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Porter's Five Force Model and Ratios Analysis of SQUARE Pharmaceutical
Porter's Five Force Model and Ratios Analysis of SQUARE Pharmaceutical
Porter's Five Force Model and Ratios Analysis of SQUARE Pharmaceutical
Topic: Porters five force model and Ratios analysis of SQUARE Pharmaceutical
ASSIGNMENT ON
Submitted to:
Tazrina Farah Lecturer Department of Business Administration Daffodil International University
Submitted by:
ID NO. 091-11-924
BATCH 22nd
SECTIO N A
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Letter of Transmittal
11th December, 2011 Tazrina Farah Lecturer Department of Business Administration Faculty of Business and Economics Daffodil International University Dear Madam, We submit here our term paper as you have assigned us to prepare. You asked us to prepare a term paper basis on Porters five force model and Ratios analysis of SQUARE Pharmaceutical. The term paper based on: Porters five force model and Ratios analysis of SQUARE Pharmaceutical has helped us to know how mutual fund created and where the fund uses and we enforced our best effort. Surely it has enriched our knowledge and promoted our study. We have also learnt much about financial market of Bangladesh.
Thank you for giving us such an opportunity for working on such topic.
Sincerely Yours
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Acknowledgement
We express our gratitude to our respectable course teacher Tazrina Farah For assigning us such a term paper that deals with the true events of the real life and financial market. . The title of the assignment is Porters five force model and Ratios analysis of SQUARE Pharmaceutical is very effective for us since it is very much relevant with our course. We tried our best to find out the valuable insights from the survey. We also discussed about the assignment team wise. Library works were common activities. We hope that our effort will result in a product that can lead any layman to become interested about the practices. So, finally we want to pay our gratitude to our course teacher for giving the greatest opportunity to work on such an assignment that will be very helpful in the future life.
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Abstract
Ratios are used in much of our daily life. We buy cars based on miles per gallon, we evaluate baseball players by earned run and batting average; basket ball players by field goal and foul shooting percentage, and so on. These are all ratios constructed to judge comparative performance. Financial ratios serve a similar purpose, but we must know what is being measured to construct a ratio and to understand the significance of the resultant number. Financial ratios are used to weight and evaluate the operating performance of firm. To judge comparative performance here discussed on different ratios of SQUARE Pharma.
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Table of Contents
Number 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. Topic OBJECTIVE Methodology Limitation About Square Pharmaceuticals ltd. Industry Analysis Force 01:Rivalry among existing firms Force 02:Threat of new entrants Force 03:Threat of substitute Products Force04:Bargaining power of buyers Force 05:Bargaining power of Suppliers Liquidity Ratios Financial Risk Ratios Operating Efficiency Operating Profitability Conclusion Page Number 07 08 09 10 11-12 13-14 14-15 16 16-17 17 18-24 24-27 27-29 29-34 35
OBJECTIVE
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The Broad objective of this assignment is to know about the practical financial position of a square pharma by analyzing ratios. To analyze the ratios the performance of company can be measured. We analyze liquidity ratios, profitability ratios operating ratios etc. We emphasis on companies current position and also discuss the Porters five force model to know companys position.
Methodology
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Methodology of the report is mainly based on collection of the Primary & secondary as well as using appropriate method for estimating different issues not mentioned therein.
Data Collection
Primary data collection and different types of secondary data are used in this
analysis with a view to making the Assignment preparation worthwhile. In doing so, relevant information have been taken from,
Through internet (References has given below the data). Business Analysis And Valuation, (G. Palepu, Healy) Second Edition.
Limitation
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Some important information could not be exposed for the lack of authorization. Lack of work time
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SQUARE today symbolizes a name - a state of mind. But its journey to the growth and prosperity has been no bed of roses. From the inception in 1958, it has today burgeoned into one of the top line conglomerates in Bangladesh. Square Pharmaceuticals Ltd., the flagship company, is holding the strong leadership position in the pharmaceutical industry of Bangladesh since 1985 and is now on its way to becoming a high performance global player.
Industry Analysis:
Industry Analysis is a vital part of the decision making process in business. Industry Analysis helps investor to take decision. Industry Analysis also helps entrepreneurs to iron out the wrinkles in their business plans. Michael Porter has identified five forces that are widely used to assets the structure of any industry. Porters five forces are:
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Force 01:
Rivalry among existing firms:
3. Degree of differentiation and switching cost: Product differentiation is not the driver, cost competitiveness is. However, companies like Square pharma has created big brands in over the years, which act as product differentiation tools. This will enhance over the long term, as product patents come into play from 2005.
It is quit impractical for square pharma or other firms to exit from this industry because of they can not use those machineries in other purpose. Also here some rules and regulation exist no one can not easily exist from this industry.
Force 02:
Threat of new entrants:
Pharma industry is one of the most easily accessible industries for an entrepreneur in Bangladesh. The capital requirement for the industry is very low, creating a regional distribution network is easy, since the point of sales is restricted in this industry in Bangladesh.
1. Economies of scale:
Square pharma can easily produce based on economies of scale but it is quite difficult to new entrants for produce based on economies of scale.
2. Access to channels of distribution and relationship: The Square pharma is a large pharmaceutical company in our country so they have large distribution channel and good relationship with the retailers.
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Force 03:
Threat of substitute Products:
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This is one of the great advantages of the pharma industry. Whatever happens, demand for pharma products continues and the industry thrives. One of the key reasons for high competitiveness in the industry is that as an on going concern, pharma industry seems to have an infinite future. However, in recent times, the advances made in the field of biotechnology, can prove to be a threat to the synthetic pharma industry.
Force 04:
1. Price Sensitivity:
Square pharma is produced the pharmaceutical products which are undifferentiated product and there are few switching cost.
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Number of buyer :
The buyers bargaining power is determined by the number of buyer relative to the number of suppliers.
Force 05:
Liquidity Ratios:
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1. Current ratio=
Year 2010-11=
= 1.50
Year2009-10 =
= 2.05
Year2008-09 =
= 1.45
Year2007-08 =
= 1.26
Year2006-07 =
= 1.44
Interpretation: The current ratio is one of the most commonly cited financial ratio. It measures the firms ability to meet its short term liabilities. A current ratio of 2.0 is occasionally cited as acceptable. Here we see that, the current ratios are fluctuating in last few years. From (2006-07, 2007-08, 2008-09, 2010-11) it was in ups and down. It may not a good sign for square pharmaceutical. But only in 2009-2010 the current ratio was 2.05 which were acceptable if the square pharmaceutical company maintain that ratio it may good for further investment.
2. Quick ratio=
Year 2010-11=
=0 .96
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Year2009-10 =
= 1.06
Year2008-09 =
= 0.65
Year2007-08 =
= 0.68
Year2006-07 =
= 0.84
Interpretation: We calculate quick ratio to see the real picture of liquid asset. Quick ratio is always less than current ratio. Quick ratio is more stringent than current ratio. In 2010-11 ratio was .96 that means the company has not more liquidate money, because it was less 1.
3. Cash ratio=
Year 2010-11=
=0 .19
Year2009-10 =
= 0.29
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Year2008-09 =
= 0.15
Year2007-08 =
= 0.06
Year2006-07 =
= 0.06
Interpretation: The Cash ratio is an indicator of a companys liquidity that further refines both the current ratio and the quick ratio by measuring the amount of cash. Cash cover the current liabilities. In 2009-10 cash ratio was commendable but in 2010-11 it is slightly below .
Year 2010-11=
= 17.44 times
Year2009-10 =
= 22.55 times
Year2008-09 =
= 20.56 times
Year2007-08 =
= 22.92 times
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Year2006-07 =
= 23.23 times
Year 2010-11=
= 21 days
Year2009-10 =
= 16 days
Year2008-09 =
= 18 days
Year2007-08 =
= 16 days
Year2006-07 =
= 16 days
Interpretation:
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In 2006-10 the companys credit system is so tight but in 2010-11 its credit system is slightly flexible. Avg. collection period indicate how much time required to collect the credit.
Year 2010-11=
= 10.50 times
Year2009-10 =
= 16.62 times
Year2008-09 =
= 45.66 times
Year2007-08 =
= 48.10 times
Year2006-07 =
= 70.43 times
Year 2010-11=
= 35 days
Year2009-10 =
= 22 days
Year2008-09 =
= 8 days
Year2007-08 =
= 8 days
Year2006-07 =
= 5 days
Interpretation:
Average payment period indicates that how much time required to payment. If the time period is long it is better for company but if it is continued then it may be harmful for the company. Here we see that companys payment system is moderate position.
6. Inventory Turnover =
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Year 2010-11=
= 3.03 times
Year2009-10 =
= 2.97 times
Year2008-09 =
= 2.70 times
Year2007-08 =
= 2.40 times
Year2006-07 =
= 2.76 times
Year 2010-11=
= 120 days
Year2009-10 =
= 123 days
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Year2008-09 =
= 135 days
Year2007-08 =
= 152 days
Year2006-07 =
= 132 days
Interpretation:
In 2010-2011 the companys average processing period was 120 days which is less than previous year. As a manufacturing industry its a very good sign. If inventory processing period is high, its indicating the processing is slow and more capital is required to process. The average processing period may vary industry to industry.
Cash Conversion Cycle: Avg. Collection Period + Avg. Processing Period Avg. Payment Period
=106 days
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Year2009-10 = 16 + 123 - 22
= 117 days
Year2007-08 = 16 + 152 8
= 160 days
Year2006-07 = 16 + 132 5
= 143 days
Interpretation: The cash conversion cycle measures the number of days a companys cash is tied up in the production and sales process of its operations and the benefit is gets from payment terms from its creditors. As we know that CCC times as lower as possible is good for company. Here we see that the time was becoming lower then previous year that is good sign for company.
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Year 2010-11=
= .047
Year2009-10 =
= .088
Year2008-09 =
= 0.045
Year2007-08 =
= .072
Year2006-07 =
= .067
Interpretation: If debt Equity Ratio is high the cost of capital is low but it has risk of bankruptcy. If the ratio is low the cost of capital is high but bankruptcy risk is low. In 2010-11 the company debt equity ratio is low there less risk of bankruptcy.
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Year 2010-11=
= .045
Year2009-10 =
= .081
Year2008-09 =
= .043
Year2007-08 =
= .067
Year2006-07 =
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=.063
Interpretation: The debt ratio measures the proportion of total assets financed by the firms creditors. The higher this ratio, greater the amount of other peoples money being used in an attempt to generate profits.2010-11 it is less than previous year it may not a good sign for the company.
Year 2010-11=
= 1.41
Year2009-10 =
= 1.30
Year2008-09 =
= 1.33
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Year2007-08 =
= 1.51
Year2006-07 =
= 1.43
Interpretation: If financial leverage ratio is low it is good for the company, if it is high it is not goods for a company. In 210-11 FLR is high then previous year, it is not being a good sign.
Year 2010-11=
= 10.23
Year2009-10 =
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= 7.71
Year2008-09 =
= 5.96
Year2007-08 =
= 4.86
Year2006-07 =
= 7.71 Interpretation: The times interest earned ratio sometimes called the interest coverage ratio, measures the firms ability to make contractual interest payments. The higher the value of this ratio, better able the firm is able to fulfill its interest obligation. Here we can see that in 20210-2011 the ratio was 10.23. That is a good sign for the company.
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Year 2010-11=
= .69
Year2009-10 =
= .75
Year2008-09 =
= .74
Year2007-08 =
= .65
Year2006-07 =
= .72
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Interpretation: The asset turnover ratio simply compares the turnover with the assets that the business has used to generate that turnover. Here we see that, in 2010-2011 it was lower than previous years that refer company may fall to proper utilize its assets.
Year 2010-11=
= 1.93
Year2009-10 =
= 2.04
Year2008-09 =
= 2.00
Year2007-08 =
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= 2.02
Year2006-07 =
= 2.12
Interpretation:
In 2010-2011 it was lower than previous years that refer the company may fall to utilize its fixed assets.
Operating Profitability:
* 100
Year 2010-11=
* 100
= 42.81 %
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Year2009-10 =
* 100
= 42.76 %
Year2008-09 =
* 100
= 42.24 %
Year2007-08 =
* 100
= 41.19 %
Year2006-07 =
*100
= 43.09 %
Interpretation: Gross profit margin indicates that how efficient the management is in using its labor & raw materials in the process of production. But in 2010-2011 it was little bit lower compare to the year of 2006-2007.
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* 100
Year 2010-11=
* 100
= 20.43 %
Year2009-10 =
* 100
= 20.77 %
Year2008-09 =
* 100
= 24.12 %
Year2007-08 =
* 100
= 20.70 %
Year2006-07 =
* 100
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= 24.34 % Interpretation: The operating profit margin indicates that how efficiently the managers of a firm are doing business operation to gain profit. In 2010-2011 it was a bit of lower compare with the year of 2006-2007.
* 100
Year 2010-11=
* 100
= 18.80 %
Year2009-10 =
* 100
= 18.21 %
Year2008-09 =
* 100
= 19.25 %
Year2007-08 =
* 100
= 16.73 %
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Year2006-07 =
* 100
= 17.37 %
Interpretation: Net profit margin measures the percentage of each operating income\revenue tk remaining after all costs and expenses. The higher the firms net profit margin, the better position a company are. Here we can see that, in year 2010-11 the ratio was 18.80% which was less compare to the year2008-09.
Year 2010-11=
= 18.32 %
Year2009-10 =
= 17.81 %
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Year2008-09 =
= 19 %
Year2007-08 =
= 16.42 %
Year2006-07 =
* 100
= 17.77 %
Interpretation: The return on equity (ROE) is a measure of the rate of return flowing to the banks stockholders. It approximates the net benefit that the stockholders have received from investing their capital in the bank. Generally higher this return, the better of this owner. Here we can see that the roe the company is relatively low to the year of 2008-09
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Year 2010-11=
= 13.02 %
Year2009-10 =
= 13.74 %
Year2008-09 =
= 14.26 %
Year2007-08 =
= 10.88 %
Year2006-07 =
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= 12.43 %
Interpretation: The Return on asset is primarily an indicator of managerial efficiency. Here we can see that ROE of Year 2010-11 is comparatively low than the year2008-09.
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Year2006-07 = 145.74
Interpretation: Earnings per share are a easy measurable instrument of an institution. More the earning per share holders will get more benefit. Here we can see that earning per share is less than the previous years.
Conclusion: Square pharmaceutical limited is a leading manufacturer of pharmaceutical formulations. It has today burgeoned into one of the top line conglomerates in Bangladesh.
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