows how much return a firm has generated by the given level of assets. From the

table we can see that Renata Company generates moderate or lower return in most of the years.

There is variability in the ratios. The highest ratio generated in 2010 which is 41%. But most of

the years it increased by a little amount.


41


2006 2007 2008 2009 20100

0.01

0.02

0.03

0.04

0.05

0.06

0.07

0.08

0.09

0.025

0.034

0.045

0.06

0.081

ROTC

ROTC

This ratio justifies how much return generated by the firm through the contribution of both

creditors and shareholders in the firm. The higher ratio shows good position for the firm. There is

an increasing trend in graph. In most of the years the Renata Company generates higher return by

capital structure. The highest ratio is 8.1% in 2010 which is a good picture of Renata Company.

Return on Equity:

2006 2007 2008 2009 20100

0.02

0.04

0.06

0.08

0.1

0.12

0.14

0.038

0.051

0.067

0.09

0.124

ROE

ROE

ROE shows the return of the firm generated by the contribution of equity investors. The higher

ratio shows a good use of equity of the firm. It is fortunate that Renata is able to utilize the fund

42


properly. It generates higher return through equity utilization. The ratio small in 2006 but after

that it started to increase gradually. The ratio improved in 2010 into 12.4%. It is the highest ratio.

Leverage

Operating Leverage Effect:

2006 2007 2008 2009 20100.00E+00

1.00E-10

2.00E-10

3.00E-10

4.00E-10

5.00E-10

6.00E-10

7.00E-10

8.00E-10

9.00E-10

1.217695E-10

8.8590983751E-10

6.8978059696E-10

5.5006095616E-10

4.0193266876E-10

OLE

OLE

The operating leverage effect shows for the given level of change in sales how many change in

EBIT. It includes the fixed operating costs. In 2006, the OLE was 1.22 which shows the presence

of operating leverage. If sales change by 1% EBIT will change more than 1%. In 2007 the OLE

was so high that it can be alarming situation for the firm.

43

Operating, Financial and Total Leverage Effect

2006 2007 2008 2009 2010

Operating Leverage Effect 1.22 8.86 6.89 5.50 4.02

Financial Leverage Effect 1.67 1.63 1.69 1.60 1.54

Total Leverage Effect 2.03 1.45 1.16 8.83 6.19


Financial Leverage Effect:

1.670266707

1.63792366924017

1.69338395114639

1.60642581056517

1.54131272875878

FLE

20062007200820092010

FLE shows for a given level of EBIT how much change in EPS has happened. There is a

decreasing trend in FLE. But in 208, FLE has increased to 1.69. It means for a given level of

change in EBIT, net income or EPS changes by 1.58%.But after that it again decrease gradually.

Total Leverage Effect:

2006 2007 2008 2009 20100.00E+00

2.00E-10

4.00E-10

6.00E-10

8.00E-10

1.00E-09

1.20E-09

1.40E-09

1.60E-09

2.0338754178E-10

1.45105269167E-09

1.1680633927E-09

8.8363211735E-10

6.1950393846E-10

TLE

TLE

The total leverage effect (TLE) increased sharply from 2006 to 2007 but after that it decreased drastically from 2008 to 2010. This ratio shows how changes in sales will effect changes in Net Income. The fluctuation observed in TLE is all attributed to the variable OLE, since FLE is more or less constant. The greater risk is shown in 2006 which is 2.03.

---------------------------------------------------------------------------------------------------------------------

44


Name: Masrur Ahmed Roman

Id: 2008-1-10-043

45


Advanced Chemical Industries (ACI) Limited

Company Profile:

ACI was established as the subsidiary of Imperial Chemical Industries (ICI) in the then East Pakistan in 1968. After independence the company has been incorporated in Bangladesh on the 24th of January 1973 as ICI Bangladesh Manufacturers Limited and also as Public Limited Company. This Company also obtained listing with Dhaka Stock Exchange on 28 December, 1976 and its first trading of shares took place on 9 March, 1994. Later on 5 May, 1992, ICI plc divested 70% of its shareholding to local management. Subsequently the company was registered in the name of Advanced Chemical Industries Limited. Listing with Chittagong Stock Exchange was made on 22 October 1995.Advanced Chemical Industries (ACI) Limited is one of the leading conglomerates in Bangladesh, with a multinational heritage. The company has diversified into three major businesses.

Different types of ratios based on the financial statement of ACI Ltd. are discussed below with graphs and figures.

Year

Particulars 2006 2007 2008 2009 2010





46


Activity Analysis



2006 2007 2008 2009 20100

0.5

1

1.5

2

2.5

3

3.5

4

Inventory Turnover Ratio

Inventory Turnover Ratio

It is found by diving COGS by Average Inventory. It measures the efficiency of firm in inventory management as in how many times inventory is turned over in a year. Here, higher ratio is good and indicates inventory is turned over quickly and does not remain idle in the firm. From the graph it can be seen that the firm’s efficiency in inventory management declined from 2006 to 2008. However, the efficiency has been gradually recovered in later years.


2006 2007 2008 2009 20100

20

40

60

80

100

120

140

160

Average Number of days Inventory in Stock

Average Number of days Inven-tory in Stock

47


It measures number of days inventory is held until it is sold. Here, lower ratio is better as it indicates less time required to complete one turnover. From our data it can be stated that the firm was efficient to turnover its inventory in the year 2006 but then the turnover days increased up to 2008. In 2009 and 2010, it took less time for completing the turnover compared to the previous two years.


2006 2007 2008 2009 20100

1

2

3

4

5

6

Receivables Turnover Ratio

Receivables Turnover Ratio

From the graph it can be stated that the firm was not efficient enough to collect their receivables quickly from after 2006..The receivable turnover was 5.51 in the year 2006 but then it gradually declined to 2.4 in 2010.

48



2006 2007 2008 2009 20100

20

40

60

80

100

120

140

160

180

Average number of days Receivables Outstand-ing

Average number of days Re-ceivables Outstanding

It shows the number of day’s firm requires to collecting the receivables after selling inventory. Here, lower ratio is better for the company as it indicated the firm will collect their receivables quickly. From the graph we can conclude that the company was efficient in collecting their receivables in the earlier years but the number of days for collecting the receivables has been increasing gradually since 2006.

Payable Turnover:

2006 2007 2008 2009 20100

1

2

3

4

5

6

Payables Turnover Ratio

Payables Turnover Ratio

This ratio measures that how many times payable will be turned over in a year. Here, lower ratio is better as it indicates payables are turned over less frequently and the firm has more time to pay their payables. The payable turnover was 3.71 in 2006 and then the number remained around the

49


same up to 2009 with little fluctuations. However, the turnover ratio increased sharply in 2010 to 5.38.


2006 2007 2008 2009 20100

20

40

60

80

100

120

140

Average number of days Payables Outstanding

Average number of days Payables Outstanding

It measures that, how many days company can defer its payment. It shows the length of time between purchase of raw material and payment. Here, higher ratio is better, as it indicates firm is purchasing on longer credit period and therefore gets more time to pay the payables. Here, in our graph, the average number of days the company could defer its payment was better in the earlier years from 2006 but got lower in 2010.

Year

Particulars 2006 2007 2008 2009 2010



50



2006 2007 2008 2009 20100

0.5

1

1.5

2

2.5

3

3.5

4

Fixed Asset TurnoverTotal Asset Turnover


Fixed Asset Turnover ratio: This ratio measures that, how efficiently firm manages its fixed asset. And higher ratio indicates efficiency of firm. The fixed asset turnover ratio was higher in the earlier years from 2006 and the highest ratio was 3.82 in 2008. However, the firm was not less efficient in managing its fixed asset in the recent years as the ratio gets lower in 2009 and 2010.

Total Asset Turnover Ratio: Total asset turnover ratio measure the efficiency in managing total assets. Higher the ratio is better for the company. The total asset turnover ratio has not change much in the five years. In 2008 the firm was most efficient in utilizing their total assets. The ratio was .31,that fluctuated and decreased to .30 in 2007,.27 in 2008 and .24 in 2009.However,they efficiently to utilized their total assets in case of generating sales in 2010.

51


1) Liquidity Analysis:

Year

Particulars 2006 2007 2008 2009 2010


Current Ratio 1.01 0.99 1.13 1.28 1.42

Cash ratio 0.03 0.02 0.05 0.17 0.04

Quick Ratio 0.47 0.52 0.56 0.75 0.84

Operating Cycle:

2006 2007 2008 2009 20100

50

100

150

200

250

300

Operating Cycle

Operating Cycle

It shows the sum of number of days inventory in stock and number of days receivables outstanding. The operating cycle for this firm is gradually improving.

52

Liquidity Analysis


Current Ratio:

2006 2007 2008 2009 20100

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

Current Ratio

Current Ratio

It measures how much Current Assets form have to pay out its Current Liabilities.Higher the ratio better for the firm,as it indicates good liquidity position for th firm. The current ratio has gradually been increasing for the firm.

Cash Ratio:

2006 2007 2008 2009 20100

0.02

0.04

0.06

0.08

0.1

0.12

0.14

0.16

0.18

Cash Ratio

Cash Ratio

The cash ratio measures liquidity depending only on cash and cash equivalents excluding inventory and prepaid expense.Here,we can see a fluctutation in cash ratio.The firm’s cash ratio was mostly lower from 2006 to 2010 but it had a significantly higher cash ratio 0.17 in 2009.

53


Quick Ratio:

2006 2007 2008 2009 20100

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

Quick Ratio

Quick Ratio

It measures firm’s ability to pay its current liabilities using its current assets without depending on inventory and prepaid expenses. The quick ratio for this company has gradually been increasing in recent years.

Year

Particulars 2006 2007 2008 2009 2010


Debt to equity 1.79 2.46 1.99 1.29 0.92

54

Long term Debt and Solvency Ratios



2006 2007 2008 2009 20100

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

Debt to Total Capital


This ratio measures what proportion of total capital is financed by total debt.Here,lower the ratio is better for company’s shareholder, because it indicates that the shareholder of the firm have more claim over firm’s total assets than the external claims. The debt portion of total capital was higher in 2006 and 2007. However, the amount gradually decreased in recent years.

Debt to Equity:

2006 2007 2008 2009 20100

0.5

1

1.5

2

2.5

Debt to Equity

Debt to Equity

It measures for every 1 dollar of equity how much liability the shareholder bears. Higher ratio indicates higher the risk for the firm. The debt to equity ratio 2.46 was the highest in 2007 which increased the risk for shareholders. However, gradually the risk decreased in recent years.

55


Year

Particulars 2006 2007 2008 2009 2010

Gross Margin 0.35 0.35 0.31 0.33 0.36


0.07 0.09 0.16 0.15 0.10

Pretax Margin 0.07 0.09 0.16 0.15 0.10

Profit Margin 0.04 0.06 0.15 0.14 0.07

EPS 10.24 21.04 66.52 51 30.49

Gross Margin:

2006 2007 2008 2009 20100.28

0.29

0.3

0.31

0.32

0.33

0.34

0.35

0.36

Gross Margin

Gross Margin

56

Profitability Analysis

i) Return on Sales


It shows the relationship between level of sales and manufacturing cost. Higher the ratio is better. From the above it can be seen that ACI Ltd. had better ratios most of the time. However, it had lower ratio in 2008 and 2009.


2006 2007 2008 2009 20100

0.02

0.04

0.06

0.08

0.1

0.12

0.14

0.16

0.18

Margin before Tax and Interest

Margin before Tax and Interest

It shows the profitability of the company from total operations both core and peripheral, without considering finance cost and tax. From the above chart a fluctuation in the margin can be observed. The margin had its peaks in 2008 and 2009.

Pretax Margin:

57


2006 2007 2008 2009 20100

0.02

0.04

0.06

0.08

0.1

0.12

0.14

0.16

0.18

Pretax Margin

Pretax Margin

It shows the profitability of a company considering the core, peripheral operation and capital structure. The higher the ratio, the better the firm is. The graph shows a positive trend as the company progress it operations from 2006-2010. The pre tax margin is same as the margin before tax and interest as the company does not have interest expense in those years.

Profit Margin:

2006 2007 2008 2009 20100

0.02

0.04

0.06

0.08

0.1

0.12

0.14

0.16

Profit Margin

Profit Margin

It shows the overall profitability of the company after considering investment, financing and tax. The graph shows, there has been a substantial growth in the overall profitability of the company.

58


There was significant profit margin 0.15 in 2008 and 0.14 in 2009. However, the margin decreased again in the last year.

EPS

2006 2007 2008 2009 20100

10

20

30

40

50

60

70 Basic EPS

Basic EPS

EPS is the earnings that shareholders get. The EPS of ACI Ltd. was lower 10.24 in 2006 but then it gradually increased and reached 66.52 in 2008. However again it fell sharply in later years and reached 30.49 in 2010.

Year

Particulars 2006 2007 2008 2009 2010

Return on Assets .06 .08 .16 .13 .06

Return on Equity .29 .42 .54 .34 .18


.11 .12 .18 .15 .09

59

ii) Return on Investment


Return on Assets:

2006 2007 2008 2009 20100

0.02

0.04

0.06

0.08

0.1

0.12

0.14

0.16

ROA

ROA

It shows how efficiently the firm utilizes its assets and generates return for its shareholders and creditors. The firm efficiently generated higher return using its assets in 2008 (16%) and in 2009 (13%).

Return on Equity:

2006 2007 2008 2009 20100

0.1

0.2

0.3

0.4

0.5

0.6

ROE

ROE

It shows the return of the firm generated by the contribution of equity investors. The higher ratio shows a good use of equity of the firm. The ratio gradually increased up to 2008 to 54% but then again decreased to 18% in 2010.

60



2006 2007 2008 2009 20100

0.02

0.04

0.06

0.08

0.1

0.12

0.14

0.16



It shows how efficiently the firm utilizes its assets and generates return for its shareholders and creditors. The return had an increasing trend up to year 2008 but then again fell in 2009 and 2010.

LEVERAGE

Year

Particulars 2006 2007 2008 2009 2010

Operating Leverage

5.05 3.78 1.92 2.14 3.49

Financial Leverage

1.73 1.47 1.1 1.12 1.37

Total Leverage

8.74 5.54 2.12 2.39 4.77

61


2006 2007 2008 2009 20100

1

2

3

4

5

6

7

8

9

10

DOLDFLDTL




In 2008, DOL is 1.92, this means, if sales change by 100% then EBIT change by 192%.Morevoer for any change in sales will bring 2 times change in EBIT.






62












-------------------------------------------------------------------------------------------------------------

63


AMBEE PHARMACEUTICALS LTD.

Md.Shihab Alam Khan Apu

ID: 2008-2-10-043

64


AMBEE PHARMACEUTICALS LTD.

Company Profile:

AMBEE PHARMACEUTICALS LTD., a fast growing company was established in 1976 in Bangladesh. This public limited company was registered under the companies Act, 1913 and was incorporated in Bangladesh on 4th February 1976. Ambee has a joint venture with a famous multinational company Medimex of Hungary. Ambee started its operation with modest 17 joint ventured products and is now running in full swing with 76 products. It has Tablets, Capsules, Liquids, Gel in tubes and Injectables. Its operational area covers all over Bangladesh with a large number of field forces who strive hard to establish the demand of products of the company in every corner of the country.

Different types of ratios based on the financial statement of the company are discussed below with graphs and figures.

Year

Particulars 2006 2007 2008 2009 2010





65


Activity Analysis



Inventory Turnover

00.20.40.60.8

1

1.21.41.61.8

2

2005 2006 2007 2008 2009 2010 2011

It is found by diving COGS by Average Inventory. It measures the efficiency of firm in inventory management as in how many times inventory is turned over in a year. Here, higher ratio is good and indicates inventory is turned over quickly and does not remain idle in the firm. Firm’s inventory turnover ratio was 1.29 in 2006. The ratio improved and became 1.72 in 2007.In 2008 the inventory turnover ratio declined to 0.85. After then the firm is having a little consistent growth in the ration from last two years.


Average Number of days inventory in stock

0

50

100150

200

250

300

350400

450

500

2005 2006 2007 2008 2009 2010 2011

It measures number of days inventory is held until it is sold. Here, lower ratio is better as it indicates less time required to complete one turnover. The Average no of days inventory in stock was 283 days in 2006,212 days in 2007,429 days in 2008, 429days in 2009 and 365 days in 2010.

66




0

1

2

3

4

5

6

7

8

2005 2006 2007 2008 2009 2010 2011

From the graph it can be stated that the firm was efficient enough to collect their turnover quickly from 2006-2010.Though the ratio fallen a bit in the year 2008 but it recovered strongly.


Average Number of days receivable outstanding

0

20

40

60

80

100

120

140

2005 2006 2007 2008 2009 2010 2011

It shows the number of days firm requires to collecting the receivables after selling inventory. Here, lower ratio is better for the company as it indicated the firm will collect their receivables

67


quickly. Firm is having a favorable ratio in last few years though it was a bit unfavorable in the years 2008 but now firm in having lower ratio which good for the company.

Payable Turnover:

Payable Turnover

0

2

4

6

8

10

12

2005 2006 2007 2008 2009 2010 2011

This ratio measures that how many times payable will be turned over in a year. Here, lower ratio is better as it indicates payables are turned over less frequently and the firm has more time to pay their payables. Here a fluctuation in the payable turnover can be noticed from the year 2006-2010.


Average Number of days payable outstanding

0

510

1520

2530

3540

45

2005 2006 2007 2008 2009 2010 2011

It measures that, how many days company can defer its payment. It shows the length of time between purchase of raw material and payment. Here, higher ratio is better, as it indicates firm is purchasing on longer credit period and therefore gets more time to pay the payables. The Average no of days payables outstanding was 38 days in 2006, 42 days in 2007, 37 days in 2008, 33 days in 2009 and 39 days in 2010.

68



Year

Particulars 2006 2007 2008 2009 2010



0

1

2

3

4

5

6

7

2006 2007 2008 2009 2010

Fixed AssetTurnover

Total AssetTurnover

a) Fixed Asset Turnover ratio: This ratio measures that, how efficiently firm manages its fixed asset. And higher ratio indicates efficiency of firm. The fixed asset turnover ratio fallen drastically in the year 2008 though the ratio recovered in the later years.

b) Total Asset Turnover Ratio: Total asset turnover ratio measure the efficiency in managing total assets. Higher the ratio is better for the company. The total asset turnover ratio has not change much in the five years. But there was a slowdown trend in the ratio from 2006 to 2009 but the ratio improves a bit in 2010.

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Year

Particulars 2006 2007 2008 2009 2010


Cash Cycle 362 244 488 468 380

Current Ratio 0.94 0.95 0.94 0.99 1

Cash ratio 0.139 0.002 0.024 0.026 0.009

Quick Ratio 0.26 0.16 0.19 0.17 0.2

CFO from operation 0.55 0.36 0.45 0.36 0.81

Operating Cycle:

Operating Cycle

0

100

200

300

400

500

600

2005 2006 2007 2008 2009 2010 2011

It shows the sum of number of days inventory in stock and number of days receivables outstanding.So the operating cycle was 400 days in 2006, 286 days in 2007,525 in 2008,501 days in 2009 and 419 in 2010.It was highest in 2007 and least days in 2010.The operating cycle is improving.

70

Liquidity Analysis


Cash Cycle:

Cash Cycle

0

100

200

300

400

500

600

2005 2006 2007 2008 2009 2010 2011

It shows the the time lenghth between the collection of receivables and payment of payables.Shorter the cash cycle better for th firm.Here,it can be seen the cash cycle is lowest in year 2007,that is 244 days and it took highest number of days in 2008 that is 488.However,the cash cycle was 362 days in 2006 , 468 days in 2009 and decreased to 380 days in 2010.

Current Ratio:

Current Ratio

0.93

0.94

0.95

0.96

0.97

0.98

0.99

1

1.01

2005 2006 2007 2008 2009 2010 2011

It measures how much Current Assets form have to pay out its Current Liabilities.Higher the ratio better for the firm,as it indicates good liquidity position for th firm. The current ratio was 0.94 in 2006 that increased to 0.95 in 2007.However there in 2008 it decreased to 0.94. The firm had the highest Current ratio in 2010 which is 1.The firm managed to keep its current ratio 0.99 in 2010.

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Cash Ratio:

Cash Ratio

0

0.005

0.01

0.015

0.02

0.025

0.03

2005 2006 2007 2008 2009 2010 2011

The cash ratio measures liquidity depending only on cash and marketable securities excluding inventory and prepaid expense.Here,we can see a fluctutation in cash ratio.The firm’s cash ratio was 0.013 in 2006,0.002 in 2007, 0.024 in 2008.However it had more secured liquidity position without depending on inventory and prepaid expense on 2009,the ratio was 0.026.However,the cash ratio was 0.009 in 2010.

Quick Ratio:

Quick Ratio

0

0.05

0.1

0.15

0.2

0.25

0.3

2005 2006 2007 2008 2009 2010 2011

It measures firm’s ability to pay its current liabilities using its current assets without depending on inventory and prepaid expenses.Here we see the firm’s Quick ratio was 0.26 in 2010 this was highest,and lowest quick ratio in 2007 which was 0.16.Moreover the ratios was 0.26 in 2006 to000, 0.19 in 2008 ,0 .17 in 2009.

72


Cashflow from operations:

Cash Flow From Operation

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

2006 2007 2008 2009 2010

Cash Flow FromOperation

The firm’s cash flow from operations was .32 in 2006 then it decreased to .19 in 2007.However it slightly increased to .22 in 2008 and again decreased to .19 in 2009.In 2010 the firm’s cash flow from operations was .26

Year

Particulars 2006 2007 2008 2009 2010


Debt to equity 4.32 4.63 4.77 4.9 4.87


2.72 2.48 2.33 1.78 1.96

CFO to Debt 0.23 0.17 0.14 0.1 0.11

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This ratio measures what proportion of total capital is financed by total debt.Here,lower the ratio is better for company’s shareholder, because it indicates that the shareholder of the firm have more claim over firm’s total assets than the external claims. The debt to total capital for the year was growing in 4 consecutive years from 2006-2008.The ratio was .62 in 2006 that increased to .73 in 2007 and furthermore it increased to .79 in 2008.However in 2009 the ratio was .84 which is the highest among the five years. In 2010, the ratio was .82.

Debt to Equity:

It measures for every 1 dollar of equity how much liability the shareholder bears. Higher ratio indicates higher the risk for the firm. The debt to equity ratio was 4.32 in 2006, that increased to 4.63 in 2007 and 4.77 in 2008.The firm had the highest debt to equity ratio in 2009 which was

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0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

2006 2007 2008 2009 2010


2006 2007 2008 2009 2010

4

4.1

4.2

4.3

4.4

4.5

4.6

4.7

4.8

4.9

5

Debt to Equity

Debt to Equity


4.9, which indicate for every Tk 1 of equity held stockholders are bearing liability of Tk. 4.9. In 2010 the ratio was 4.87.


It measures the ability of the firm to pay its interest expense,Higher the ratio better for the firm,because higher ratio indicates more protection available for creditors.The TIE ratio for the firm was 2.72 in 2006, 2.48 in 2007, 2.33 in 2008, 1.78 in 2009 and 1.96 in 2010.Highest protection was available for creditors in 2006 and lowest protection in 2009.CFO to debt

It measures how much cash flow available to pay its debt. The CFO to debt is .23 in 2006, .17 in 2007, .14 in 2008, .10 in 2009 and .11 in 2010. All the ratios are less than 1. It indicates firm is hardly able to pay debt.

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0

0.5

1

1.5

2

2.5

3

2006 2007 2008 2009 2010

Time Interest EarnedRatio

2006 2007 2008 2009 20100

0.05

0.1

0.15

0.2

0.25

CFO to debt

CFO to debt


Year

Particulars 2006 2007 2008 2009 2010

Gross Margin 0.53 0.43 0.57 0.55 0.54

Operating Margin

0.23 0.18 0.28 0.26 0.22


0.09 0.06 0.11 0. 1 0.08

Pretax Margin 0.04 0.03 0.03 0.04 0.04

Profit Margin 0.028 0.026 0.026 0.027 0.027

EPS 2.5 3.87 3.17 3.45 3.68

Gross Margin:

It shows the relationship between level of sales and manufacturing cost. Higher the ratio is better. From the above it can be seen that company has consistent ratio trends of gross margin. The gross margin for the year 2006 was 53% that decreased to 43%, and faced the highest gross

76


i) Return on Sales

2006 2007 2008 2009 20100

0.1

0.2

0.3

0.4

0.5

0.6

Gross Margin

Gross Margin


margin in 2008 which was 57%. However the firm’s gross margin decreased to 55% and Gross Margin was 54% in 2010.

Operating Margin:

It shows the profitability of a company considering the core business or central operations. It does not consider profit from other peripheral areas. Higher ratio indicates higher profitability of the company. The profit margin for the company was 23% in the year 2006, that decreased to 18% in 2007.However, it increased to 28% in 2008, and then again it decreased to 26% in the year 2009.The company had operating margin in 2010 is 22%.


It shows the profitability of the company from total operations both core and peripheral, without considering finance cost and tax. From the above chart a fluctuation in the margin can be observed. The margin before interest and tax for the company was 9% in the year 2006, that

77

2006 2007 2008 2009 20100

0.05

0.1

0.15

0.2

0.25

0.3

Operating Margin

Operating Margin

2006 2007 2008 2009 20100

0.02

0.04

0.06

0.08

0.1

0.12




decreased to 6% in 2007.In 2007, it faced the lowest margin. However, it increased to 11% in 2008, and then again it decreased to 10% in the year 2009.The company had 8% operating margin in 2010.

Pretax Margin:

It shows the profitability of a company considering the core, peripheral operation and capital structure. The higher the ratio, the better the firm is. The graph shows a positive trend as the company progress it operations from 2007-2010.The pretax margin is 4% in 2006, then it declined to 3% in 2007.However, it was 3% in 2008. The margin increased to 4% in 2009 and it was also 4% in 2010.

Profit Margin:

It shows the overall profitability of the company after considering investment, financing and tax. The graph shows, there has been a consistent growth in the overall profitability of the company

78

2006 2007 2008 2009 20100

0.005

0.01

0.015

0.02

0.025

0.03

0.035

0.04

0.045

Pretax Margin

Pretax Margin

2006 2007 2008 2009 20100.0245

0.025

0.0255

0.026

0.0265

0.027

0.0275

0.028

0.0285

Profit Margin

Profit Margin


in last 5 years. From 2006-2010, Profit Margin was 2.8%, 2.6%, 2.6%, 2.7% and 2.7 respectively.

EPS

EPS is the earnings that shareholders get. In the graph it can be seen that there is consistency in EPS over the five years. The EPS was 2.5 in 2006, which increased to 3.87 in 2007.However, it decreased to 3.17 in 2008 and a again increased to 3.45 in 2009. However in 2010, the EPS was 3.68.

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2006 2007 2008 2009 20100

0.5

1

1.5

2

2.5

3

3.5

4

4.5

EPS

EPS


Year

Particulars 2006 2007 2008 2009 2010

Return on Assets .04 .07 .05 .06 .06

Return on Equity .18 .2 .14 .19 .21

Return on Total Capital .04 .07 .05 .06 .06

Return on Assets:

It shows how efficiently the firm utilizes its assets and generate return for its shareholders and creditors. The return on assets for the firm was 4 % in 2006, 7% in 2007, 5% in 2008, 6% in 2009 and 6% in 2010.

80


2006 2007 2008 2009 20100

0.01

0.02

0.03

0.04

0.05

0.06

0.07

0.08

Return on Asset

Return on Asset


Return on Equity:

It shows the return of the firm generated by the contribution of equity investors. The higher ratio shows a good use of equity of the firm. The ratio was 0.18 in 2006 that increased to .2 in 2007 and again declined to .14 in 2008.However the ratio was .19 in 2009 and ROE was highest in 2010 which is .21.


It shows how efficiently the firm utilizes its assets and generates return for its shareholders and creditors. The return on assets for the firm was 4 % in 2006, 7% in 2007, 5% in 2008, 6% in 2009 and 6% in 2010.

81

2006 2007 2008 2009 20100

0.05

0.1

0.15

0.2

0.25

Return on Equity

Return on Equity

2006 2007 2008 2009 20100

0.01

0.02

0.03

0.04

0.05

0.06

0.07

0.08




LEVERAGE

Year

Particulars 2006 2007 2008 2009 2010

Operating Leverage

6.44 6.72 6.64 6.99 6.85

Financial Leverage

2.19 1.43 1.3 1.36 1.43

Total Leverage

14.1 9.61 8.63 9.51 9.8


In 2006, DOL is 6.44, this means, if sales change by 100% then EBIT change by 232%.Morevoer for any change in sales will bring 6.44times change in EBIT.




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2005 2006 2007 2008 2009 2010 20110

2

4

6

8

10

12

14

16

Operating leverage

Financial Leverage

Total Leverage




In 2006, DFL is 2.19, which means 1% change in EBIT; the EPS would have been changed by 1.2.19%.












83


Kazi Shahidur Rahman

Id: 2008-2-10-044

84


Square Pharmaceuticals Limited 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.It has extended her range of services towards the highway of global market. She 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.

Basic Information (Currently):

Listing Year: 1995 Market Category: A

Authorized Capital in BDT (mn taka) 5000.0

Paid-up Capital in BDT (mn taka) 2648.0

Face Value(taka) 10

Market Lot 10

Total No. of Securities 264834760

Share Percentage

Sponsor/Director: 54.16

Govt.: 0 Institute: 0 Foreign: 6.7

Public: 39.14

Based on the Financial Statement of Square Pharmaceuticals Limited we have discussed different ratios bellow with graphs and figures.

1. Activity Analysis:

Activity ratios describe the relationship between the company’s level of operations (usually defined as sales) and the assets needed to sustain operating activities. These ratios tell us how efficiently the company manages the current assets and the long term assets. The higher the ratio, the more efficient the company’s operations, as relatively fewer assets are required to support a higher level of operations (sales). Here several key activity ratios of Square Pharmaceuticals Limited are calculated with proper interpretations and implications in its business operations.

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Short-term Activity Ratio:

2006 2007 2008 2009 2010

Inventory Turnover 2.96 2.72 2.75 3.05 3.24

Average no. of days inventory in stock 123.42 134.2 132.73 119.77 112.5

Receivable Turnover 24.53 24.18 23.44 23.26 21.04

Average no. of days receivable outstanding 14.88 15.1 15.57 15.7 17.35

Payable Turnover 39.54 38.49 28.83 14.61 7.73

Average no. of days payable outstanding 9.23 9.48 12.66 25 47.19Inventory Turnover Ratio:

The inventory turnover ratio measures the efficiency of the company’s inventory management. A higher ratio indicates that inventory does not remain idle but rather turns over rapidly from the time of acquisition to sale which means the goods are produced and sold quickly without much delay.

2006 2007 2008 2009 20102.4

2.5

2.6

2.7

2.8

2.9

3

3.1

3.2

3.3

2.96

2.722.75

3.05

3.24Inventory Turnover

Inventory Turnover

From the above table we can find that the firm was able to manage inventory properly from 2006-2010. In 2007 inventory turnover fall to 2.72 form 2.96 comparing year 2009 and after 2007 up to 2010 it has increased its efficiency. The range of the fluctuation of this ratio is 2.72-3.24.Due to the ratio’s stability in nature; we can say that the company is adequately efficient in inventory management.

Average No. of Days Inventory in Stock:

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Average No. of Days Inventory in Stock says the average number of days inventory is held in hand until it is sold. Lower value of this ratio indicates that the company needs less time to convert its inventory into sales that is the inventory remains in the stock less time.

2006 2007 2008 2009 2010100

105

110

115

120

125

130

135

140

123.42

134.2 132.73

119.77

112.5

Avg. no. of days outstanding in stock

Avg. no. of days outstanding in stock

From the graph above, we got that in 2006 inventory was in stock 123.42 days to sale but in 2007 this duration increased to 134.2 days which was indicating a bad signal. After 2007 the firm it has managed inventory efficiently till 2010 so that they have reduces the duration from 134.2 days to 112.5 days. It shows that the firm has increased its efficiency in inventory management.

Receivable Turnover: The receivables turnover ratios measures the effectiveness of the company’s credit policies and indicates the level of investment needed in receivables to maintain the company’s sales level. Receivables turnover ratio measures how many times receivables turn over into cash in a year. Higher the receivables turnover ratio indicates that receivables are collected quickly from the customer. So, higher the ratio is better.

2006 2007 2008 2009 201019

20

21

22

23

24

25 24.5324.18

23.4423.26

21.04

Receivable Turnover

Receivable Turnover

From the analysis of five years data we have found that there is no big fluctuation in the receivable turnover but it shows that this ratio is continuously declining which is not good for the firm. In 2006 receivable converted into cash 24.53 times whereas in 2010 converted 21.04 times which is signaling that the firm should concentrate on the credit policy more efficiently.

87


Average no. of Days Receivable Outstanding:

Average no. of day’s receivables outstanding measures the average no. of days required to convert receivables into cash. Lower the ratio indicates that it takes less no. of days to convert receivables into cash.

2006 2007 2008 2009 201013.5

14

14.5

15

15.5

16

16.5

17

17.5

18

14.8815.1

15.57 15.7

17.35

Avg. no. of days receivable outstanding

Avg. no. of days receivable outstanding

From the above graph it can be said that in 2010 the firm needed more time to convert receivable into cash comparing with 2006. It shows no big difference in the Avg. no. of receivable outstanding ratios of the year 2006-2010.

Payable Turnover:

Payable turnover ratio measures how many times the suppliers are paid in a year. Lower the ratio is better because then the company pay its creditor less frequently

2006 2007 2008 2009 20100

5

10

15

20

25

30

35

40

45 39.54 38.49

28.83

14.61

7.73

Payable Turnover

Payable Turnover

From the graph we have found that in 2006 the supplier are paid 39.54 times in a year and it reduces to 7.73 times in the year 2010; so, the firm shows that it has managed to pay the supplier less frequently as a result the firm can hold more cash for other activities.

Average no. of days Payable Outstanding:

88


Average no. of days payable outstanding measures the time needed to pay the suppliers. Higher the ratio is better because higher the average no. of day’s payable outstanding indicates that the company can delay its payment of payables and have more liquidity in hand.

2006 2007 2008 2009 20100

5

10

15

20

25

30

35

40

45

50

9.23 9.48

12.66

25

47.19

Avg. no. of days payable outstanding

Avg. no. of days payable outstand-ing

Here, it is good that the firm had able to hold more cash payable and uses that money for profit generation in the recent years. But in the year 2006, 2007 firm was not that much efficient as they have made in the subsequent years.

Long-term Activity Ratio:

2006 2007 2008 2009 2010



These ratios measure the efficiency of long term capital investment in generating sales. These ratios indicate the level of utilization of fixed assets to generate certain level of sales. Trend of this ratios indicates how efficient the company in utilizing its fixed assets.

89


2006 2007 2008 2009 2010

1.10.99 1.04 1.07 1.08

0.720000000000001 0.65000000000000

1

0.740000000000001

0.750000000000001 0.69000000000000

1

Long-term Activity RatioFixed Asset Turnover Total Asset Turnover

Fixed Asset Turnover:

This ratio measures using the fixed asset how much sales the company generates. Higher the ratio is better for the company, because higher the ratio indicates that the company is efficient to utilize the fixed assets in case of generating sales. From the above chart we can see that by using $1 of fixed asset the firm generating sales of $1.1 in 2006, $0.99 in 2007, $1.04 in 2008, $1.07 in 2009 and $1.08 in 2010 which indicating that the firm is efficient in using fixed asset and its generation of sales is over 100% of fixed asset almost every year.

Total Asset Turnover:

This ratio measures by utilizing its total assets how much sales the company generates. Higher the ratio is better for the company, because higher the ratio indicates that the company is efficient to utilize the assets in case of generating sales.

From chart of Long-term Activity Ratio we can see that almost every year the firm is generating sales over 70% of its total assets which is very high. So, the firm shows good performance in the uses of asset to generate sales. For every dollar of total asset the firm generating sales $0.72 in 2006, $0.65 in 2007, $0.74 in 2008, $0.75 in 2009 and $0.69 in 2010 and those are not so fluctuating.

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2 )Liquidity Ratio:

Liquidity means the ability of the company to use its Current Assets to pay its Short Term obligations. ST lenders and ST creditors are more concern about the liquidity analysis of a company, because they want to know that whether a company has ability to pay its short term obligation in-time or not.

2006 2007 2008 2009 20100

0.5

1

1.5

2

2.5

1.441.26

1.46

2.15

1.5

0.19 0.17 0.34

0.52

0.36

0.063 0.0640000000000001

0.1550.292 0.191

Liquidity Ratio

Current RatioQuick RatioCash Ratio

Current Ratio: Current ratio indicates the company’s ability to pay its short term obligation with its short term assets. So, for every dollar of current liability the firm has $1.44 in 2006, $1.26 in 2007, $1.46 in 2008, $2.15 in 2009 and $1.5 in 2010

Quick Ratio: Since not all the elements of current asset of a firm can’t be readily converted into cash, quick ratio eliminates those components which can’t be converted into cash i.e. prepaid expenses and depreciation

From the chart of liquidity ratio chart we have found that in 2006 the firm is able to convert the current asset readily is $0.19 to pay $1 current liability, as like that $0.17 in 2007, $0.34 in 2008, $0.52 in 2009 and $0.36 in 2010 to pay one dollar of current liability. Here it shows highest quick asset in 2009.

Cash Ratio: Cash ratio is the most conservative measuring tool of liquidity position of the company. The cash ratio measures liquidity depending only on cash and marketable securities excluding inventory and prepaid expense.

From the above chart it is found that the firm has low liquidity position in earlier year of those five year and comparing good in the later year like it has $.063 without depending on prepaid

91


expense and inventory in 2006 to pay the current liability of $1 and $0.191 in the year of 2010. It shows the firm has good liquidity position in the recent year.

Operating Cycle:

Operating cycle sum the No. of days inventory in stock and No. of day receivables remain outstanding. That means how many days needed from purchasing inventory, turning into finished good, sailing the finished goods and receiving the payment of sale.

2006 2007 2008 2009 2010115

120

125

130

135

140

145

150

155

138

149 148

135

129

Operating Cycle

Operating Cycle

Here, the chart shows that the firm needed 138 days to pass that cycle in 2006, 149 days in 2007, 148 days in 2008, 135 days in 2009 and 129 days in 2010. It shows that the firm losses it’s efficiency to complete the cycle in 2007 and 2008 after that operating cycle becoming lower.

Cash Cycle:

It shows the the time lenghth between the collection of receivables and payment of payables.Shorter the cash cycle better for the firm.

2006 2007 2008 2009 20100

20

40

60

80

100

120

140

160129

139135

110

82

Cash Cycle

Cash Cycle

92


Here, we can see that in 2006 the gap between collection of receivable and payment was 129 days; in 2007 it was 139 days which is higher than the previous year. In 2008 it was 135days, 110 days in 2009 and 82 days in 2010 that indicating that the firm shows efficiency in their credit policy.

3) Long-term Debt and Solvency Ratio:

The analysis of firm capital structure is necessary to understand long term risk and return prospect. The following table shows some important ratios that shades some light into the firm’s capital structure.

2006 2007 2008 2009 2010

Debt to Capital 0.3 0.337 0.247 0.229 0.289

Debt to Equity 0.43 0.509 0.329 0.296 0.407

Fixed Charge Coverage 3.27 2.69 3.95 3.64 4.51

Time Interest Earned 7.39 5.81 7.64 10.6 14.34

CFO to Debt 0.46 0.304 0.753 0.766 0.512

Debt to Total Capital Ratio

This ratio explains the proportion of External claim over firm’s total assets or total capital. Lower the Ratio is better for company’s shareholder, because it indicates that the shareholder of the firm have more claim over firm’s total assets than the external claims.

2006 2007 2008 2009 20100

0.05

0.1

0.15

0.2

0.25

0.3

0.350.3

0.337000000000001

0.2470.229

0.289

Debt to Capital

Debt to Capital

The above chart shows that the firm has around 30% debts to its capital structure and exactly that was $0.3 of debt in $1 of capital in 2006, $0.337 in 2007, $0.247 in 2008, $0.229 in 2009 and $0.289 in 2010. So the shareholder has lower amount of risk in prospect in magnifying return.

Debt to Equity Ratio:93


Debt to Equity ratio talks about the claim of equity holder after paying the Debt’s claim. Lower

ratio is better, that means the equity holders will bear lower liability.

2006 2007 2008 2009 20100

0.1

0.2

0.3

0.4

0.5

0.6

0.43

0.509

0.329000000000001 0.296

0.407

Debt to Equity

Debt to Equity

The chart shows fluctuation in the ratio over the last 5 years. In the year 2006, for every 1 dollar

of equity shareholders bear $0.43 debt, in 2007 it was about 50% of the equity, $0.329 in 2008,

$0.296 in 2009 and $0.407 in 2010. In 2006, 2007 and2010, the shareholders bears higher risk

comparing to the year 2008 and 2009.

Time Interest Earned Ratio:

It measures the ability of the firm to pay its interest expense, higher the ratio is better for the

firm,because higher ratio indicates more protection available for creditors.

2006 2007 2008 2009 20100

2

4

6

8

10

12

14

16

7.395.81

7.64

10.6

14.34



From chart we can see that TIE ratio is 7.39 in 2006, 5.81 in 2007, 7.64 in2008, in 2008 it was

10.6 and 14.34 in 2010. The firm got highest protection in the year 2010 and lowest protection in

the year 2007.

CFO to Debt:

94


It measures how much cash flow available to pay its debt.

20062007

20082009

2010

00.10.20.30.40.50.60.70.8

0.46

0.304

0.753000000000001 0.76600000000000

1

0.512

CFO to Debt

CFO to Debt

It shows that in the year 2006 the ratio was 0.46, 0.304 in 2007, 0.753 in 2008, 0.766 in 2009 and

0.512 in 2010. So, the firm was hardly able to pay its debt by its cash flow from operation in the

year 2006, 2007 and in 2010. But in 2008 and 2009 the firm was able to pay its debt’s75%.

3) Profitability Analysis:

Any Shareholders or Equity Investor mostly concern with the profitability analysis of the firm, because of following three reasons:

1. To earn profit,

2. To sustain profit, and

3. To increase profit.

The following ratios measure these factors of the firm:

2006 2007 2008 2009 2010

Gross Margin 0.431 0.412 0.422 0.428 0.429

Operating Margin 0.243 0.207 0.241 0.208 0.209

Margin before interest & tax 0.233 0.248 0.309 0.286 0.286

Pretax Margin 0.23 0.226 0.256 0.246 0.253

Profit Margin 0.174 0.167 0.192 0.188 0.195

EPS 218.61 154.53 156.56 165.48 129.07

Gross Margin:

95


This ratio interprets the relationship between Sales and Manufacturing Expenditure of a firm. Higher Ratio indicates higher profitability of the company.

2006 2007 2008 2009 20100.4

0.405

0.41

0.415

0.42

0.425

0.43

0.4350.431

0.412

0.422

0.428 0.429

Gross Margin

Gross Margin

From the line chart of Gross margin Ratio we can see that the firm’s contribution margin is almost constant throughout the year 2006-2010. It shows in every year the firm generating around 42% gross profit and it is a good indication to maintain constant gross margin.

Operating Margin:

It shows the profitability of a company considering the core business or central operations. It does not consider profit from other peripheral areas. Higher ratio indicates higher profitability of the company.

2006 2007 2008 2009 20100.18

0.19

0.2

0.21

0.22

0.23

0.24

0.25

0.243

0.207

0.241

0.208

0.209

Operating Margin

Operating Margin

It shows the firm is generating operating margin 24.3% in the year 2006, decreased to 20.7% in the next year but in 2008 it goes up to 24.1% and the next two years it was 20.8% and 20.9%. It had highest operating margin in the year 2006 and that was 24.3%.

96



2006 2007 2008 2009 20100

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.233 0.248

0.3090.286 0.286

Margin before interest & tax

Margin before interest & tax

It shows the profitability of the company from total operations both core and peripheral, without considering finance cost and tax.

Pretax margin:

It shows the profitability of a company considering the core, peripheral operation and capital structure. The higher the ratio, the better the firm is.

2006 2007 2008 2009 20100.21

0.2150.22

0.2250.23

0.2350.24

0.2450.25

0.2550.26

0.23

0.226

0.256

0.246

0.253

Pretax Margin

Pretax Margin

From the above chart it is shown that the firm’s earnings before tax considering its core operation, peripheral operation and capital structure is 23% over sales in the year 2006, 22.6% in 2007, 25.6% in 2008, 24.6% in 2009 and 25.3% in the year of 2010. The firm shows positive trend generating profit. In the year 2007, the ratio was lowest 0.226 and highest in 2008 which is .0256.

Profit margin:

97


Profit margin ratio shows the overall profitability of a firm considering all core operational, peripheral activities, interest and tax.

2006 2007 2008 2009 20100.15

0.1550.16

0.1650.17

0.1750.18

0.1850.19

0.1950.2

0.174

0.167

0.192

0.188

0.195

Profit Margin

Profit Margin

From the above chart we can see that the firm is generating $0.174 net profit from sales of $1 in year 2006, $0.167 in 2007, $0.192 in 2008, $0.188 in 2009 and in $0.195 in 2010. From the ratio we can see that in 2007 and 2009 there were little decline in net profit margin. Other than net profit margin increases from 17.4% to 19.5% from the year 2006 to 2010. It has lowest profit margin in 2007 and highest profit in 2010.

Earnings per Share (EPS):

Earnings per Share (EPS) measures the earnings available for shareholder in per share basis.

2006 2007 2008 2009 20100

50

100

150

200

250 218.61

154.53

156.56

165.48

129.07

EPS

EPS

From the chart it can be said that from 2006 to 2010 the EPS has been declined from tk 218.61 to tk 129.61. In 2006 the firm has tk 218.61 available for shareholder holding one share; it decreases next two years but in 2009 little increase and also decline in 2010. Though we have seen in the previous profitability ratio was increasing, EPS should not be decline. It may occur due to paying stock dividend.

98


2006 2007 2008 2009 2010

Return on Asset 0.263 0.238 0.291 0.303 0.303

Return on Equity 0.19 0.175 0.206 0.199 0.206

Return on Total Capital 0.263 0.238 0.291 0.303 0.303

Return on Asset:

2006 2007 2008 2009 20100

0.02

0.04

0.06

0.08

0.1

0.12

0.14

0.16

0.18

0.141

0.127

0.151 0.1570.161

Return on Asset

Return on Asset

This ratio shows the efficiency on using assets to generate return for its shareholder and creditors. From the graph it is found that the firm generated 14.1% return on its assets in 2006, it reduced to 12.7% in 2007, after that year return was 15.1%, 15.7% in 2009 and 16.1% in 2010. So the firm is very efficient in using its asset to generate return.

Return on Equity:

2006 2007 2008 2009 20100.15

0.16

0.17

0.18

0.19

0.2

0.21

0.19

0.175

0.206 0.1990.206

Return on Equity

Return on Equity

This ratio shows how much return the firm generated by the contribution of the equity investors. If the ratio is higher, shows a good use of equity to generate profit. Here, in 2006 the firm generated 19% of the equity investment, in 2007 it decreases to 17.5%, 20.6% in 2008, 19.9% in

99


2009 and 20.6% in 2010. From 2008-2010 there is almost constant return on its equity investment.

Return on Total Capital (ROTC):

2006 2007 2008 2009 20100

0.02

0.04

0.06

0.08

0.1

0.12

0.14

0.16

0.18

0.1410.127

0.1510.157 0.161



This ratio shows the efficiency on using total assets to generate return for its shareholder and creditors. From the graph it is found that the firm generated 14.1% return on its assets in 2006, it reduced to 12.7% in 2007, after that year return was 15.1%, 15.7% in 2009 and 16.1% in 2010. So the firm is very efficient in using its asset to generate return.

4) Leverage:

Leverage 2006 2007 2008 2009 2010

Operating Leverage 1.848 1.663 1.367 1.496 1.496

Financial Leverage 1.4 1.237 1.253 1.102 1.048

Total Leverage 2.588 2.057 1.713 1.65 1.569

2006 2007 2008 2009 20100

0.5

1

1.5

2

2.5

3

Financial Leverage Operating LeverageTotal Leverage

100


Operating Leverage:

We can calculate Degree of Operating Leverage by dividing Gross Profit by Earnings before interest and taxes. It measures, for a given change in sales how much EBIT will change.

In 2006, DOL is 1.848; so it indicates that if there is any change in sales, there will be 1.848 times change in EBIT.





Degree of Financial Leverage:

Degree of Financial Leverage can be calculated dividing Earning before Tax and Interest (EBIT) by Net Income (NI). It measures, for a given change in EBIT how much change occur in Net income (NI).

In 2006, DFL is 1.4; so it indicates that if there is any change in EBIT, Net Income will change 1.4 times.






From the degree of total leverage we can find how a give change in sales will affect Net Income. The formula for calculating DTL is:

DTL= DOL * DFL

101


In 2006, DTL is 2.588, this means, if sales change by 1 then Net Income will change by 2.588 times.





102


Glaxo SmithKlineRabiul Miraz Heemel. ID 2008 - 2 - 10 - 252

103


Company Profile

GlaxoSmithKline (GSK) Bangladesh Limited carries with it an enviable image and reputation for the past 6 decades. A subsidiary of GlaxoSmithKline plc- one of the world's leading research-based pharmaceutical and healthcare companies GSK Bangladesh, continues to be committed to improving the quality of human life by enabling people to do more, feel better and live longer. The Company’s principle activities include secondary manufacture of pharmaceutical products and marketing of vaccines, pharmaceutical healthcare products and health food drinks. In 1949 the Company commenced its journey in Bangladesh with its’ corporate identity as Glaxo in Chittagong as an importer of products from the Glaxo Group Companies. It started spreading its spectrum from being an importer to a manufacturer by establishing its own manufacturing unit at Chittagong in 1967. The facility till date is considered as one of the Centers of Excellence in Global Manufacturing & Supply Network of the Group.

The global corporate mergers and acquisitions have seen the evolution of the Company’s identity in the past 6 decades. In line with mergers and acquisitions the identity changed from Glaxo to Glaxo Welcome Bangladesh Limited following the Burroughs Welcome acquisition in 1995 and finally to GlaxoSmithKline Bangladesh Limited during 2002 after merger with SmithKline Beecham in December 2000. The mega merger of the Company enables it to deliver cutting edge advancements in health care solutions. The relentless commitment, setting of standards of ethical standards and quality backed leading edge technology of the Company has built a strong relationship between the stakeholders and GSK Bangladesh. With the ever committed 615 numbers of personnel all over the country GSK Bangladesh, which now comprises of both Pharma and Consumer, continually strive to meet the GlaxoSmithKline mission to improve the quality of human life by ensuring healthcare products, health drinks and different corporate social responsibility programs.

The GlaxoSmithKline Mission "Our global quest is to improve the quality of human life by enabling people to do more, feel better and live longer"

Different types of ratios based on the financial statement of GSK Pharmaceuticals ltd is discussed below with graphs and figures.

Activity Ratio Analysis:

Activity ratios describe the relationship between the firm’s level of operations and the assets needed to sustain operating activities. Initially we will have a look at the short term activity ratios of GSK.

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Short Term Activity ratio

Particulars 2006 2007 2008 2009 2010Inventory Turnover 2.19 2.62 2.77 3.45 3.66Avg no of days Inventory in stock 166.67 139.31 131.77 105.80 99.73Receivables Turnover 9.30 7.42 5.36 7.29 8.33Days Sales Outstanding 39.25 49.19 68.10 50.07 43.82Payable Turnover 12.76 8.83 5.63 6.03 4.81Days Payable Outstanding 28.61 41.34 64.83 60.53 75.88

The Graph below shows how the firm’s important short term turnover ratios moved over the recent five years period.

2006 2007 2008 2009 20100.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

Short Term Activity Ratio

Inventory Turnover Receivables Turnover Payable Turnover

As it is observed, the company’s efficiency in inventory management developed over the period as Inventory turnover ratio increased slightly from 2.19 in 2006 to 3.66 in 2010. Moreover, although its receivables turnover declined moderately from 2006 to 2008 it started to increase from then on wards indicating improvement in the effectiveness of the firm’s credit policies and level of investment in receivables needed to maintain the firm’s sales level. So, overall, during recent five years the company’s efficiency in short term asset management improved.

However, it is also obvious that during the period firm’s payable turnover ratio declined sharply which indicates that these days the management has less time to pay off its suppliers.

105


Long Term Activity Ratio

Particulars 2006 2007 2008 2009 2010Fixed Asset Turnover 4.6 4.73 5.54 8.5 9.59Total Asset Turnover 1.38 1.53 1.55 1.97 1.86

A firm’s long term efficiency in asset management is evaluated by two ratios; fixed asset turnover ratio and total asset turnover ratio. Higher ratio is always appreciated. And according to the analysis it is found that although the fixed asset turnover ratio improved significantly, it had less effect on total asset turnover ratio. Over the period total asset turnover increased from a.38 to 1.86. Moreover the optimistic increasing trend provides a signal that it will continue to increase in future.

2006 2007 2008 2009 2010

4.6 4.735.54

8.5

9.59

1.38 1.53 1.55 1.97 1.86

Long Term Activity RatioFixed Asset Turnover Total Asset Turnover

106


Liquidity Ratio Analysis:Firm’s liquidity position is a major concern for short term lenders and creditors. And a firm needs to have adequate cash resources available to attract short term creditors. The liquidity analysis of GSK pharmaceuticals ltd provided the following findings.

Liquidity Ratios

Particulars 2006 2007 2008 2009 2010Operating Cycle 206 189 200 156 144Cash Cycle 177 147 135 95 68Current Ratio 6.63 4.64 2.96 3.11 2.59Quick Ratio 1.46 1.94 1.23 1.69 1.6Cash Ratio 0.052 0.135 0.006 0.73 0.95Cash Flow from Operation 0.144 0.54 0.19 1.06 0.87

2006 2007 2008 2009 20100

1

2

3

4

5

6

7

Liquidity Ratios

Current Ratio Quick RatioCash Ratio Cash flow from operation

According to the graph it is obvious that the firm’s current ratio declined sharply during the period but it will not be reasonable to conclude that the current ratio of the firm has deteriorated. I would rather say it has improved because initially in 2006 firm’s this ratio was 6.63 which I believe is way more than sufficient to meet the current obligations. Moreover, some of these cash recourses could be used to earn some excess return. In fact we found that firm incurred loss in 2006, so firm could use their excess fund to earn excess return. And I won’t say the 2010 current ratio (2.59) bad because it has 2.59 times current assets then that of its current liabilities which means firm has more than double recourses available to meet its obligations. In addition, firm’s quick ratio; that excludes inventory and prepaid expenses, fluctuated slightly over the period where its cash resources increased and moved to close to 1.

107


Initially GSK did not produce enough cash to meet its current obligations but recently in last two years it was able to do so. In fact in 2009 firm generated more cash from operations than that of its liabilities in that particular year.In conclusion, it is certain that during the period the firm was successful in developing its liquidity position. Now let’s have a look at the firm’s long term debt and solvency ratios to determine how its long term financial position and solvency changed.

Long Term Debt & Solvency Ratio

Particulars 2006 2007 2008 2009 2010Debt to Total Capital 0.242 0.184 0.33 0.316 0.376Debt to Equity 0.319 0.337 0.493 0.462 0.603Times Interest Earned -1.3 17.82 25.28 529.06 675.09CFO to Debt 0.06 0.318 0.147 0.844 0.738

This measures the ability of a firm to pay its long term obligations and the ratios analyze the

capital structure of the firm.

2006 2007 2008 2009 20100

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

Long Term Debt & solvency Analysis

Debt to Total Capital Debt to Equity CFO to Debt

First, Debt to total capital, which indicates what proportion of total capital, is funded by debt. According to the findings it is clear that over the period GSK has acquired more debt to finance its total capital. In 2006 Debt to total capital ratio was only 24.2% which grew to 37.6% in 2010. On the opposite, Debt to equity ratio measures for every Tk1 of equity how much debt the equity holders bear. The Debt to equity ratio was only 0.319 in 2006 but it nearly doubled to 0.609 in

108


2010. Although this brings additional risk for the shareholders but as long as firm’s cost of debt will remain below the return earned shareholders will enjoy some excess return.

On the other hand, Cash flow form operation to meet fixed obligations increased substantially with flactuations from only 0.06 to 0.738 during the period. Hence,increase in debt in the capital structure could not affect the firm’s TIE ratio.

2006 2007 2008 2009 2010-100

0

100

200

300

400

500

600

700

800

Times Interest Earned

Times Interest Earned

It measures the ability of the firm to pay its interest expense, Higher the ratio better for the firm, because higher ratio indicates more protection available for creditors. The TIE ratio for the firm was only 17.82 in 2007 but in 2009 and 2010 it increased trimindiously to 529.06 and 675.69 respectively.

109


Profitibility analysis:

Equity investors are concerned with firm’s ability to generate profit. Over the period firm’s profit hiked. GSK incurred operating loss in the year 2006 and that made the ratios negative but since 2007 it started to earn profit and in 2009 it the ratios more then doubled than that of 2007. But in 2010 there was no noticable change in the value of these ratios.

Particulars 2006 2007 2008 2009 2010

Gross Margin 0.197 0.216 0.2498 0.312 0.342Operating Margin -0.007 0.0495 0.113 0.143 0.147Margin Before Interest and Taxes -0.003 0.051 0.113 0.145 0.152Pre Tax Margin -0.006 0.0485 0.108 0.145 0.152Profit Margin -0.012 0.028 0.076 0.107 0.113

As it is seen, The company’s profit margin increased after 2006 and it continued to increase till 2009 andin 2010 the 2009 profitibility sustained. From the graph bellow it is noticable that firm’s Margin before interest and taxes has almost no difference from its pretax margin. Which indicates firm uses less debt hence they need to bare less interest expenses. However firms tax position does affect its profitability and profit margin is somewhat lower than other margins.

110


2006 2007 2008 2009 2010-0.05

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

Profitibility Ratios

Gross Margin Operating Margin Margin Before Interest and TaxesPre Tax Margin Profit Margin

111


Following table shows the change in firms ROA, ROE, and ROTC. Return on asset compares income with total asset .

Particulars 2006 2007 2008 2009 2010

ROA -0.004 0.079 0.175 0.287 0.282ROTC -0.0048 0.079 0.175 0.287 0.283ROE -0.022 0.058 0.167 0.312 0.322

2006 2007 2008 2009 2010-0.05

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

Profitability Ratios

ROA ROTC ROE

112


Leverage:

Particulars 2006 2007 2008 2009 2010

OLE -56.66 4.19 2.21 2.15 2.26FLE 0.29 1.81 1.49 1.36 1.35TLE -16.43 7.58 3.29 2.92 3.05

1 2 3 4 5

-60

-50

-40

-30

-20

-10

0

10

20

Operating & Financial Leverage

OLEFLETLE

2006 2007 2008 2009 2010-5

0

5

10

15

20

25

30

35

40

EPS (Basic and Diluted)


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113


Ariful Hoque

Id: 2008-2-13-006

114


Company Profile:

Healthcare is one of the important factors among the fundamental need of the human being. Sound mind prevails in sound health and healthy man can contribute his might to the nation-building activities. Since the establishment of IBN SINA Pharmaceutical Industry Ltd. (IPI) in 1983, it has been aiming to fulfill this fundamental demand of the people of Bangladesh and is committed to reach the healthcare services to the door-step of the common people. We believe that the experience and skill of the physicians supported with quality medicines can only ensure better human life. The IBN SINA Pharmaceutical Industry Limited has endlessly exerted all its efforts for building quality into the product.

Different types of ratios based on the financial statement of BPL are discussed below with graphs and figures.

Year

Particulars 2006 2007 2008 2009 2010

Inventory Turnover 7.10 9.16 11.02 12.85 15.32

Average Number of days inventory in stock

51.44 39.86 33.13 28.41 23.82

Receivables Turnover 22.50 23.90 27.15 17.19 34.15

Average Number of days receivable outstanding

16.22 15.27 13.44 21.23 10.69

Payable Turnover 18.58 26.17 37.36 39.36 25.52

Average Number of days payable outstanding

19.65 13.95 9.77 9.27 14.30

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Activity Analysis


2006 2007 2008 2009 20100.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00

45.00

Short Term Activity Ratio

Inventory Turnover Receivables Turnover Payable Turnover


It is found by diving COGS by Average Inventory. It measures the efficiency of firm in inventory management as in how many times inventory is turned over in a year. Here, higher ratio is good and indicates inventory is turned over quickly and does not remain idle in the firm. From the graph it can be seen that the firm was efficient to turn over its inventory from 2006-2010.There was a increasing inventory turnover that is from 2006 and 2010 from 7.10 to 15.32.

Average no of day’s inventory in stock

It measures number of days inventory is held until it is sold. Here, lower ratio is better as it indicates less time required to complete one turnover. The Average no of days inventory in stock was 52days in 2006,40days in 2007,34 days in 2008,29days in 2009 and 24days in 2010.From here it can be stated that the firm was efficient to turnover its inventory in the year;

Receivable Turnover Ratio : This ratio indicates how many times receivable is turned over in a year. Receivable turnover starts at the point where inventory turnover ends. It measures the effectiveness of the firm’s credit policies. Higher the ratio indicates the efficiency in credit management of a company. From the graph it can be stated that the firm was efficient enough to collect their turnover quickly from 2006-2010.The receivable turnover was 22.50 in 2006,23.90 in 2007,27.15 in 2008,17.19 in 2009 and 34.15 in 2010.

116



It shows the number of days firm requires to collecting the receivables after selling inventory. Here, lower ratio is better for the company as it indicated the firm will collect their receivables quickly. The Average no of days inventory in stock was 17 days in 2006, 16 days in 2007,14 days in 2008,22 days in 2009 and 11 days in 2010. From here it can be stated that the firm will collect their receivables quickly in the year 2010 and comparatively it will take more time to collect receivable in 2006.

Payable Turnover:

This ratio measures that how many times payable will be turned over in a year. Here, lower ratio is better as it indicates payables are turned over less frequently and the firm has more time to pay their payables. The payable turnover was 18.58 in 2006, 26.17 in 2007,37.36 in 2008, 39.36 in 2009 and 25.52 in 2010.


It measures that, how many days company can defer its payment. It shows the length of time between purchase of raw material and payment. Here, higher ratio is better, as it indicates firm is purchasing on longer credit period and therefore gets more time to pay the payables. The Average no of days payables outstanding was 20 days in 2006, 14 days in 2007, 10 days in 2008, 10 days in 2009 and 15 days in 2010.The firm got more time to pay the payables in 2006 and less time in 2010.

Year

Particulars 2006 2007 2008 2009 2010


3.351 3.93 4.41 4.32 4.84


4.8 3.01 2.3 2.28 2.61

117



2006 2007 2008 2009 2010

3.351

3.934.41 4.32

4.844.8

3.01

2.3 2.282.61

Long Term Activity RatioFixed Asset Turnover Total Asset Turnover


Fixed Asset Turnover ratio: This ratio measures that, how efficiently firm manages its fixed asset. And higher ratio indicates efficiency of firm. The fixed asset turnover ratio was 3.35 in 2006, that increased to 3.93 in 2007 and it kept increasing to 4.84 in 2010.

Total Asset Turnover Ratio: Total asset turnover ratio measure the efficiency in managing total assets. Higher the ratio is better for the company. In 2006 the firm was most efficient in utilizing their total assets. The ratio was 4.8,that fluctuated and decreased to 3.01 in 2007,2.3 in 2008 and 2.28 in 2009.However,they efficiently to utilized their total assets in case of generating sales in 2010.

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Year

Particulars 2006 2007 2008 2009 2010

Current Ratio 0.77 0.69 0.83 0.73 0.95

Cash ratio 0.168 0.22 0.3 0.25 0.313

Quick Ratio 0.159 0.157 0.306 0.247 0.308

2006 2007 2008 2009 20100

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

Liquidity Ratios

Current Ratio Quick Ratio Cash Ratio

Current Ratio:

It measures how much Current Assets form have to pay out its Current Liabilities.Higher the ratio better for the firm,as it indicates good liquidity position for th firm. The current ratio was 0.77 in 2006 that decreased to 0.69 in 2007.However there in 2008 it increased to 0.83. The firm had the highest Current ratio in 2010 which is 0.95.

Cash Ratio:119

Liquidity Analysis


The cash ratio measures liquidity depending only on cash and marketable securities excluding inventory and prepaid expense.Here,we can see a fluctutation in cash ratio.The firm’s cash ratio was 0.168 in 2006,0.22 in 2007,0.30 in 2008.2009,the ratio was 0.25.However,the cash ratio was 0.313 in 2010.

Quick Ratio:

It measures firm’s ability to pay its current liabilities using its current assets without depending on inventory and prepaid expenses.Here we see the firm’s Quick ratio was 0.308 in 2010.and in 2008 which was 0.306.Moreover the ratios fluctuated from 0.159 in 2006 to 0.157 in 2007 .Although it was lowest in 2009.

Year

Particulars 2006 2007 2008 2009 2010


Debt to equity 1.033 1.396 1.72 1.804 1.328


22.008 14.147 11.098 10.894 8.901

CFO to Debt 0.136 0.077 0.126 0.178 0.396

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2006 2007 2008 2009 20100

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2

Long Term Debt & solvency Analysis

Debt to Total Capital Debt to Equity

Debt to Total Capital:This ratio measures what proportion of total capital is financed by total debt.Here,lower the ratio is better for company’s shareholder, because it indicates that the shareholder of the firm have more claim over firm’s total assets than the external claims. The debt to total capital for the year 2006 was 1.3. That decreased to 0.58 in 2007 and furthermore it increased to 0.63 in 2008.In 2010, the ratio was 0.57 that means less portion of total capital is financed by debt.

Debt to Equity:It measures for every 1 dollar of equity how much liability the shareholder bears. Higher ratio indicates higher the risk for the firm. The debt to equity ratio was 1.033 in 2006, that increased to 1.396 in 2007 and 1.72 in 2008.The firm had the highest debt to equity ratio in 2009 which was 1.804 and in 2010 as the ratio was 1.32.

121


2006 2007 2008 2009 20100

5

10

15

20

25

Chart Title

Times Interest Earned CFO to Debt


It measures the ability of the firm to pay its interest expense,Higher the ratio better for the firm,because higher ratio indicates more protection available for creditors.The TIE ratio for the firm was 22.008 in 2006,14.147 in 2007,11.098 in 2008, 10.894 in 2009 and 8.901 in 2010.CFO to debtIt measures how much cash flow available to pay its debt. The CFO to debt is .036 in 2006,0.077 in 2007,0.126 in 2008,0.178 in 2009 and 0.396 in 2010.All the ratios are less than 1,it indicates firm is hardly able to pay debt.

122


Year

Particulars 2006 2007 2008 2009 2010

Gross Margin 0.362 0.36 0.379 0.385 0.386

Operating Margin

0.044 0.04 0.05 0.043 0.048


0.053 0.048 0.058 0.054 0.059

Pretax Margin 0.048 0.046 0.051 0.047 0.05

Profit Margin 0.035 0.0354 0.041 0.038 0.037

EPS 22.82 31.14 48.09 45.59 55.62

2006 2007 2008 2009 20100

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

Profitibility Ratios

Gross Margin Operating Margin Margin Before Interest and TaxesPre Tax Margin Profit Margin

123


i) Return on Sales


Gross Margin:It shows the relationship between level of sales and manufacturing cost. Higher the ratio is better. The gross margin for the year 2006 was 0.362% that increased to 0.379%, in the year 2008. However the firm’s gross margin increased to 0.386% in 2010Operating Margin:It shows the profitability of a company considering the core business or central operations. It does not consider profit from other peripheral areas. Higher ratio indicates higher profitability of the company. The profit margin for the company was 0.044% in the year 2006, that decreased to 0.040% in 2007.However,it increased to 0.05% in 2008,anf then again it decreased to 0.043% in the year 2009.and in 2010,which was 0.048%.Margin before Interest and Tax:It shows the profitability of the company from total operations both core and peripheral, without considering finance cost and tax. From the above chart a fluctuation in the margin can be observed. The margin before interest and tax for the company was 0.053% in the year 2006, that decreased to 0.048% in 2007.In 2007, it faced the lowest margin. However, it increased to 0.058% in 2008, and then again it decreased to 0.054% in the year 2009.The company had 0.059% operating margin in 2010, which was the highest among the five years.Pretax Margin:It shows the profitability of a company considering the core, peripheral operation and capital structure. The higher the ratio, the better the firm is. The graph shows a positive trend as the company progress it operations from 2006-2010.The pretax margin is 0.048% in 2006,then it gradually declined to 0.046% in 2007.However,it increased to 0.051% in 2008,following an increase in the following years. The margin decreased to 0.047% in 2009 and. 0.05% from all the operations in 2010.Profit Margin: It shows the overall profitability of the company after considering investment, financing and tax. The graph shows, there has been a substantial growth in the overall profitability of the company. There was a slight fluctuation in profit margin in 2006-2009, which was 0.035%, 0.0354% ,0.041% and 0.038% respectively and in 2010 which was 0.037% .

124


EPS

2006 2007 2008 2009 20100

10

20

30

40

50

60



EPS is the earnings that shareholders get. In the graph it can be seen that there is a fluctuation in EPS over the five years. The EPS was 22.82 in 2006, that increased to 31.14 in 2007. It also increased to 48.09 in 2008 and slightly varied to 45.59 in 2009.The shareholders earned highest per share in 2010,the EPS was 55.62..

Year

Particulars 2006 2007 2008 2009 2010

Return on Assets 0.234 0.141 0.118 0.109 0.133

Return on Equity 0.174 0.226 0.305 0.302 0.338


0.17 0.13 0.118 0.109 0.133

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2006 2007 2008 2009 20100

0.05

0.1

0.15

0.2

0.25

0.3

0.35

Profitability

ROA ROTC ROE

Return on Assets:

It shows how efficiently the firm utilizes its assets and generate return for its shareholders and creditors. The return on assets for the firm was 0.234 % in 2006, 0.141% in 2007, 0.118% in 2008, 0.109% in 2009 and 0.133% in 2010.

Return on Equity:

It shows the return of the firm generated by the contribution of equity investors. The higher ratio shows a good use of equity of the firm. The ratio was 0.174 in 2006,that increased to 0.226 in 2007,and again increased to 0.305 in 2008.However the ratio was 0.302 in 2009 and ROE was highest in 2010 was 0.338


It shows how efficiently the firm utilizes its assets and generate return for its shareholders and creditors. The return on assets for the firm was 0.17 % in 2006, 0.13% in 2007, 0.118% in 2008, 0.109% in 2009 and 0.133% in 2010.From the graph it can be seen that the firm efficiently utilized its assets and generated more return in 2006 and the return was least in 2007.

126


LEVERAGE

Year

Particulars 2006 2007 2008 2009 2010

Operating Leverage

6.82 7.438 6.48 7.107 6.541

Financial Leverage

1.49 1.36 1.42 1.4 1.57

Total Leverage

10.168 10.115 9.2 9.949 10.26

1 2 3 4 50

2

4

6

8

10

12

OLEFLETLE





127

















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128


Comparison with the Industry AverageParticulars Beximco

Pharma- ceuticals Ltd.

Renata Ltd

ACI Limited

Ambee Pharma

Square Pharma Ltd

Glaxo Smithkline

The Ibn Sina

Benchmark

Inventory Turnover

1.93 3 2.97 1 3.24 3.66 15.32 4.45

Average No. of days inventory in stock

190 141 123 365 113 100 24 151


11 16.32 2.4 6.71 21.04 8.33 34.15 14.28

Average No. of days receivable outstanding

33 22 153 54 17 44 11 48

Payable Turnover

21.85 92.05 5.38 9.47 7.73 4.81 25.52 23.83

Average No. of days payable outstanding

70 4 68 39 47 76 14 45


0.43 1.98 2.04 4.68 1.08 9.59 4.84 3.52


0.30 0.99 0.82 0.30 0.69 1.86 2.61 1.08

Activity ratio analysis of Pharmaceuticals and Chemical companies of 2010

Analysis129


i) Short term activity ratios:

Inventory turnover and Average No.of days inventory in stock:

Inventory Turnover Ratio: In case of this the Benchmark is 4.45.Here, we see Glaxo

Smithkline is operating close to the benchmark that is 3.66.Whereas Beximco

Pharmaceuticals, Renata Ltd, ACI Limited, Square Pharma Ltd and Ambee Pharma are

operating below the industry average for the year 2010.The Ibn Sina is having the highest

ratio which is the best, because it indicates firm’s efficiency in managing its inventory.

Average No. of days inventory in stock: Here, the benchmark is 151 days and Renata Ltd.

is having ratio is 141 days which is somewhat closer to the benchmark. However, ACI

Limited, Square Pharma Ltd, Glaxo Smithkline, The Ibn Sina are operating below average

which is good. Ambee Pharma is having the highest number of days which is the worst case

as it indicates,lomger time taken to turnover inventory.

Receivable turnover and Average No. of days receivable outstanding:

130


Bexim

co Phar

maceu

ticals

Ltd.

Renata

Ltd

ACI Lim

ited

Ambee Phar

ma

Squar

e Phar

ma Ltd

Glaxo Sm

ithkli

ne

The I

bn Sina

Bench

mark

0

20

40

60

80

100

120

140

160

180

Receivables TurnoverAverage No. of days receivable outstanding

Receivables turnover: The benchmark for this turnover is 14.28.Here Beximco Pharma-

ceuticals is operating closer to the industry average and the ratio is 11.However, Renata Ltd

Square Pharma Ltd and The Ibn Sina are operating above the benchmark and ACI

Limited,Ambee Pharma and Glaxo Smithkline are having much lower ratio compared to the

benchmark.Here,higher the ratio is better for the firms it indicates firm is collecting

receivables quickly.

Average No. of days receivable outstanding-The benchmark is 48 days,here Glaxo

Smithkline is having a closer ratio that is 44 days. However, ACI Limited and Ambee

Pharma is having above average ratio. Beximco Pharmaceuticals, Renata Ltd, Square Pharma

Ltd and The Ibn Sina is having a lower ratio.Here lower ratio is better, means the firm is

more effective.

Payable turnover and Average No. of days payable outstanding:

131


Payable Turnover-Here the benchmark is 23.83 and Beximco Pharmaceuticals is having a

closer ratio compared to the benchmark which is 21.85.However, The Ibn Sina and Renata

Ltd are having much higher ratio and ACI Limited, Ambee Pharma and Square Pharma Ltd

are having much lower ratio.Here lower the ratio indicates the firm will get more time to pay

the payables.

Average No. of days payable outstanding-Here the benchmark is 45 days and Ambee

Pharma is having a closer ratio compared to benchmark.However,the lowest ratio was found

in Renata Ltd i.e 4 days and highest number of days was found in Glaxo Smithkline i.e 76

days.Here,higher ratio is better as it indicates the length between purchase and payables is

higher which is good for the firm.

ii) Long term activity ratios:132


Fixed Asset Turnover-Here the highest ratio was found in Glaxo Smithkline that is 9.59 and lowest ratio was found in Beximco Pharmaceuticals Ltd i.e 0.43.However, the benchmark was 3.52 and ACI Limited had the closer ratio which was 2.04.Here,higher ratio is better as it indicates efficiency of the firm.

Total Asset Turnover-Here, Beximco Pharmaceuticals Ltd.and Ambee Pharma had the lowest turnover ratio that is .30. Glaxo Smithkline is having the highest ratio that is 2.61.However the benchmark is 1.08 and Renata Ltd is having closer ratio that is 0.99 . Here, higher ratio is better as it indicates efficiency of the firm.

Liquidity Ratio Analysis of Pharmaceuticals and Chemicals companies for 2010

Particulars Beximco Pharma- ceuticals

Renata Ltd

ACI Limited

Ambee Pharma

Square Pharma Ltd

Glaxo Smithkline

The Ibn Sina

Benchmark

Current Ratio

2.46 1.11 1.42 1 1.5 2.59 0.95 1.58

Cash ratio 2.14 0.09 0.04 0.01 0.19 0.95 0.31 0.53

Quick Ratio

0.91 0.35 0.84 0.2 0.36 1.6 0.31 0.65

Analysis

133


Liquidity Ratio:

Current Ratio- The benchmark for the current ratio of the industry is 1.58. Square Pharma Ltd has a closer ratio compared to the industry average that is 0.50. Beximco Pharma- ceuticals has the highest current ratio which is very good. The Ibn Sina has the lowest current ratio which is bad scenario.

Cash ratio- The benchmark for the cash ratio of the industry is 0.53. The Ibn Sina has a closer ratio compared to the industry average that is 0.31. Beximco Pharmaceuticals has the highest cash ratio which is very good. The Ambee Pharma has the lowest current ratio which is bad scenario.

Quick Ratio- The benchmark for the quick ratio of the industry is 0.65. Square Pharma Ltd has a closer ratio compared to the industry average that is 0.36. Glaxo Smithkline has the highest cash ratio and The Ibn Sina had the lowest current ratio.

Long term Debt and Solvency Ratio Analysis of Pharmaceuticals and Chemicals companies for 2010

134


Particulars Beximco Pharma- ceuticals

Renata Ltd

ACI Limited

Ambee Pharma

Square Pharma Ltd

Glaxo Smithkline

The Ibn Sina

Benchmark

Debt to total

capital

0.25 0.41 0.48 0.82 0.29 0.38 0.57 0.45

Debt to equity

0.34 0.72 0.92 4.87 0.41 0.60 1.33 1.31

CFO to Debt

0.38 0.53 0.15 0.11 0.51 0.74 0.41 .40

Long term Debt and Solvency Ratio

Analysis:

135


Debt to total capital- The benchmark for debt to total capital is 0.45.Renata Ltd has the closest ratio i.e. 0.41. Ambee Pharma has the highest ratio i.e0.82 which means it bears more risks by using debt and Beximco Pharmaceuticals has the lowest ratio which indicates less risk i.e 0.25.Here lower ratio is better, as it indicates firm is less reliant on external sources.

Debt to equity- The benchmark for this ratio is 1.31. The Ibn Sina is having ratio closer to the benchmark that is 1.33. Ambee Pharma has the highest ratio i.e 4.87 and bearing higher risk by using debt obligations and Beximco Pharmaceuticals has the lowest ratio i.e 0.34. Here lower ratio is better, as it indicates firm is less reliant on external sources and therefore less risk taken.

CFO to Debt – The benchmark for this ratio is 0.40. The Ibn Sina is having ratio closer to the benchmark that is 0.40. Glaxo Smithkline has the highest ratio i.e 0.74 and Ambee Pharma has the lowest ratio i.e 0.11.Here, all ratios are less than 1 which indicates firm hardly able to pay debt.

Profitability Analysis of Pharmaceuticals and Chemicals companies for 2010

136



ParticularsBeximco

Pharmaceuticals Ltd.

Renata Ltd

ACI Limited

Ambee Pharm

a

Square

Pharma Ltd

Glaxo Smithkline

The Ibn Sina

Benchmark

Return on Sales

Gross Margin

0.49 0.52 0.36 0.54 0.43 0.34 0.39 0.44

Operating Margin

0.25 0.52 0.1 0.22 0.21 0.15 0.05 0.23

Margin Before Interest

and Taxes

0.25 0.26 0.1 0.08 0.29 0.15 0.06 0.17

Pre Tax Margin

0.21 0.22 0.1 0.04 0.25 0.15 0.05 0.15

Profit Margin

0.16 0.17 0.07 0.03 0.19 0.11 0.04 0.11

Return on Investme

nt

ROA 0.1 0.41 0.06 0.06 0.30 0.28 0.13 0.19

ROTC 0.1 0.08 0.09 0.06 0.30 0.28 0.13 0.15

ROE 0.09 0.12 0.18 0.21 0.21 0.32 0.34 0.21

137


i) Return on Sales:

Bexim

co P

harm

aceu

ticals

Renat

a Ltd

ACI Lim

ited

Ambee

Phar

ma

Squar

e Phar

ma L

td

Glaxo Sm

ithkli

ne

The I

bn Sina

Bench

mar

k0

0.1

0.2

0.3

0.4

0.5

0.6

Gross MarginOperating MarginMargin Before Interest and TaxesPre Tax MarginProfit Margin

Analysis:

Gross Margin – The industry average of gross profit margin was 44% in 2010 and from the findings it can be said that Square Pharma Ltd was closest to the industry average i.e. 42% and Ambee Pharma, Renata Ltd, Beximco Pharmaceuticals had their gross profit margin above the industry average that indicates that these company’s COGS is relatively low then that of others. The other three companies had their margin below the industry average which points to their higher cost of production.

Operating Margin – The benchmark for operating margin is 23%. Ambee Pharma has the margin closer to the average which is 22%. Renata Ltd had the highest margin which is 52% and The Ibn Sina had the lowest margin that is 5%.Here,higher ratio is considered good.

Margin Before Interest and Taxes – 17% is the benchmark for this margin. Here , Glaxo Smithkline is having 15% margin which is closer to the industry average.However,The Ibn Sina is having the lowest margin that is 6% and ACI Limited is having the highest margin that is 26%.Higher the ratio is good for the firm as it indicates more profitability of the company from total operations. Here, higher ratio is considered good.

Pretax Margin -15% is the benchmark for this margin. Here, Glaxo Smithkline is having 15% margin which is closer to the industry average.However,The Ibn Sina is having the lowest margin that is 6% and ACI Limited is having the highest margin that is 26% .Higher ratio is good for the firm as indicates more profit from core and other operations and also

138


considering tax. Here, higher ratio is considered good as it indicates higher profit without including tax.

Profit Margin- 11% is the benchmark for the firms.Here, Glaxo Smithkline is having the margin exactly similar to the benchmark which is good.However, Renata Ltd is having the highest margin that is 17% and Ambee Pharma is having the lowest margin which is 7%. Here,higher ratio is considered good as it indicates higher overall profitability.

ii) Return on investment:

Bexim

co P

harm

aceu

ticals

Renat

a Ltd

ACI Lim

ited

Ambee

Phar

ma

Squar

e Phar

ma L

td

Glaxo Sm

ithkli

ne

The I

bn Sina

Bench

mar

k0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

ROAROTCROE

Return on Assets: Here, 19% is the benchmark for this ratio. Here, The Ibn Sina is having ratio closer to the benchmark that is 13%.However, ACI Limited and Ambee Pharma is having lowest ratio i.e 6% and Renata Ltd is having the highest ratio that is 41%.Higher ROA is good and it indicates more return from assets.

Return on Total Capital: Here, 15% is the benchmark for this ratio. The Ibn Sina is having ratio closer to the benchmark that is 13%.However, ACI Limited is having lowest ratio i.e 6% and is Square Pharma Ltd is having the highest ratio that is 30%. Higher ROTC is good and it indicates more return available to creditors and shareholders.

Return on Total Equity: Here, 21% is the benchmark for this ratio. Ambee Pharma and Square Pharma Ltd is having ratio closer to the benchmark that is 21%.However, Beximco Pharmaceuticals Ltd.is having lowest ratio i.e 9% and is The Ibn Sina is having the highest ratio that is 34%. Higher ROE is good and it indicates more return available to shareholders.

139


Leverage Effect of Pharmaceuticals and Chemicals companies for 2010

Particulars

Beximco Pharmaceutic

als Ltd.

Renata Ltd

ACI Limite

d

Ambee Pharm

a

Square

Pharma Ltd

Glaxo

Smith-

kline

The Ibn Sina

Benchmark

OLE 1.94 4.02 3.49 6.85 1.50 2.26 6.54 3.80FLE 1.20 1.54 1.37 1.43 1.05 1.35 1.57 1.36

TLE 2.33 6.19 4.77 9.8 1.57 3.0510.2

65.42

Analysis:

OLE- The benchmark for this ratio is 3.80 and ACI Limited is having ratio 3.49 which is closer to this. However, Square Pharma Ltd is having the lowest OLE i.e 1.50 and Ambee Pharma is having the highest margin i.e. 6.85.

FLE - The benchmark for this ratio is 1.36 and Glaxo Smithkline is having ratio 1.35 which is closer to this. However, Beximco Pharmaceuticals Ltd.is having the lowest OLE i.e 1.20 and Ambee Pharma is having the highest margin i.e. 1.57.

140

LEVERAGE


TLE- The benchmark for this ratio is 5.42 and ACI Limited is having ratio 4.77 which is closer to this. However, Square Pharma Ltd.is having the lowest OLE i.e 1.57 and is The Ibn Sina is having the highest margin i.e. 10.26.

Conclusion

Activity Ratio Analysis

Here we see Renata Ltd and Glaxo Smithkline are having two ratios closer to the benchmark.

However, other companies are also operating well when we compared with the industry average.

Liquidity Ratio Analysis

Here, Square Pharma Ltd is having closer ratio compared to industry average in case of current

ratio. Whereas, all other companies are operating in a moderate way.

Long term Debt and Solvency Ratio Analysis

Here, The Ibn Sina is having closer ratio compared to benchmark in case of Debt to equity and

CFO to debt.


Here we see Glaxo Smithkline is having closer ratio compared to the benchmark in case of

overall profitability this is a good sign. However, The Ibn Sina is having a ratio closer to

benchmark in case of ROA and ROTC.

Leverage Effect:

Here, ACI Limited is having Degree of Total leverage closer to the industry average. This is

good in a sense it means more income however there is also risk associated it.

In conclusion we can say “Glaxo Smithkline” is operating efficiently as in most of the cases

their ratios are closer to the industry average.

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