Fin301 Term Paper - The Drug Scene

Group II
July 18, 2013

FIN301

THE DRUG SCENE
Ms. Mahtab Faruqui
Section 03
7/18/2013

SUBMITTED BY
Team organizer: Samiya Yesmin

Sl.

Name

I.D.

1.

Lamisa Manzoor

11304072

2.

Fariha Ahmed

11204035

3.

Upeksha Abeysekara 11204098

4.

Protiti Khan

11304018

5.

Samiya Yesmin

11304043

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July 18, 2013

I.

LETTER OF TRANSMITTAL

Date: July 18, 2013

Ms. Mahtab Faruqui
Senior Lecturer
BRAC Business School

Subject: Submission of Term Paper

Dear Madam:
We are pleased to submit our term paper “The Drug Scene” for your review. It is the
financial statement analysis of the two pharmaceutical companies in Bangladesh. It has been
an enlightening experience for us to work on this project. We would like to thank you for
giving us such an opportunity.

Sincerely Yours,
SamiyaYesmin………………………
Protiti Khan…...…………………….
Fariha Ahmed……………………….
Upeksha Abeysekara.……………….
Lamisa Manzoor ..………………….

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July 18, 2013

II.

ACKNOWLEDGEMENT

We would like to thank Ms. Mahtab Faruqui for making us understand what all the
neon green numbers stand for, for enabling us to make sense of enormous financial data and
for making it so easy for us.
We would also like to thank (Horne & Wachowicz Jr.) For their exceptional book
“Fundamentals of Financial Management”, this has simplified learning finance. And we
would also like to sincerely thank everyone whose work we have referred to, as it all helped
making us form a better picture of the situation.
And to amazing team members thank you.

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July 18, 2013

III.
I.

CONTENTS

Letter of Transmittal ....................................................................................... 2

II. Acknowledgement .......................................................................................... 3
IV. Abstract ........................................................................................................... 5
1. Introduction ............................................................................................... 6
a. Industry Background ......................................................................... 6
b. Outlook .............................................................................................. 6
c. Company Backgrounds...................................................................... 6
d. Opportunities ..................................................................................... 7
e. Threats ............................................................................................... 7
2. BEXIMCO Pharmaceuticals Ltd. (BPL)................................................... 8
3. Square Pharmaceuticals Ltd. (SPL) ........................................................ 15
4. Company Comparisons for 2012............................................................. 21
5. Sector Market Analysis ........................................................................... 24
6. Conclusion ............................................................................................... 25
7. Recommendations ................................................................................... 25
V. Works Cited .................................................................................................. 26
VI. Appendix ...................................................................................................... 26
01.Ratio Formulae ................................................................................ 26
02.Calculations for BPL ....................................................................... 27
03.Calculations for SPL ........................................................................ 29
V. Table of Figures:........................................................................................... 31

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July 18, 2013

IV.

ABSTRACT

This is the term paper of FIN301- Fundamentals of Financial Management course.
Here we will be analyzing the financial statements of two companies from the same industrial
sector. We have chosen BEXIMCO Pharmaceuticals Ltd. (BPL) and Square Pharmaceuticals
Ltd.(SPL) from the Pharmaceuticals Industry in Bangladesh. We will be showing you the
ratio analysis of the years 2010-2011 and 2011-2012 for these two companies along with
comparison between both the companies.

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July 18, 2013

1. I NTRODUCTION
a.

INDUSTRY BACKGROUND

The pharmaceutical sector is highly developed in Bangladesh and contributes
significantly to the country's economy. After the promulgation of Drug Control Ordinance1982, the development of this sector was accelerated. The professional knowledge and
innovative conceptual skills played a vital role in the development of the sector as a whole.
The substantial development in this sector enabled us to export our branded generics
in the international marketing domain. Healthy growth is encouraging the pharmaceutical
manufacturers towards research and development for newer generics of quality drugs at
affordable prices.
The Bangladesh pharmaceutical market is growing at a fast pace and has a bright
future indeed. According to Business Monitor International's latest report Bangladesh has
moved one step upward to occupy the 14th position within 17 regional markets surveyed by
BMIs Pharmaceutical & Healthcare Business Environment ratings for the Asia region.
Bangladesh has a long way to go though there is huge potential in pharmaceutical
manufacturing and international marketing. And due to all these factors we have decided to
do our term paper on this industrial sector of Bangladesh.

b.

OUTLOOK

In the pharmaceutical sector of Bangladesh, we have 250 licensed companies. Taking
their age, brand name, national and international market position and previous stock market
performance into factor- we have decided to do the financial analysis of two of the market
leaders of this industry. These companies are Square Pharmaceuticals Ltd. and BEXIMCO
Pharmaceuticals Ltd... As we write this paper, we hope you will come to see why they are so.

c.

COMPANY BACKGROUNDS

BEXIMCO Pharmaceuticals Limited was founded in 1976 and started operations in
1980. It has now grown to now become one of the leading pharmaceutical companies in the
country, and caters for the local and international medicinal needs. Today BPL manufactures
and markets its own branded drugs for several diseases. The company launched its export
operation in 1992. Today BPL is the largest exporter of pharmaceuticals in the country and
the only company to win National Export Trophy (Gold), the highest national accolade for
export, for record three times. BPL has extended its exports in more than 45 countries across
four continents. BPL is planning to expand manufacturing products such as inhalers, eye
drops and sprays. Their targeted global expansion areas include Middle East, European
Union, Latin America, USA, Australia and New Zealand.

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July 18, 2013
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. Mr. Samson H. Chowdhury is the founder of SQUARE
Pharmaceuticals. It was established in 1958 and converted into a public limited company in
1991. The sales turnover of SPL was more than Taka 11.46 Billion (US$ 163.71 million)
with about 16.43% market share (April 2009– March 2010) having a growth rate of about
16.72%. SPL has extended its range of services towards the highway of global market. It
pioneered exports of medicines from Bangladesh in 1987 and has been exporting antibiotics
and other pharmaceutical products. This extension in business and services has manifested
the credibility of Square Pharmaceuticals Limited.

d.

OPPORTUNITIES

These are some opportunities that would help this industry grow in the long run:





The industry has advancing technologically as result they can formulate new drugs
and medicines as soon as it is out in the market.
If the industry spends more on research and development then they can eventually
make their own formulas instead of buying them from other countries.
Export opportunities have increased especially in the African, Middle Eastern and
Central Asian markets.
Production cost is low in Bangladesh because of the low operational costs.
The government benefits and facilities are given to this emerging industry.

e.

THREATS

As an emerging new industry, it may/ will have to confront these threats:










Indian companies are a threat to this industry as they can make their own formulas
and save money. As a result, they can sell the final product at a lower price range.
The Bangladeshi government does not have the right policy in some areas such as
quality control and minimum standard monitoring.
Small and new firms do not focus much on quality control and research
development for lower cost, so they are able to compete with larger companies
which already have a greater market share.
Large scale manufacturers from multinational companies may invest highly on the
pharmaceuticals industry, and this may hamper the market shares in the long run.
Neighboring countries may enter our market illegally and make it unstable with
cheaper products.
In the long run the industry may end up using all the raw materials available to
them and then may have to buy from other countries which may end up costly on
the industry.
Fluctuations in raw material prices may affect the industry

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July 18, 2013

2. BEXIMCO P HARMACEUTICALS L TD . (BPL)
BPLRATIO ANALYSIS 2010-2011:
Liquidity

2010

2011

1. Current ratio

2.50:1

2.70:1

2. Quick ratio

1.67:1

1.83:1

1. Current Ratio: the current ratio is too high which shows that the company has too much
idle money that needs to be invested in profitable manner. The current ratio has increased
in the year 2011 from the year 2010. This has occurred for the following reasons:
Significant increase of Tk. 308035187 in inventories. This is due to
production increase, increasing finished goods, raw materials and raw &
packing materials in transit.
The dividend payable reduced, which reduced the current liabilities.
2. Quick Ratio: this has increased in the year 2011 for the following reasons:
Large increase of Tk. 49361056 in spares and supplies.
Increase in accounts receivable because of export sales.
Dynamic increase of Tk. 1334019856 in short term investments with
Bangladesh Export Import Company Limited (BEXIMCO Ltd.).
Reduction in dividend payable.
Leverage

2010

2011

1. Debt-to-equity

0.34

0.34

2. Debt-to-total-assets

0.25

0.26

3. Debt-to-equity: The ratio for debt to equity has also not changed during the past two
years this means that there has been no significant change in the Share holders’ Equity
and the company debts.
4. Debt-to-total-assets: the debt to total assets has increased slightly, which means the firm
is using borrowed money for operation. The ratio did not increase much because:
Increase in long term borrowings – increase in interest and PAD Block and
Obligations under Finance Leases.
Increase in total assets due to high increase in intangibles, inventories, short
term investments in BEXIMCO Ltd, and Accounts Receivables from export
sales.

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July 18, 2013
Coverage

2010
2.68 times

1. Interest coverage

2011
2.96 times

5. Interest coverage: this has increased, which means that the company is now able to pay
its interests more comfortably. This increase has happened because:
The finance cost reduced by Tk. 94536627, because there was no dividend on
preference shares in 2011.
The earnings before interest and tax increased by Tk. 316316926 because of
greater net sales revenue.
Activity

2010
7.90 times

1. Receivables turnover
2. Receivables turnover in days

2011
8.07 times

46.19
days

45.25 days

3. Inventory turnover

1.79 times

1.92 times

4. Inventory turnover in days

203.9 days

190.1 days

5. Asset turnover

0.31 times

0.36 times

6. Receivables turnover: the company is now more capable of collecting its receivables.
This ratio has increased by 0.17 times in 2011 due to:
Increase in annual net credit sales, which is due to more export sales.
As there is more export sales, the receivables have also increased. So the
overall ratio has increased.
7. Receivables turnover in days: this has reduced in the year 2011. This has occurred for
the following reasons:
Increase in export sales, which have increased net credit sales.
Significant increase in receivables from exports. So as more exports are being
made, better relations are being created with foreign buyers. As a result, the
company is able to collect its receivables in less time.
8. Inventory turnover: the inventory turnover is more in 2011 due to:
Increase of Tk. 786068767 in Cost of Goods Sold – this is because the
materials consumed has increased by Tk. 658180751. Increase of Tk.
172839086 in the factory overhead has also increased Cost of Goods Sold. So
the total manufacturing cost has risen.
The inventory has also increased due to increase in finished goods and raw
materials used. This means that the production has increased. The work in
progress has reduced. So the overall inventory turnover has increased, which
means that more inventories are sold and turned into cash.
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July 18, 2013
9. Inventory turnover in days:
As the inventory turnover has increased due to increase in Cost of Goods Sold
(due to increase in materials consumed and factory overheads) and inventories
(due to increase in finished goods and raw materials), this means that the
company is able to sell more inventories and earn cash in less time. Also, the
Account Payables are being paid off, which is a good sign for future loans. So
the inventory turnover in days has reduced in 2011.
10. Asset turnover: the asset turnover has risen, which means that more assets are used to
generate sales. The increase is for the following reasons:
Net sales have increased, due to Tk. 1339620117 increase in local sales.
The total assets has risen as well, but not by much amount. This is because
their current assets increased by Tk. 956794922 because of increasing
inventories and short term investments. Also, the investment in shares under
the fixed assets has dropped. This means that the overall increase in total
assets is poor. As a result, the asset turnover has increased, meaning more
sales of assets are made that generates greater sales revenue.
Profitability

2010

2011

1. Net profit margin

16.20%

15.19%

2. Return on investment (ROI)

5.10%

5.40%

3. Return on equity (ROE)

7.83%

7.24%

11. Net profit margin: the net profit margin has reduced. This means that the net income per
dollar of sales has reduced. This is because:
The cost of goods sold has risen, which is due to increase in Tk. 1339620117
of local sales. This has ultimately increased the net sales revenue by Tk.
1399394490.
The net profit after tax has increased but not that much, because the income
tax has risen. The deferred tax and short provision for earlier year is also seen
to rise. So the overall impact on the net profit after tax is low.
12. Return on investment (ROI): this has risen, which means that more profits are being
generated with the available assets. This ratio has changed mainly due to:
Increase in net profit after tax by Tk. 146876534 because the finance cost has
reduced.
Their short term investments have increased.
The cash and cash equivalents have reduced because of less amount in FDR
Account.
The overall assets have risen because of more intangibles and inventories. So
greater assets are contributing in generating more net profit. As a result, the
return from the investments is more.

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July 18, 2013
13. Return on equity (ROE): this is the measure of shareholder’s wealth maximization. This
ratio is found to have decreased in 2011. This might have happened because:
Shareholder’s equity has increased.
Increase in issued share capital
Increase in revaluation surplus
Increase in retained earnings.
BPLRATIO ANALYSIS 2011-2012:
Liquidity

2011

2012

1. Current ratio

2.70:1

2.67:1

2. Quick ratio

1.83:1

1.88:1

1. Current Ratio: From our calculation we can see that the current ratio of 2011 is
higher than of 2012. As per our study the following changes have taken place and
thus caused the 2012 current ratio to decrease.
There is a significant increase in Raw and Packaging Materials in Transmit.
The amount has increased by Taka 8846045.
The Spares and Accessories have increased by quite a margin in 2012.
The Accounts Receivables have also increased in 2012 because the export
sales have increased in the past one year.
Project loans have increased in 2012 by Taka 318588942
Creditors and Payables have decreased because of the decrease in buying for
credit on Goods and services.
Accrued Expenses on Workers’ Profit Participation and Welfare funds have
increased.
2. Quick Ratio: The Quick ratio has increased in 2012, and this is mainly due to the
increase of inventory of the company as we saw earlier there is a Taka 142143350
difference in inventory from 2011 to 2012. Most of the change is due to the change in
Raw and Packing Materials in Transmit.
Leverage

2011

2012

1. Debt-to-equity

0.34

0.34


0.26

0.25

3. Debt to Equity: The ratio for debt to equity has also not changed during the past two
years this means that there has been no significant change in the Share holders’ Equity
and the company Debts.

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July 18, 2013
4. Debt to Total Assets: As we have seen earlier there were quite a few changes in the
assets of the company because we have seen that the company has bought new assets
and also disposed a few assets. As per the statements suggests that the following
changes have occurred
Project Loans have increased
Under Accrued expenses the expenses have increased by Taka 15440045
Income tax payable for the previous year has increased to Taka 110840941 in
2012.
Coverage

2011
2.96 times


2012
2.96 times

5. Interest Coverage: The ratio of interest coverage is the same for both years;
therefore this suggests that the interest coverage has been the same throughout the
past two years
Activity

2011

2012


8.07 times

7.99 times


45.25 days

45.68 days


1.92 times

2.07 times


190.1 days

176.38 days

5. Asset turnover

0.36 times

0.39 times

6. Receivables turnover: Receivables turnover has decreased within the past year and
this is due to the slight increase in the receivables turnover in days. This means that
the company takes
7. Receivables turnover in days: The sales of all the products have increased managed
to sell 146033.51 units of all their different products in 2012 compared to 2011.
Therefore, their net sales have increased. Exchange rate fluctuations may have an
impact on the receivables. On the other hand, the receivables from export sales in
2012 have had a dramatic increase of $751257 from the previous year. In addition to
that the receivables due from companies in Bangladesh also have increased.
8. Inventory turnover: The inventory turnover has increased and this is because
Total manufacturing cost has increased by Taka 812152100
The manufacturing cost has increased due to the increase in factory overheads.
The cost of Physician Sample transferred to Sample Stock has increased by
Taka 22884099; this is deducted before deducting the closing stock of finished
goods.
The Raw and Packing Materials in Transit have increased by Taka 88406045

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July 18, 2013
The Physician Samples have also increased from Taka 52126812 in 2011 to
Taka 65863326 in 2012
9. Inventory turnover in days: The inventory turnover in days has decreased, due to
the changes in the cost of goods sold in 2011 and 2012. The change is also because of
the fluctuations in inventories for the past one year.
10. Asset Turnover: The assets turnover has had a slight change in the past year. This is
due to the changes in the total assets
All the assets such as Land, Buildings, Furniture, Vehicles and Office Equipment
have had changes due to the addition of new assets, adding up to Taka 189856725
Assets such as Furniture and Vehicles have also have been disposed; at a value of
Taka 6567870.
Capital Work in Progress has increased to Taka 1853876341 in 2012.
Research and Development expenditure have increased and the company has also
invested in Software development which is considered as intangible assets, thus
intangible assets have increased over the year.
Loans, Advances and Deposits have increased in 2012 because of changes in Raw
and Packing Material, Expenses and Rent Advances
Profitability

2011

2012


15.19%

14.20%


5.40%

5.54%


7.24%

7.43%

11. Net Profit Margin: The Net Profit Margin has decreased due to the following
changes
The profit after tax has increased for 2012 although their expenses in 2012 were
higher than of 2011. In 2012 the company’s financial expenses have risen. The
company has also spent more on selling and advertising and administrative
expenses.
The sales have comparatively increased over the year.
12. Return on Investment (ROI): The Company’s return from their investment is
recorded the highest during the three years. This is maybe due to the new investments
that the company has done on their assets. They have bought and sold number of
assets in the year of 2012. And thus their sales have also increased.
13. Return on Equity (ROE): The return on equity has undergone the following changes
215620903 Bonus Shares issued, and thus brought an increase by Taka
528712400
Retained earnings have increased in 2012 to Taka 6701180881

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The Graphs (Figures 1-5) given below, show the changes in the above mentioned
ratios over the years 2010, 2011 and 2012.
Figure 1: BPL Liquidity ratios
3
2

2010

1

2011

0

2012
Current Ratio

Quick Ratio

FIGURE 2: BPL COVERAGE RATIO

3
2.8
2.6
2.4

2010
2011
2012
Interest coverage

FIGURE 3: BPL LEVERAGE RATIOS

0.4
0.3
0.2
0.1
0

2010
2011
2012
Debt-to-equity

Debt-to-total-assets

FIGURE 4: BPL ACTIVITY RATIOS

2.5
2
1.5
1
0.5
0

8.1
8
7.9
7.8
Receivables turnover

2010
2011
2012
Inventory Turnover

Asset Turnover

FIGURE 5: BPL PROFITABILITY RATIOS

20
15
2010

10

2011

5

2012

0
Net profit margin

Return on investment (ROI)

Page 14

Return on equity (ROE)

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July 18, 2013

3. S QUARE P HARMACEUTICALS L TD . (SPL)
SPL RATIO ANALYSIS 2010 - 2011:
Liquidity

2010
2.15:1
1.16:1

1. Current ratio

2. Quick ratio

2011
1.59:1
0.96:1

1. Current Ratio: The current ratio is lower in 2011 than in 2010 showing that the
company does not have too much idle money and that the company is investing the
money in a profitable manner. The company had a current ratio of 2.15 in the year
2010, which suggests they did not use their inventories or cash in hand or bank
properly. On the other hand they achieved a healthier current ratio in 2011 of 1.50.
This shows an effective working capital management. This change may have occurred
for the following reasons:
A significant increase in receivables increased the current liabilities.
A significant increase of Tk. 2,451,445,025 in the current liabilities as compared
to the increase in the current assets. This was due the short term loans taken from
different banks.
2. Quick Ratio: This has also decreased in the year 2011 for the following reasons:
Large increase in Value Added Tax.
Increase in the amount of Lease Deposit.
Leverage
3. Debt-To-Equity
4. Debt-To-Total-Assets

2010
0.30
0.23

2011
0.41
0.29

3. Debt-to-equity: The ratio for debt to equity has increased in 2011. This means that
there has been a significant change in the total debt of the company as well as Share
holder’s Equity.
4. Debt-to-total-assets: the debt to total assets has increased slightly, which means the
firm is using borrowed money for operation. The ratio did not increase much because:
Increase in both long term borrowings and total assets.
Increase in total assets is due to high increase in intangibles, inventories, short
term investments in Square Pharmaceuticals Ltd, and Accounts Receivables
from export sales.
Coverage
2010
2011
5. Interest Coverage
8.7 times
10.2 times
5. Interest coverage: this has increased, which means that it has become easier for the
company to pay its interests. This increase has happened because:
The interest expense has reduced by Tk. 40,012,036.
The earnings before interest and tax increased by Tk. 61,986,411 because of
greater net sales revenue.
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Activity
1.
2.
3.
4.
5.

Receivable Turnover
Receivables turnover in days
Inventory Turnover
Inventory Turnover in Days
Asset Turnover

2010
22.5times
16.2 days
1.168 times
312.4 days
0.76 times

2011
17.4 times

20.9 days
1.173 times
311.2 days
0.69 times

6. Receivables turnover: Receivables Turnover has decreased by 5.1 showing the
company is not collecting its receivables efficiently. This ratio has decreased because:
Increase in annual net credit sales, which is due to more export sales.
Due to increase in export sales, receivables has also increased, but not in the
same proportion as the net credit sales. The amount of receivables being
higher has led to lower receivables turnover in the year 2011 than the year
2010.
7. Receivables turnover in days: this has increased in the year 2011. This has occurred
for the following reasons:
Decrease in Receivables Turnover.
The amount of receivables has increased significantly in the year 2011. As a
result, the company is taking more time to collect their receivables.
8. Inventory turnover: the inventory turnover is more in 2011 due to:
An increase in production of goods which thereby increases Cost of Goods
Sold by Tk. 2931288394– this is because the materials consumed and factory
overhead has increased. So the total manufacturing cost has risen.
The inventory has also increased due to increase in finished goods and raw
materials used. This means that the production has increased. So the overall
inventory turnover has increased, which means that more inventories sold are
turned into cash.
9. Inventory turnover in days:
As the inventory turnover has increased due to increase in Cost of Goods Sold,
this means that the company is able to sell more inventories in less time.
10. Asset Turnover: Asset turnover has decreased, this means that less assets are used in
generating sales. The reason for this is:
Although both net sales and total assets have increased, total assets have
comparatively increased by a greater degree compared to net sales, thus asset
turnover has fallen.

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Profitability

2010

2011


18.21%

18.80%


13.89%

13.02%


19.73%

22.99%

11. Net Profit Margin: The net profit margin has slightly increased, meaning that the net
income per unit currency has slightly increased. The reason for this is:
Net profit after taxes has increased in this period.
Net turnover has also increased.
12. Return on Investment (ROI): This has decreased, meaning that less profits are being
generated with the assets available in the company.
Net profit after taxes has increased in 2010-2011.
Total assets have also increased, but by a greater proportion compared to the net
profit.
13. Return on Equity (ROE):This is a measure of the shareholders wealth
maximization. It can be seen that this ratio has increased in the period 2010-2011.
This means that investors have higher acceptance of the company’s strong investment
opportunities.
SPL RATIO ANALYSIS 2011-2012:
Liquidity

2011
1.50:1
0.96:1

1. Current ratio

6. Quick ratio

2012
1.58:1
0.95:1

1. Current Ratio: From the calculation we can see that the current ratio of 2012 is
slightly higher than of 2011. This might have happened because:
Despite a significant decrease in the current assets in the year 2012, the current
ratio manages to have an overall increase because the current liabilities has
decreased in the year 2012 by quite a good amount.
Square Pharmaceuticals managed to lower down their current liabilities in the
year 2012 by cutting down their short term loan taken from various banks
.
2. Quick Ratio: The Quick ratio has remained quite same differing by a margin of 0.1.
This shows the company’s ability to meet their current liabilities with its most liquid
assets has almost remained the same.
Leverage
1. Debt-To-Equity
2. Debt-To-Total-Assets

2011
0.41
0.29

Page 17

2012
0.32
0.24

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July 18, 2013
3. Debt to Equity: The ratio for debt to equity has decreased in the year 2012 mainly
because the Shareholder’s Equity has increased significantly in 2012 by the amount of
Tk 2,449,175,260.
4. Debt to Total Assets: Debt to Total Assets has decreased slightly in the year 2012.
This is because:
Long term loans have decreased in the year 2012.
Total Assets has increased.
Coverage
1. Interest Coverage

2011

2012

10.2 times

7.6 times

5. Interest Coverage: The ratio of interest coverage has decreased in the year 2012 by
2.6 times, indicating the company’s ability to cover their interest has decreased than
the previous year.

Activity

2011

2012


17.4 times

19.8 times


20.9 days

18.4 days


1.173 times

1.19 times


311.2 days

305.8 days

5. Asset turnover

0.69 times

0.75 times

6. Receivables turnover: Receivables turnover has increased in 2012 in compared to
2011. This has happened due to the significant increase in Net Turnover in 2012.
7. Receivables turnover in days: this has decreased in compared to the previous year.
Higher credit sales are one reason behind this. Also exchange rate fluctuations may
have an impact on the receivables.
8. Inventory turnover: the inventory turnover is more due to an increase in finished
goods and raw materials used i.e. due to an increase in production by Tk. 3016368700
more in 2012 than in 2011
9. Inventory turnover in days: it has decreased, meaning that they are able to sell
products faster than the year before resulting in faster inventory turnover. Also, the
Account Payables are being paid off, which is a good sign for future loans. So the
inventory turnover in days has reduced in 2012.
10. Asset Turnover: it has increased in this period meaning that more profits are being
generated by the assets available to the company.
Net sales have risen to a certain degree.
Total assets have been increased by a relatively small amount.

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Profitability

2011

2012


18.80%

18.05%


13.02%

13.51%


22.99%

20.41%

11. Net Profit Margin: The net profit margin has slightly decreased.
Net turnover has increased in this period.
Although net profit after tax has increased, total expenditures of the business
have also increased in this period, thus profit margin has decreased in 20112012 with respect to the previous period comparison.

12. Return on Investment (ROI): The return from investments has increased in this
timeframe; this may be due to increased profits are being generated by the company
on its assets, including purchase of new assets. This has resulted in an overall increase
in sales.

13. Return on Equity (ROE): The return on equity has fallen during this period, this
may be due to an increase of almost 33% of retained earnings in 2012 compared to
2011.

The Graphs (Figures 6- 10) given below, show the changes in the above mentioned
ratios over the years 2010, 2011 and 2012.

FIGURE 6: SPL LIQUIDITY RATIOS

2.5
2
1.5

2010

1

2011
2012

0.5
0
Current Ratio

Quick Ratio

Page 19

Group II
July 18, 2013
FIGURE 7: SPL LEVERAGE RATIOS

0.4
0.3

2010

0.2

2011

0.1

2012

0
Debt-to-equity


FIGURE 8: SPL COVERAGE RATIO

12
10
8
6
4
2
0

2010
2011
2012
Interest coverage

FIGURE 9 : SPL ACTIVITY RATIOS

25

1.195
1.19
1.185
1.18
1.175
1.17
1.165
1.16
1.155

20
15

10
5
0

0.78
0.76
0.74
0.72
0.7
0.68
0.66
0.64
Inventory Turnover


Asset Turnover

FIGURE 10 : SPL PROFITABILITY RATIOS

25
20
15

2010

10

2011

2012

5
0
Net profit margin


Page 20


Group II
July 18, 2013

4. C OMPANY C OMPARISONS FOR 2012
Liquidity
1. Current ratio
2. Quick ratio

3

BPL SPL
2.67 1.59
1.88 0.95

2.5
2

Liquidity: By comparing the ratios above, we
can see that BPL is more liquid than SPL as
both its current ratio and quick/acid-test ratio is
higher than SPL. Note that SPL has higher
current liabilities than BPL, while BPL has
more current assets than SPL. This could also
mean that BPL is playing too safe and hence
investing less of its current assets.
Leverage
3. Debt-to-equity

BPL SPL
0.34 0.32
0.25 0.24

Leverage: SPL has less debt than BPL, while
having roughly the same amount of equity
and assets, thus we see differences in their
leverage ratios. From the debt-to-equity ratio
we can see that BPL has a higher leverage
compared to SPL. But by comparing Debt-tototal-assets ratio we can say that SPL has
lower financial risk than BPL due to the fact
that its Debt-to-total-assets ratio is lower.

1.5


SPL

1
0.5
0
Current Ratio

0.4
0.35

0.3
0.25
0.2

BPL

0.15

SPL

0.1
0.05
0
Debt-to-equity

BPL
SPL
2.96 times 7.6 times

Coverage: Coverage ratio shows the firm’s ability
to meet interest payments. As SPL has higher
coverage ratio than BPL, showing SPL can cover its
interest better hence enabling them to have a higher
capacity to take in new debt, making them more
viable investment for loans than BPL.
FIGURE 13: CC COVERAGE RATIOS

Page 21

Quick Ratio

FIGURE 11: CC Liquidity Ratio

FIGURE 12: CC LEVERAGE RATIOS

Coverage

BPL

Debt-to-equity

8
7
6
5
4
3
2
1
0

BPL
SPL

Interest Coverage

Group II
July 18, 2013
BPL

SPL

7.99 times
45.68 days
2.07 times
176.38 days
0.39 times

19.8 times
18.4 days
1.19 times
305.8 days
0.75 times

Activity
6.
7.
8.
9.
10.

Inventory turnover
Inventory turnover in days
Asset turnover

FIGURE 14: CC RECEIVABLE RATIOS

50
45
40
35
30
25
20
15
10
5
0

Receivables Turnover: It is higher for SPL
showing that it is more capable of collecting its
receivables, which could mean that BPL is more
lax in collecting its receivables, hence could also
have past-due accounts still in their books.

BPL

Receivables Turnover in Days: the difference
between this ratio of BPL and SPL is
significant. We see BPL as having a higher no.
of days; this is due to the fact that their
receivable turnover is lower than SPL.

SPL

Receivables
Turnover

Receivables
Turnover in
Days

2.5

Inventory Turnover: it is higher for BPL than for SPL.
This is due to fact that total inventory of BPL is roughly
one-fourth of that of SPL. Hence they would be required to
higher turnovers to try and reach the same level of output.

2
1.5

BPL

1

SPL

0.5
0

FIGURE 15: CC INVENTORY RATIOS

Inventory Turnover
350
300
250
200
150
100
50
0

BPL
SPL

Inventory Turnover in
Days

Inventory Turnover in Days: it is higher for BPL
as its total inventory is less than that of SPL. What
we really need to see is BPL running out-of-stock
or is SPL having a stock-pile up~ neither- actually
because the market size of SPL is roughly double
that of BPL.
0.8
0.6

Asset Turnover: from this we can see that SPL has a
higher asset turnover ratio, while having higher net
sale and total assets than BPL. This goes on to show
that SPL does indeed generate higher sales revenue
per taka of asset invested than BPL.
FIGURE 16: CC ASSET TURNOVER RATIO

Page 22

0.4

BPL

0.2

SPL

0
Asset Turnover

Group II
July 18, 2013
BPL

SPL

14.20%
5.54%
7.43%

18.05%
13.51%
20.41%

Profitability
25
20
15
BPL
10

SPL

5
0
Net Profit Margin

ROI

ROE

FIGURE 17: CC PROFITABILITY RATIOS

Net Profit Margin: from this ratio we can see that SPL has higher profit per sales. This
indicates that SPL’s operations are more efficient than BPL, hence making SPL more
effective at producing and selling products.
Return on Investment (ROI): Although BPL and SPL have roughly the same amount to
total assets but there is a vast difference in the net profit after tax; hence SPL’s ROI is higher
than that of BPL’s. This shows that SPL generates more profit from its assets than BPL.
Return on Equity (ROE): SPL has a higher ROE than BPL, showing that they can give
back more to shareholders’ than BPL as their net profit after tax is roughly double that of
BPL’s.

Page 23

Group II
July 18, 2013

5. S ECTOR M ARKET A NALYSIS
All of the ratios given above (in section- 4 Company Comparisons for 2012) go on to
make impact on the share prices of both the companies in the secondary market. From the
graphs below we can see than the latest price of SPL ≈ tk.240 while BPL shares are being
offered at ≈ tk. 52.
FIGURE 18: MARKET PRICE GRAPHS

From Fig. 18 (stockbangladesh.com), we can see that SPL’s market share price is
approx. 5 times that of BPL’s while total volume of shares of SPL is approx. double that of
BPL.
This causes the share price of SPL to directly reflect any major change in over-all market
prices, while small fluctuations are absorbed. This is why we can see that over a year long
time period (as shown in Fig.19) SPL
share prices show small fluctuations
mostly. But for BPL the vice versa is
true, as its market volume and share
price is small. The extent of market
fluctuation impact on BPL prices is
higher (as shown in fig.20).
FIGURE 19: SPL CLOSING PRICE

FIGURE 20: BPL CLOSING
PRICE

Page 24

Group II
July 18, 2013

6. C ONCLUSION
Considering all of the above ratio analysis, company comparisons as well as sector
market analysis, we can conclude the following:
 Square Pharmaceutical has a higher performance in the industry, with higher
market share, higher profitability and lower risks etc, while only its liquidity
ratio is lower than that of BPL’s
 BEXIMCO Pharmaceutical has smaller market share, lower profitability and
higher risks etc. than SPL. It only has greater liquidity than SPL.
 While Beta (stockbangladesh.com) of both Companies fall in defensive
investment (β<1) making them both safe investments. But as βSPL- 0.53 is less
than βBPL- 0.88, it makes SPL’s shares a more reliable and safer investment
than BPL’s.

7. R ECOMMENDATIONS

After considering all of the above we have come up with the following recommendations:
 Square Pharmaceuticals needs to increase its liquidity position.
 BEXIMCO Pharmaceuticals needs benchmarking in most categories, (Key beingreceivables, inventory turnovers), and try to achieve them faster.
 Both need to search for new finances to expand their respective business to maintain
an equivalent or increased growth in the industry.
 Both need to look for new market segment within as well as outside the country to
expand their market.

Page 25

Group II
July 18, 2013

V.

WORKS CITED

1. Horne, J. C., & Wachowicz Jr., J. M. Fundamentals of Financial Management.
2. Saad, K. S. (2012). An Overview of Pharmaceutical Sector in Bangladesh. BRAC EPL.
3. stockbangladesh.com. (Retrieved July 14, 2013), from www.stockbangladesh.com/
4. Dhaka Stock Exchange (Retrieved July 14, 2013), from www.dse.com.bd
4. Annual Report of BEXIMCO Pharmaceuticals Ltd. 2010, 2011 and 2012
5. Annual Report of Square Pharmaceuticals Ltd. 2010, 2011 and 2012

VI.

APPENDIX

01. RATIO FORMULAE
1

2

Current=

Quick=

3

Current Assets
Current Liabilities

Current Assets— Inventories
Current Liabilities

Debt-To-Equity=

4

Total Debt
Shareholders’ Equity

Debt-To-Total-Assets=

5 Interest Coverage=

Total Debt
Total Assets

EBIT
Interest Expense

6 Receivable Turnover (RT)=

Annual Net Credit Sales
Receivables

7 Receivable Turnover In Days (RTD) =

8 Inventory Turnover (IT)=

Page 26

365
RT

Cost Of Goods Sold
Inventory

Group II
July 18, 2013
365
IT

9 Inventory Turnover In Days (ITD)=

Net Sales
Total Assets

10 Asset Turnover=

11 Net Profit Margin=

Net Profit After Taxes
Net Sales

12 Return On Investment (ROI)=

13 Return On Equity (ROE)=

02.

Total Assets

Shareholders’ Equity

CALCULATIONS FOR BPL
2010

2011

2012

2.50:1
1.67:1

2.70:1
1.83:1

2.67:1
1.88:1

0.34
0.25

0.34
0.26

0.34
0.25

2.68 times

2.96 times

2.96 times

7.90 times
46.19 days
1.79 times
203.9 days
0.31 times

8.07 times
45.25 days
1.92 times
190.1 days
0.36 times

7.99 imes
45.68 days
1.07 imes
176.38 ays

0.39 times

16.20%
5.10%
7.83%

15.19%
5.40%
7.24%

14.20%
5.54%
7.43%

Liquidity
1.
2.

Current ratio
Quick ratio

Leverage
3.
4.

Debt-to-equity

Coverage
5.

Interest coverage

Activity
6.
7.
8.
9.
10.

Inventory turnover
Asset turnover

Profitability
11.
12.
13.

Net profit margin

BPLWORKINGS FOR 2010
Page 27

Group II
July 18, 2013
2010
Liquidity
1.
2.

Current ratio
Quick ratio

6191667831/2513157232=2.50:1
4207858387/2513157232=1.67:1

Leverage
3.
4.

Debt-to-equity

5398313058/15974086451=0.34
5398313058/21372399509=0.25

Coverage
5.

Interest coverage

1361532326/508432384=2.68 times

Activity
6.
7.
8.
9.
10.

Inventory turnover
Asset turnover

(6490847353/821356439)=7.90 times
365/7.90=46.19 days
3317640254/(3706762728/2)=1.79 times
365/1.79=203.9 days
6490847353/(41264332931/2)=0.31 times

Profitability
11.
12.
13.

Net profit margin

(1051648808/6490847353)*100=16.20%
(1051648808/20632166460)*100=5.10%
(1051648808/13429896530)*100=7.83%

BPL WORKINGS FOR 2011
2011
Liquidity
1. Current ratio
2. Quick ratio
Leverage
3. Debt-to-equity
Coverage
Activity
10. Asset turnover
Profitability

7148462753/2648161988=2.70:1
4856618122/2648161988=1.83:1
5905212356/17128128177=0.34
5905212356/23033340533=0.26
1677849252/567645757=2.96 times
7890241843/978224317=8.07 times
365/8.07=45.25 days
4103709021/(4275654075/2)=1.92 times
365/1.92=190.1days
7890241843/(44405740042/2)=0.36 times
(1198525342/7890241843)*100=15.19%
(1198525342/22202870020)*100=5.40%
(1198525342/16551107310)*100=7.24%

BPL WORKINGS FOR 2012

Page 28

Group II
July 18, 2013
2012
Liquidity
1. Current ratio
2. Quick ratio
Leverage
3. Debt-to-equity
Coverage
Activity
10. Asset turnover
Profitability

03.

8197421953/3064944769=2.67:1
5765433772/3064944769=1.88:1
6181648733/18408161859=0.34
6181648733/24589810592=0.25
1909829236/645406575=2.96 times
9289115284/1162404807=7.99 times
365/7.99=45.68 days
4889713857/2362916306=2.07 times
365/2.07=176.38 days
9289115284/(47623151120/2)=0.39 times
(1319389328/9289115284)*100=14.20%
(1319389328/23811575560)*100=5.54%
(1319389328/17768145010)*100=7.43%

CALCULATIONS FOR SPL
2010

2011

2012

2.15:1
1.16:1

1.50:1
0.96:1

1.58:1
0.95:1

0.30
0.23

0.41
0.29

0.32
0.24

8.7 times

10.2 times

7.6 times

22.5times
16.2 days
1.168 times
312.4 days
0.76 times

17.4 times
20.9 days
1.173 times
311.2 days
0.69 times

19.8 times
18.4 days
1.19 imes
305.8 days

0.75 times

18.21%
13.89%
19.73%

18.80%
13.02%
22.99%

18.05%
13.51%
20.41%

Liquidity
1. Current ratio
2. Quick ratio

Leverage
3. Debt-to-equity

Coverage

Activity
6.
7.
8.
9.
10.

Inventory turnover
Asset turnover

Profitability

SPL WORKINGS FOR 2010

Page 29

Group II
July 18, 2013
2010
Liquidity
1. Current ratio
2. Quick ratio
Leverage
3. Debt-to-equity
Coverage
Activity
10. Asset turnover
Profitability

4774311194/2216744401= 2.15:1
2567233112/2216744401= 1.16:1
3475120453/11554379825= 0.30
3475120453/15029500278= 0.23
2689618986/308861107= 8.7 times
11462578410/508249174= 22.5 times
365/22.5= 16.2 days
(13279142/ 11366598)= 1.168
365/1.168=312.4
(11462578000/15029500000)=0.76
(2087872000/11462578000)*100=18.21%
(2087872000/15029500000)*100=13.89%
(2087872000/10581589000)*100=19.73%

2011
Liquidity
1. Current ratio
2. Quick ratio
Leverage
3. Debt-to-equity
Coverage
Activity
10. Asset turnover
Profitability

7022213840/4668189426= 1.50:1
4480525511/4668189426= 0.96:1
5626700664/13817708990= 0.41
5626700664/19444409654= 0.29
2751605397/268849071=10.2 times
13471424469/772421345=17.4 times
365/17.4=20.9 days
(15576488/13279142)=1.173
365/1.173= 311.2
(13471424000/19444410000)=0.69
(2532055000/13471424000)*100=18.80%
(2532055000/19444410000)*100=13.02%
(2532055000/11014891000)*100=22.99%

Page 30

Group II
July 18, 2013
2012
Liquidity
1. Current ratio
2. Quick ratio
Leverage
3. Debt-to-equity
Coverage
Activity
10. Asset turnover
Profitability

V.

6745507008/4252934845= 1.58:1
4057688536/4252934845= 0.95:1
5186900507/16266884255= 0.32
5186900507/21453784762= 0.24
3321146713/433581036=7.6 times
16054425243/808311714=19.8 times
365/=18.4 days
(18592856236/15576487536)= 1.194
365/1.194= 305.78
(16054425000/21453785000)=0.75
(2897711000/16054425000)*100=18.05%
(2897711000/21453785000)*100=13.51%
(2897711000/1419879000)*100=20.41%

TABLE OF FIGURES:

FIGURE 1: BPL LIQUIDITY RATIOS ................................................................................................................................. 14
FIGURE 2: BPL COVERAGE RATIO ................................................................................................................................. 14
FIGURE 3: BPL LEVERAGE RATIOS................................................................................................................................. 14
FIGURE 4: BPL ACTIVITY RATIOS .................................................................................................................................. 14
FIGURE 5: BPL PROFITABILITY RATIOS ........................................................................................................................... 14
FIGURE 6: SPL LIQUIDITY RATIOS .................................................................................................................................. 19
FIGURE 7: SPL LEVERAGE RATIOS ................................................................................................................................. 20
FIGURE 8: SPL COVERAGE RATIO ................................................................................................................................. 20
FIGURE 9: SPL ACTIVITY RATIOS................................................................................................................................... 20
FIGURE 10: SPL PROFITABILITY RATIOS ......................................................................................................................... 20
FIGURE 11: CC LIQUIDITY RATIO ................................................................................................................................ 21
FIGURE 12: CC LEVERAGE RATIOS ................................................................................................................................ 21
FIGURE 13: CC COVERAGE RATIOS ............................................................................................................................... 21
FIGURE 14: CC RECEIVABLE RATIOS .............................................................................................................................. 22
FIGURE 15: CC INVENTORY RATIOS............................................................................................................................... 22
FIGURE 16: CC ASSET TURNOVER RATIO ....................................................................................................................... 22
FIGURE 17: CC PROFITABILITY RATIOS........................................................................................................................... 23
FIGURE 18: MARKET PRICE GRAPHS ............................................................................................................................. 24
FIGURE 19: SPL CLOSING PRICE ................................................................................................................................... 24
FIGURE 20: BPL CLOSING PRICE................................................................................................................................... 24

Page 31

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