Assignment PDF_6

1. Submitted To:
Ms. Faria Akter
Course Lecturer
Course Title: Introduction to Financial Accounting
Course Code: ACT1123
Department of Bachelor of Business Administration
School of Business Studies
Southeast University, Dhaka – 1213
Submitted By:
Md. Towfiqur Rahman
Program: BBA
ID No: 2016010000139
Batch: 42nd
Section: 2 (B)
Semester: 3rd Semester (Fall 2016)

2. Table of contents
Page
Introduction 1
Square Pharmaceuticals Limited 1
Financial Analysis 1
Types of Ratio 1 – 3
Analysis of Financial Ratio 3
Importance of Relative Financial Ratios 3
Computation of Financial Ratio 3
Statement of Financial Position of Square Pharmaceuticals
Ltd. (2014 - 2015) 4
Statement of Income of Square Pharmaceuticals
Ltd. (2014 - 2015) 5
Financial Report 2015 6
Financial Report 2014 7
Conclusion 8

3. Introduction
Performance analysis and evaluation of a company is usually related to how well a company
can use it assets, share holder equity and liability, revenue and expenses. Financial ratio
analysis is one of the best tools of performance evaluation of any company. It measures the
company’s overall efficiency and performance. It determines of share market condition of the
company.
Square Pharmaceuticals Limited
• SQUARE Pharmaceuticals Limited is the largest pharmaceutical company in
Bangladesh and it has been continuously in the 1st
position among all national and
multinational company since 1985.
• 1958: Debut of SQUARE Pharmaceuticals as a Partnership Firm.
• 1964: Converted into a Private Limited Company.
• 1991: Converted into a Public Limited Company
• 2004: SQUARE enlisted as UNICEF's global supplier
• 2015: PAI (Pre Approval Inspection) by US FDA was successful for Dhaka Site’s
solid dosage Unit. WHO approved square’s GMP.
Financial Analysis
• Assessment of the firm’s past, present and future financial conditions.
• Done to find firm’s financial strengths and weaknesses
• Primary Tools:
– Financial Statements
– Comparison of financial ratios to past, industry, sector and all firms
Types of Ratios
– Liquidity Ratios
• Assess ability to cover current obligations
– Activity (Turnover) Ratios
• Assess amount of activity relative to amount of resources used
– Financial Leverage (Solvency) Ratios
• Assess ability to cover long term debt obligations
– Profitability Ratios
• Assess profits relative to amount of resources used

4. Liquidity Ratio
Measures of the short-term ability of the company to pay its maturing obligations and to meet
unexpected needs for cash.
• Current Ratio
A measure used to evaluate a company’s liquidity and short-term debt-paying ability;
computed by dividing current assets by current liabilities.
• Quick Ratio
A measure of a company’s immediate short-term liquidity; computed by dividing the
sum of cash, short-term investments and net accounts receivable by current liabilities.
• Inventory Turnover Ratio
A measure of the liquidity of inventory; computed by dividing cost of goods sold by
average inventory.
• Fixed Asset Turnover Ratio
A measure of how efficiently a company uses its assets to generate sales; computed
by dividing net sales by average total assets.
Solvency Ratios
Measures of the ability of the company to survive over a long period of time.
• Debt to Assets Ratio
Measures the percentage of assets provided by creditors; computed by dividing debt
by assets.
• Debt to Equity Ratio
Debt to Equity Ratio is a debt ratio used to measure a company's financial leverage;
computed by dividing debt by equity.
• Financial Leverage Ratio
Companies rely on a mixture of owners' equity and debt to finance their operations.
A leverage ratio is any one of several financial measurements that look at how much
capital comes in the form of debt (loans), or assesses the ability of a company to
meet financial obligations.

5. Profitability Ratio
Measures of the income or operating success of a company for a given period of time.
• Gross Profit Margin
Gross profit margin is a financial metric used to assess a company's financial health
and business model by revealing the proportion of money left over from revenues
after accounting for the cost of goods sold (COGS). Gross profit margin, also known
as gross margin, is calculated by dividing gross profit by revenues.
• Net Profit Margin
Net profit margin is the percentage of revenue remaining after all operating expenses,
interest, taxes and preferred stock dividends (but not common stock dividends) have
been deducted from a company's total revenue.
• Return on Assets
An overall measure of profitability; computed by divided net income by average total
assets.
• Return on Equity
Measures the dollars of net income earned for each dollar invested by the owners;
computed by dividing net income minus preferred dividends (if any) by average
common stockholders’ equity.
Valuation Ratio
A valuation ratio is a measure of how cheap or expensive a security (or business) is,
compared to some measure of profit or value. A valuation ratio is calculated by dividing a
measure of price by a measure of value, or vice-versa.
• Earnings Per Share (EPS)
The net income earned on each share of common stock; computed by dividing net
income minus preferred dividends (if any) by the number of weighted-average
common shares outstanding.

6. Analysis of Financial Ratio
Analysts use financial ratios because numbers in isolation typically convey little meaning.
For example, knowing that a firm earned a net income of $100,000 is not very informative
unless we also know that sales figure that generated this income and the assets or capital
committed to the enterprise. Thus ratios are intended to provide meaningful relationship
between individual values in the financial statements. Because the major financial report
numerous individual items, it is possible to produce a vast number of potential ratios many of
which will have little value. Therefore we limit our examination to the most relevant ratios
and group them into categories that will provide information on important financial
characteristics of them.
Importance of Relative Financial Ratios
Just as a single number from a financial statement is of little use, an individual financial ratio
has little value except in relation to comparable ratios for other entities. That is only relative
financial ratios are relevant. Therefore it is important to compare a firm’s performance
relative to:
 The aggregate economy
 It’s industries or organizations
 It’s major competitors within the industries
 It’s past performance (time-series analysis)
Computation of Financial Ratio
In the following ratio we divide the financial ratios into five major categories that underscore
the important economics characteristics of a firm. The five categories are:
1. Common size statements
2. Internal liquidity (solvency)
3. Operating performance
a) Operating efficiency
b) Operating profitability
4. Risk analysis
a) Business risk
b) Financial risk
c) External liquidity risk
5. Growth analysis

7. Statement of Financial Position of Square Pharmaceuticals Ltd. (2014 -
2015)
Particulars 31-03-2015
(Taka)
31-03-2014
(Taka)
ASSETS:
Non-Current Assets:
Property, Plant & Equipment-Carrying Value 18,0009,200,507 13,933,689,469
Deferred Tax Assets 75,167,249 -
Capital Work-in-Progress 207,629,864 3,256,802,171
Investment – Long Term (at Cost) 251,599,097 147,694,430
Investment – Associates Undertaking 6,036,139,963 5,364,154,708
Investment in Marketable Securities (Fair Value) 879,249,484 844,360,472
Total Non-Current Assets 25,458,986,164 23,546,701,250
Current Assets:
Inventories 3,310,086,668 2,737,085,779
Trade Debtors 894,543,303 766,634,978
Advances, Deposits & Pre-Payments 750,169,066 671,749,541
Short Term Loan 885,185,428 1,161,185,776
Cash & Cash Equivalents 3,892,185,634 2,162,717,207
Total Current Assets 9,732,170,099 7,499,373,281
TOTAL ASSETS 35,191,156,263 31,046,074,531
SHAREHOLDERS’ EQUITY &
LIABILITIES:
Shareholders’ Equity:
Share Capital 5,542,991,520 4,819,992,630
Share Premium 2,035,465,000 2,035,465,000
General Reserve 105,878,200 105,878,200
Tax Holiday Reserve - 406,231,702
Gain on Marketable Securities (Unrealized) 265,332,813 449,255,557
Retained Earnings 23,143,634,751 18,922,758,840
Non Controlling Interest (1,669,864) 9,369,803
Total Shareholders’ Equity 31,093,302,284 26,739,581,929
Non-Current Liabilities:
Long Term Loans – Secured 659,147,818 1,183,627,923
Deferred Tax Liability 891,357,959 718,957,750
Total Non-Current Liabilities 1,550,505,777 1,902,585,673
Current Liabilities:
Short Term Bank Loans - 131,104,817
Long Term Loans – Current Portion 257,154,669 461,433,822
Trade Creditors 254,773,030 217,855,755
Liabilities for Expenses 43,002,246 20,518,598
Liabilities for Other Finance 1,994,088,121 1,563,624,134
Total Current Liabilities 2,549,018,066 2,394,537,126
TOTAL SHAREHOLDERS’ EQUITY &
LIABILITIES
35,191,156,263 31,046,074,531

8. Statement of Income of Square Pharmaceuticals Ltd. (2014 - 2015)
Particulars 31-03-2015 (Taka) 31-03-2014 (Taka)
Gross Turnover
Net Turnover
Cost of Goods Sold
Gross Profit
Financial Expenses (Bank
Interest)
Profit from Operations
Profit Before Tax
30,833,571,248
26,684,573,116
14,942,870,155
11,741,702,961
158,614,307
7,049,611,578
6,963,574,022
26,945,687,557
23,268,413,217
12,960,738,683
10,307,674,534
177,131,396
5,967,653,270
5,912,348,302
Total Income After Interest &
Tax
5,797,713,593 5,081,928,495
Earnings Per Share (EPS)
Number of Shares used to
compute EPS
Total receipts
Purchase
Dividend Paid
10.80
554,299,152
30,722,397,162
11,025,935,136
1,445,997,789
8.92
554,299,152
27,073,653,067
9,484,660,368
926,921,660

9. According to Financial Report 2015
1. Current Ratio = Current Assets / Current Liabilities
= 9,732,170,099 / 2,549,018,066
= 3.82 times
2. Quick Ratio = Current Assets – Inventories / Current Liabilities
= 9,732,170,099 – 3,310,086,668 / 2,549,018,066
= 2.52 times
3. Inventory Turnover = Cost of goods sold / Inventory
= 14,942,870,155 / 3,310,086,668
= 4.51 times
4. Fixed Assets Turnover = Sales / Fixed Assets
= 26,684,573,116 / 18,291,997,620
= 1.46 times
5. Debt to Assets Ratio = Total Debt / Total Assets x 100
= 4,099,523,843 / 35,191,156,263 x 100
= 11.65 %
6. Debt to Equity Ratio = Total debt / Total Equity x 100
= 4,099,523,843 / 31,093,302,284 x 100
= 13.18 %
7. Financial Leverage Ratio = Total Assets / Total Equity x 100
= 35,191,156,263 / 31,093,302,284 x 100
= 113.17 %
8. Gross Profit Margin = Gross Profit / Sales x 100
= 11,741,702,961 / 26,684,573,116 x 100
= 44 %
9. Net Profit Margin = Net Income / Sales x 100
= 5,186,436,869 / 26,684,573,116 x 100
= 19.44 %
10. Return on Assets = Net Income / Total Assets x 100
= 5,186,436,869 / 35,191,156,263 x 100
= 14.74 %
11. Return on Equity = Net Income / Total Equity x 100
= 5,186,436,869 / 31,093,302,284 x 100
= 16.68 %
12. Earnings Per Share (EPS) = Net Income – Preferred Dividend / Weighted Average
No. of Shares
= 6,963,547,022 – 979,740,821 / 554,299,152
= 10.80

10. According to Financial Report 2014
1. Current Ratio = Current Assets / Current Liabilities
= 7,499,373,281 / 2,394,537,126
= 3.13 times
2. Quick Ratio = Current Assets – Inventories / Current Liabilities
= 7,499,373,281 – 2,737,085,779 / 2,394,537,126
= 1.99 times
3. Inventory Turnover = Cost of goods sold / Inventory
= 12,960,738,683 / 2,737,085,779
= 4.74 times
4. Fixed Assets Turnover = Sales / Fixed Assets
= 23,268,413,217 / 17,190,491,640
= 1.35 times
5. Debt to Assets Ratio = Total Debt / Total Assets x 100
= 4,297,122,799 / 31,046,074,531 x 100
= 13.84 %
6. Debt to Equity Ratio = Total debt / Total Equity x 100
= 4,297,122,799 / 26,739,581,929 x 100
= 16.07 %
7. Financial Leverage Ratio = Total Assets / Total Equity x 100
= 31,046,074,531 / 26,739,581,929 x 100
= 116.11 %
8. Gross Profit Margin = Gross Profit / Sales x 100
= 10,307,674,534 / 23,268,413,217 x 100
= 44.30 %
9. Net Profit Margin = Net Income / Sales x 100
= 4,250,580,863 / 23,268,413,217 x 100
= 18.27 %
10. Return on Assets = Net Income / Total Assets x 100
= 4,250,580,863 / 31,046,074,531 x 100
= 13.69 %
11. Return on Equity = Net Income / Total Equity x 100
= 4,250,580,863 / 26,739,581,929 x 100
= 15.90 %
12. Earnings Per Share = Net Income – Preferred Dividend / Weighted Average
No. of Shares
= 5,912,348,302 – 967,793,392 / 554,299,152
= 8.92

11. Conclusion
Square Pharmaceutical Ltd is the leading business industry in Bangladesh. Square
Pharmaceuticals always tries to improve the efficiency and skill of its employees. It spends
huge amount of money in maintaining its employees in effective way. The company develops
a system whenever there is inadequacy in efficiency or need for future development, the
training is provided.
Square Pharmaceuticals Ltd. has a very good working environment where the employees get
enough opportunity to show their ability and creativeness. Its communication channel is
superb. Informal channel of communication is very active. Many interdepartmental issues are
solved in informal meetings, often over a cup of tea. Introduction of LAN has smoothened
the process.
Every member of Square Pharmaceuticals Ltd. feels like he or she is a member of the Square
family. This family feeling is a big asset for this company. Most of the employees are
dedicated and motivated to work. Since good performance is always highlighted and creative
ideas welcomed people are eager to contribute their best.
Square Pharmaceuticals Ltd. believes in honesty in every phase of business. The management
promotes this idea to its workers. The image of the company is also good all over the country.
Customers all over the country recognize Square as a quality company and an honest
company.
We can summarize that for the last two years, even though Square Pharmaceuticals Ltd.
could not perform up to mark according to our analysis, but still holding the better position in
the industry. The firm gained the trust of the investors. Therefore we can come to the
conclusion that Square Pharmaceutical Ltd. is a better company to invest on.