Renata

1.
1 INTRODUCTION OF THE COMPANY

We have selected Renata Limited as the company to analyze the financial condition. Here is a short overview of the company. Type of Company: Listed Public Limited (Dhaka Stock Exchange) Main Business: Manufacture and Marketing of Human Pharmaceuticals and Animal Therapeutics. There are two production sites. The Mirpur Site is 12 Acres and Rajendrapur Site is 17 Acres. History: 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 No. of Employees: 2,213 employees. Distributors and Affiliations: Alliance-Partners are Novartis Vaccines BASF( Germany) InterVax, Evans Vanodine(UK)Zinpro(USA) Biomin Laboratories(Singapore) International Presence: Guyana, Jordan, Kenya, Myanmar, Philippines, Hong Kong, Afghanistan, Sri Lanka, Vietnam, and United Kingdom Investment: 100% Shareholding in Renata Agro Industries Limited Bankers: Agrani Bank, Standard Chartered Bank, Eastern Bank, HSBC, Sonali Bank, Citi Bank, and Mutual Trust Bank
1.2 IDENTIFICATION OF PROBLEM

Book Value per Share is the accounting value of a share of common stock; equal to common divided by the number of shares outstanding. Market value is current price of the stock. If the profitability, liquidity, asset and debt management is good market value will probably be as high as can be expected. From the analysis of five years data we will try to find out the problems and reasons of changes in the Market value of from the price of Tk. 1,216.00 per share at the beginning of 2003, to
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Rationalization Of Stock Price Through Financial Analysis A Case Of Renata Limited
Tk.7789 .25 at the end of 2008. Initially the book value of the share of the company is Tk. 100 per share and at the year 2008 it become 1437.00 So from the data it is evident that the Market value is substantially greater than the book value. So we can say for our concern company that, Market value > Book value So, Company is enjoying a healthy financial status. In our report we shall diagnose all the data and we shall established the reason behind the phenomenon. We shall also look how Renata Limited is managing the Liquidity, Asset, Debt, and observe the implications on Profitability and Market Value.
1.3 OBJECTIVE OF THE STUDY

The objective of this study is to identify the financial strength of Reneta Limited by analyzing their accounting statements for a definite period and to compare their book value with the market value of the share and finding out the reason of the discrepancy about this issue.
Have detail understanding about the instruments of finance.
o Make a thorough analysis of the companys financial statements over the last 6 years with the aid of ratio analysis, cash flow and analysis of major components of the balance sheet . o Find out Renatas financial strength and level of competency. o Find out where Renata stands. o Find out the strength and weaknesses of Renata Limited.
1.4 METHODOLOGY
1.4.1 Statistical Technique
The statistical techniques applied in the study include primarily descriptive statistics and inferential statistics. The descriptive statistics techniques applied are calculation of mean and
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standard deviation and graphical analysis. The inferential techniques applied include correlation analysis. We used bar chart and line chart to interpret the processed data. 1.4.2 Nature of Data
Two types of data had been used during the preparation of this report, primary data and secondary data. 1.4.3 Sources of Data
Primary data had been collected from the Dhaka Stock Exchange and is of little importance to the report. However these data have been helpful in providing us with some direction about how to approach with the analysis. This report was prepared mainly based on the secondary data available in the market. The secondary data was collected from the internet, newspapers and the companys annual reports. The report prepared from the analysis of the raw data is of the formal type and the information from the secondary data was used to support the findings of the financial analysis. 1.4.4 Period Under Consideration
Data for the last six financial years, starting from 2003 up to 2008, had been taken under consideration while preparing this report. We have considered last 6 years data for the companys statistical and financial trend analysis. 1.4.5 Nature of Analysis
We mainly relied on Cross Sectional Study to compare between the two rival firms. To monitor the performance of our company of focus over the years with respect to Ratio Analysis, Cash Flow Statement Analysis, Balance Sheet and Income Statement Analysis which helped us identify any specific trends or fluctuations occurred during the periods taken into consideration for analysis.
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The ratio had been analyzed with respect to three viewpoints, benchmarking, time series analysis and cross section analysis. In the ratio analysis five types of ratios had been considered, namely o Liquidity Ratio o Debt Management Ratio o Asset Management Ratio o Profitability Ratio o Market Value Ratio 1.4.6 Standard of Comparison
We relied on Cross Sectional Study as standard for comparison of the performance of Renata Limited with its rival Square Pharmaceuticals Limited. Due to unavailability of data and also difficulty of calculation of the Industry Averages, we carried out ratio analysis of both the companies for the last 6 years and compared their performances with respect to all the major ratios. Finally, we came up with our comments regarding relative performances of each company in due course of time. We took Square as the rival of Renata because both are the among the leaders in the pharmaceutical industry and enjoying healthy financial position with hot demand of their shares. We also considered their high share price (much higher than their book value) in choosing rivals.
1.5 LIMITATION
Time was a very big constraint during the process of preparation of this report. As the report had been prepared over a time period of only two months, time had to be budgeted and scheduled very calculatedly. There was very little time that can be used as lagging in case something falls behind schedule.
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Adding up to that, the unavailability of all the annual financial reports of the company had been a bottle neck throughout the entire preparation of the report. Another matter of concern was that, the report considers data only from the last six financial years. This may not be sufficient to clearly show the reasons for the deviations in share prices along those years. A report with analysis of the last ten to fifteen year may have been more precise and accurate.
Moreover many companies practice ambiguous accounting practices to get rid of tax that dilute the actual scenario. Also sometimes, these companies try to make their performance much more lucrative to the Shareholders by means of unethical practice which are completely unnoticeable to general public. Such practice if had taken place might have diluted our findings which are based on the information available in the Annual Reports.
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2.0 ANALYSIS OF BALANCE SHEET

From the balance sheet analysis, following interpretation can be derived
2.1 ASSET
Current Assets Current assets of Reneta limited have grown quite steadily over the years. In the years 2003 and 2004, currents assets of the company were Tk 479,972,832 and 611,522,586 respectively. Although current assets fell in the year 2005 but rose substantially in the year 2006. This steady growth may indicate quite a number of things. For instance, the steady rise in accounts receivables indicate that the rate of sales have increased at quite a healthy rate over the years. The cash and bank balances in the years 2003 and 2004 indicate a significant inflow of cash from various sources, allowing the company to expand its overall assets in latter years. A healthy amount of current assets are important for any company as it will eventually increase its solvency and improve creditworthiness, and the current assets of Renata Limited have grown
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significantly, especially in 2007 and 2008. The following table would clarify it further.
Current Asset
1,600,000,000 1,400,000,000 1,200,000,000 Value in BDT 1,000,000,000 800,000,000 600,000,000 400,000,000 200,000,000 2003 2004 2005 2006 2007 2008
Current Asset 455,136,2 573,416,4 672,355,2 979,254,8 988,092,8 1,506,070, Year
Fig:1 Current Asset
Tangible Assets Tangible assets are the part of fixed assets of the company. Over the years, Renata Limited has invested quite intensely over the years. Among them, increase in property, plant and equipment is very prominent and it also shows the companys rise during these years and obvious necessity signifies that demand for its product is quite high. The following graph would showcase the pattern in this regard. According to the data given in the annual report, depreciation has also increased over the years further justifying the increasing property plant and equipment. The following graph would clarify it further.
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Tangible Assets 1,200,000,000 1,000,000,000 800,000,000 BDT 600,000,000 400,000,000 200,000,000 0 2008 2007 2006 2005 2004 2003 Years Tangible Assets
Fig2: Tangible Assets
Capital Work in Progress In the year 2003, there was no work in progress for Renata Limited, but in 2004, there was, which was worth BDT 10,683,181. The next four years showed huge increases in this aspect. In these six years , the company has expanded its business quiet aggressively and as a result, capital working in process has been significantly on the higher side. This also explains to an extent, the large amount of fixed assets in the latter years.
Capital Work in Process
600,000,000 500,000,000 400,000,000 BDT 300,000,000 200,000,000 100,000,000 0 2008 2007 2006 2005 2004 2003 Years
Fig3: Capital Work in Process 8

Intangible Assets In the available reported, Renata Limited showed just one intangible asset and that is investment. Over the years in question, the rise in investments has been massive. Especially after 2006, after which investment have been recorded higher than TK 3 billion. Furthermore Renata has invested in Central Depository Bangladesh Limited, BRAC Bank, Eastern Insurance, Social Investment Bank, Exim Bank, Al-Arafah Bank and Square Textiles. However, total intangible asset is subject to change with the change of market price of the share of the company, which will be discussed later on, meanwhile, here is a graph to provide a snapshot of the situation.
Investment 700,000,000 600,000,000 500,000,000 BDT 400,000,000 300,000,000 200,000,000 100,000,000 0 2008 2007 2006 2005 2004 2003 Years Investment
Fig: 4: Investment
2.2 LIABILITY & EQUITY
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Total Liability There has been steady rise in overall liabilities over the years for Renata Limited. The reason for this is the expansion of the company over the years and also the rise in operations. The major players in the liability segment are current liabilities and the short term and long term debts, which are certainly indicators of expansion via debt financing. loan, accounts payable etc.
Total Liabilities
5,000,000,000 4,000,000,000 3,000,000,000 BDT 2,000,000,000 1,000,000,000 0 2008 2007 2006 2005 2004 2003 Year
Fig: 5: Total Liability
Net Working Capital Net working capital is positive by Tk 154 million and 253.38 million on the year 2003 and 2004 respectively. NWC for 2005 & 2006 is nominal and negative for 2007 & 2008. As a result solvency position for the company is getting worse since current liability surpluses current asset. That indicates a current asset of the firm is sufficient enough to pay back its suppliers current obligation through current assets during up to 2006. But after 2007, some of the current liability has been deferred or financed through current asset.
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Net Working Capitalt
350,000,000 300,000,000 250,000,000 Value in BDT 200,000,000 150,000,000 100,000,000 50,000,000 2003 2004 2005 2006 2007 2008
Net Working Capital 168,945,6 216,018,7 288,214,9 320,373,1 271,024,1 192,678,1 Year
Fig:6: Net Working Capital
Shareholders Equity Over the years shareholders of Renata limited have experienced more than healthy growth in the total equity. There are several reason for that and one being the high demand for the shares in the market. Furthermore, as mention before Renata is considered to have high profitability which is being proven through valid and sufficient ratio analysis data in following chapter.
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Total Equity
1,800,000,000 1,600,000,000 1,400,000,000 Value in BDT 1,200,000,000 1,000,000,000 800,000,000 600,000,000 400,000,000 200,000,000 2003 2004 2005 2006 2007 2008
Total Equity 467,671,95 581,841,45 774,117,20 982,312,79 1,277,605,5 1,662,073,3 Year
Fig: 7: Total Equity
Change in Market Value After taking closing price of Renata limited at the end of the year, market value is derived as follows:
Change in Market Value
7,000 6,000 5,000 Value in BDT 4,000 3,000 2,000 1,000 (1,000) Change in Market value 2003 (42) 2004 2,157 2005 1,844 Year 2006 1,876 2007 6,166 2008 6,352
Fig: 8: Change in Market Value
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Initially in 2003, the market prices of Renata Shares were even lesser than the book value. Eventually took the successful turn from 2004-2008. The change in market price went as high as 6,352 taka. The reason of this being very principle that despite of historical pricing book values are eventually bound to rise with time.
2.3 RATIONALE BEHIND DIFFERENT BOOK VALUE & MARKET
VALUE
It is not very unusual for market value to differ with book value of a firm. The reason is, a company is a going concern and when company issues shares to the public, depending on various factors like demand and supply of the firms shares, the prices eventually fluctuate. In other words, if a firm is profitable or at least deemed to be profitable, demand for that firms share is higher and consequently the share price of that firms share is higher. Of course, this can also occur the other way around. Therefore, it is safe to infer that market value of and book value of a company can vary to quite some extent. As a result market value and book value of the company differs in a great extend. Due to this, this change in value can change the value of the shareholders equity and not to mention the value of assets, fixed ones in particular. The same principle is obviously also applicable for Renata limited and any other going concern. There are lot of factors that indicates fundamental difference of market value and book value; Following are the probable reasons why this happens: o Undervaluation of Fixed Assets: Due to the historical price of land fixed assets are undervalued in comparison with the current market value. Thus the accounting principle of recording at historical price can cause this. It is only natural that an asset is bound to rise in value 10 years from now. o Over Depreciation of Factory Building and Other Fixed Assets: The depreciation rate for the factory building was calculated at 10% but in reality the actual depreciation rate was lower than that. The depreciation rate for other fixed assets was also over
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estimated than in reality. In other words, depreciation is often overestimated and applied accordingly.
Now based on the current book value of the firm, balance sheet can be summarized as follows:
2003 Assets Current Assets Fixed Assets: Net Tangible Assets 1,014,435 ,834 71,488,13 0 86,27,09,1 60 286,190,5 67 584,916,8 61 86,27,09,1 60 796,846,7 54 64,070,37 6 1,03,90,41, 833 357,397,6 48 712,537,1 26 1,03,90,41, 833 689,066,4 69 64,070,37 6 1,27,45,56, 982 384,140,3 29 774,117,2 03 1,27,45,56, 982 3 99,239,78 3 663,070,3 76 1,77,65,12, 741 658,881,6 91 982,312,7 95 1,77,65,12, 741 544,586,4 11 4,147,000 2,15,49,93, 391 717,068,6 50 1,277,605 ,506 2,15,49,93, 391 460,331,3 61 4,147,000 3,16,22,32, 934 1,313,392, 836 1,662,073, 357 3,16,22,32, 934 455,136,2 27 573,416,4 39 672,355,2 77 979,254,8 59 988,092,8 20 1,506,070, 972 2004 2005 2006 2007 2008
Intangible Assets Total Asset Liability & Equity Current Liability Equity Total Liability Equity &
The new balance sheet will eliminate the difference between the market price and book value per share. Because of the market price of the share, value of total equity will be increased and therefore value of liability & owners equity will be increased. To apply matching principle, value of the asset should get increased since source of fund is overvalued. Here we have added a certain amount to intangible assets since it includes both goodwill and investment which is price sensitive to the market price. Another way to retain matching principle is to subtract the difference of book value and market value from liability portion so that adding portion is offset by deduction of liability if any creditor forgives the payment of the amount. But in this case, this is very unusual scenario and since not such kind of information is provided, we are not subtracting any thing in liability portions. Thus we can come up with a new balance sheet.
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The proposed balance sheet based on the market price and the balance sheet based on the book value for the year of 2003 to 2008 are given below.
Particulars Current Assets Fixed Assets: Net Tangible Assets Intangible Assets Goodwill Total Asset Liability Equity Total Liability Equity Total Liability Equity &
2008 1,506,070, 972 515,340,51 7 640,332,67 4 8,362,687, 396 10,510,631 ,559
1,500,159, 577 9,010,471, 982 10,51,06,31, & 559
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3.0 CASH FLOW ANALYSIS: 3.1 CHANGES IN INVENTORY:

Changes in inventory can be both cash inflow and outflow for the company. The following graph will help to get an idea about the changes in Inventory from the year 2003 to 2008.
Inventory
1,000,000,000 900,000,000 800,000,000 Value in BDT 700,000,000 600,000,000 500,000,000 400,000,000 300,000,000 200,000,000 100,000,000 2008 2007 2006 2005 2004 2003
Inventory 959,414,59 662,012,14 638,784,95 388,384,00 404,933,01 322,849,09 Year
Figure 9: Changes of Inventory of Renata Ltd. from 2003 to 2008
Comments
In 2003, inventory level was less. But in the all the subsequent financial years since 2004-2005, inventory level had inventory level had gradually increased. This may give the impression that the company is 16
having very little sales and unnecessarily piling up inventory but in an economy of rising inflation like that of Bangladesh, this is a good news as the company will have the low cost raw materials for the next financial year and be able to enjoy the cheaper inventory which may not be available to the competitors. Again the sales of the company are increasing and the management might be expecting a future increase in sales in the following financial year. This might have triggered this sharp rise in the inventory levels.
3.2 CHANGES IN ACCOUNT RECEIVABLE:

This represents the total amount of cash the company is supposed to receive from the market in different forms of revenue. The following graph will help to get an idea about the changes in Accounts Receivable from the year 2003 to 2008.
Change in Account Receivables

350,000,000 300,000,000 Value in BDT 250,000,000 200,000,000 150,000,000 100,000,000 50,000,000 Account Receivables 2008 2007 2006 2005 2004 2003
344,226,9 194,727,8 198,626,0 162,224,0 103,542,0 95,395,30 Year
Figurer 10: Changes of Accounts receivables of Renata Ltd. from 2003 to 2008
Comments
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Since 2003-2004, the amount of accounts receivable had gradually increased for Renata. It has drastically increased in the year 2008.This reflects a bad credit policy. However the sales of the company had also increased consequently and considering this it may be inferred that the increase in the sales had caused this increase in the accounts receivable.
3.3 CHANGES IN ACCOUNT PAYABLE:

This represents suppliers credit for inventory and other raw materials. The following graph will help to get an idea about the changes in Accounts Payable from the year 2003 to 2008.
Accounts Payable
140,000,000 120,000,000 100,000,000 Value in BDT 80,000,000 60,000,000 40,000,000 20,000,000 2008 2007 2006 2005 2004 2003
Accounts Payable 127,107,6 37,929,10 51,607,32 16,645,26 14,371,92 34,553,75 Year
Figure 11: Changes of Accounts Payable of Renata Ltd. from 2003 to 2008
Comments
There was very little that the company owed to creditors in the market in the financial years of 2003 to 2007. But this had increased drastically in the financial year 2008. This might give a wrong message to 18
the investors regarding total current assets. This is a source of cash as these amounts are yet to be paid off and is still in the accounts of the company. However immediate corrective actions should be taken and the effects will be visible in the following financial years.
3.4 CHANGES IN PLANT & EQUIPMENTS:

This represents the changes in Plants and Equipments that took place in the last few financial years. The following graph will help to get an idea about the changes in fixed assets from the year 2003 to 2008.
Change in Fixed Assets

1,200,000,000 1,000,000,000 Value in BDT 800,000,000 600,000,000 400,000,000 200,000,000 2008 2007 2006 2005 2004 2003
Fixed Assets 1,014,435, 796,846,7 689,066,4 399,239,7 555,269,5 460,331,3 Year
Figure 12: Changes in Plants & Equipment of Renata Ltd. from 2003 to 2008
Comments
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In 2003 the plants and equipments increased and so there was a cash outflow. Since then there had been gradual changes in the scenario up to the financial year 2008. There had been a huge increase in investment on plants and equipments especially in year 2008. This indicates that this company is growing and expanding in different areas.
3.5 NET CASH FLOW FROM OPERATION:

This shows the overall cash flow from the operating activities of the company in the last few financial years.
Cash Flow from Operating Activities 500,000,000 400,000,000 Value in BDT 300,000,000 200,000,000 100,000,000 -
2008
2007
2006
2005
2004
Cash Flow from Operating 169,047,278 432,767,495 56,557,146 241,578,308 292,573,992 Activities Year
Figure 13: Cash Flow From operating Activities of Renata Ltd. from 2003 to 2008
Comments
This shows that other than the financial year of 2006 there had been mentionable cash inflows into the company. Since it was highest in the year 2007.
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3.6 NET CASH PROVIDED BY INVESTMENT ACTIVITIES:

This section describes the amount of cash in flow and out flow because of various investing activities.
Cash Flow From Investment
50,000,000 Value in BDT (50,000,000) (100,000,000) (150,000,000) (200,000,000)
2008
2007
2006
2005
2004
Cash Flow From Investment 21,891,526 (164,135,13 (177,750,27 (11,834,818) (80,917,925) Year
Figure 14: Cash Flow From Investment Activities of Renata Ltd. from 2003 to 2008
Comments
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As per the graph, there had been cash outflows in all the years other than 2008. Under consideration accept the financial year of 2006 and 2007 the cash outflow was huge due to investment and this is indeed good for the company as they are expanding into new projects.
3.7 NET CASH PROVIDED BY FINANCING ACTIVITIES:

This section represents the net cash flow from the financial activity.
Cash Flow From Financing Activities
500,000,000 400,000,000 Value in BDT 300,000,000 200,000,000 100,000,000 (100,000,000) 2008 2007 2006 2005 2004
Cash Flow From Financing 414,177,169 (49,846,619) (27,398,386) (33,160,404) (33,081,044) Activities Year
Figure 16: Cash Flow From Financing Activities of Renata Ltd. from 2003 to 2008
Comments
Little change can be noticed in the past four financial years from 2004-2007. The significant inflow of cash in the financial year of 2008 reflects that the company received huge amount of medium term loan for further expansion in the financial year 2008. 22
3.8 OVERALL COMMENT ON CASH FLOW:

o The net change of cash flow is positive which indicates that during the years the firm has more cash inflow than outflow. So, it can be said that the company has grown strongly over the years. o Huge inventory pilled up that consumed cash as well the accounting profit o Increase in fixed asset also consumed a mentionable amount of cash. It also contributed to the increasing accounts payable which consequently create pressure on cash. o Due to heavy investment long term debt was taken and for that the company always has to keep a room to pay the interest against those loans. o Due to purchase of Fixed assets investment increased as a result capital work in progress also increased.
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4.0 RATIO ANALYSIS:

Ratio analysis is the calculation and comparison of ratios which are derived from the information in a company's financial statements. The level and historical trends of these ratios can be used to make inferences about a company's financial condition, its operations and attractiveness as an investment. To evaluate a firms financial condition and performance, the financial analyst usually performs analysis on various aspects to find out the financial health of the firm; among which ratio analysis is one of the most important and commonly used methods. In this study various ratio analyses will be done to understand the financial condition of the company and to compare this condition with its rival firm to get a clear picture. The financial ratios can be analyzed based on three criteria: o Benchmark Analysis: A benchmark is a point of reference with which the financial ratios of the specific company can be compared. For example, the current ratio of 2:1 is considered to be ideal for a company and it is assumed to be the benchmark. o Time Series Analysis: It involves comparing a present ratio with past and expected future ratios for the company. For instance, the current ratio (the ratio of current assets to current liabilities) for the present year could be compared with the current ratio for the previous years. When financial ratios are arranged over a period of years, the analyst can study the composition of change and determine whether there has been an improvement or deterioration in the firms financial condition and performance over time. o Cross Section Analysis: The third method of comparison involves comparing the ratios of one with those of similar firms or with industry averages at the same point in time. Such a comparison gives insight into the relative financial condition and performance of the firm. It also helps us to identify any significant deviation from any applicable industry average.
In this paper, ratios of Renata Ltd and Square Pharmaceuticals Ltd are calculated and analyzed based on bench mark, time series and cross sectional analysis.
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4.1 LIQUIDITY OR SHORT TERM SOLVENCY:

Liquidity or Short Term Solvency ratios are used to determine a company's ability to pay off its shortterms debts obligations. The higher the value of the ratios, the larger will be the margin of safety that the company possesses to cover short-term debts. It shows the relationship of a firms cash and other current assets to its current liabilities. Different types of liquidity ratios are discussed below.
4.1.1
Current Ratio:
Current Ratio is the ratio of current assets to current liabilities. The current ratio indicates the ability of a company to pay its current liabilities from current assets and shows the strength of the companys working capital position. Current ratio of 2:1 is considered to be a healthy condition for most businesses. The ratio is calculated as follows: Current Ratio = Current Assets / Current Liabilities The following table shows the current ratio data of the 2 companiesCompany Renata Square 2003 1.59 1.16 2004 1.60 1.62 2005 1.75 1.66 2006 1.49 1.78 2007 1.38 1.44 2008 1.15 1.26
From the above table, we can see that the current ratio of Renata is lower compared to the standard or benchmark ratio of 2:1. The current ratio of Renata has gradually gone down from 2005 to 2008 from 1.75 to 1.15. In 2008, the current ratio has decreased to 1.15 due to a significant rise in current liabilities, i.e. around 83.16% from TK 71,70,68,650 to TK 1,31,33,92,836. Although the current assets has also increased during 2007 to 2008 from TK 98,80,92,820 to TK 1,50,60,70,972, which is around 52.42%.This is evident in the balance sheet as we can see that the total liabilities figures have gone up gradually. The declining ratio of 2005 to 2006 may be attributed to the increased liabilities during these 25
years. This is not necessarily bad news as Renata has invested heavily in the expansion of their company. Where, the current ratio of Square has increased from 1.66 to 1.78. But from 2006 to 2008 the current ratio started to decline from 1.78 to 1.26 as current liabilities have increased to a greater extent.
Current Ratio
2.00
1.50 Current Ratio Renata Square
1.00
0.50
0.00 Renata Square
2003 1.59 1.62
2004 1.60 1.66
2005 1.75 1.78 Year
2006 1.49 1.44
2007 1.38 1.26
2008 1.15 1.46
Fig 17: Current Ratios of Renata & Square for the years 2003-2008 Where Renata shows a declining pattern, Square has a wavy pattern in case of current ratio. If we take it as an industry average then Renatas performance is satisfactory.
4.1.2
Quick Ratio:
The Acid-test or quick ratio measures a company's ability to meet its short-term obligations with its most liquid assets. Inventories typically are the least liquid of a firms current assets they are the assets on which require more time to be sold and losses are most likely to occur in the event of liquidation. Therefore, it is important to measure the firms ability to pay off short term obligations without having to rely on the sale of inventories. Quick ratio of 1:1 is considered to be a healthy condition for most businesses. It is calculated as follows. Quick Ratio= (Current Assets- Inventories)/ Current Liabilities
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The following table shows the quick ratio data of the two companiesCompany Renata Square 2003 0.46 0.56 2004 0.59 0.98 2005 0.74 1.08 2006 0.52 1.19 2007 0.45 0.84 2008 0.42 0.68
The above table shows that the quick ratio of Renata is lower compared to the standard or benchmark ratio of 1:1. The trend of quick ratio of Renata shows that the ratio had been increasing from 2003 to 2005 and afterwards it declined over the years. It is optically a bad indication that Renata has limited ability to pay off short term obligations without having to rely on the sale of inventories. During 2006 and 2008, there was significant addition in the level of inventory (i.e.64.47 percent in 2006 over 2005) from TK 38,83,84,007 to TK 63,87,84,952 and there was further addition of inventory to TK 29,74,02,445 in 2008 (i.e. 44.97% over 2007) which led to an deterioration in the quick ratio. But from 2006 to 2008, a huge amount of inventory was piled up, causing the current assets also increased at a higher proportion (i.e. 52.42%), as a result the quick ratio dropped over the years. In case of Square we see that their quick ratio is healthier than benchmark (1:1) as well as Renata. Because their inventories as well as current assets increased gradually but not drastically.
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Quick Ratio
Renata, 1.40 1.20 Quick Ratio 1.00 0.80 0.60 0.40 0.20 0.00 Renata, Square 2003 0.46 0.56 2004 0.59 0.98 2005 0.74 1.08 Time 2006 0.52 1.19 2007 0.45 0.84 2008 0.42 0.68 Square
Fig 21: Quick Ratios of Renata and Square for the years 2003-2008 Whereas, the quick ratio of Square has increased from 2003 to 2005, but there is a decreasing pattern from 2006 to 2008 as the level of current liabilities has started to increase compared to the proportionate rise in current assets. In addition, around 31.25% of the inventories were piled up (from TK 1,54,41,91,798 to TK 2,02,67,36,322) during 2007 over 2006 leading to deterioration in the quick ratio.
4.1.3
Cash Ratio:
Cash Ratio is the ratio of a company's total cash and cash equivalents to its current liabilities. The cash ratio is most commonly used as a measure of company liquidity. It can determine how quickly the company can repay its short-term debt. It shows cash solvency of the firm. We can find cash ratio in the following way. Cash Ratio = Cash/Current Liabilities
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The following table shows the cash ratio data of the two companiesCompany Renata Square 2003 0.10 0.02 2004 0.20 0.04 2005 0.23 0.20 2006 0.12 0.14 2007 0.07 0.05 2008 0.09 0.06
From the above table, we can see that normally the cash ratio of Renata is higher compared to Square, which reflects that Renata has higher cash to meet its current liabilities. In addition, the cash ratio of Renata started to rise till 2005, but there was a sharp decline in 2006 and 2007 from TK 82,035,371 to TK 48,256,978. However, an improvement in cash ratio can be noticed in 2008 from 0.07 to 0.09. Cash ratio of Square is decreasing from 2005 to 2008, because the amount of cash declined over the years due to investment.. In addition, the cash ratio of Renata started to rise till 2005, but there was a sharp decline in 2006 and 2007 from TK 82,035,371 to TK 48,256,978. However, an improvement in cash ratio can be noticed in 2008 from 0.07 to 0.09.
Cash Ratio
Renata, 0.25 0.20 Cash Ratio 0.15 0.10 0.05 0.00 Renata, Square 2003 0.10 0.02 2004 0.20 0.04 2005 0.23 0.20 Time 2006 0.12 0.14 2007 0.07 0.05 2008 0.09 0.06 Square
Fig 22: Cash Ratio of Renata and Square for the years 2003-2008
29
4.2 LONG TERM OR DEBT MANAGEMENT RATIOS:

Debt Management ratios help to evaluate a company's long-term solvency measuring the extent to which the company is using long-term debt. This ratio reflects how effectively a firm is managing its debts. It helps the analyst to determine the extent to which borrowed funds have been used to finance assets and review how well operating profits can cover fixed charges such as interest.
4.2.1
Debt Ratio:
The debt ratio indicates how much of a company's assets are provided through debt or the percentage of the firms assets financed by creditors. Total debt includes both current liabilities and long term liabilities. Creditors prefer low debt ratios, because the lower the ratio, the greater the cushion against creditors losses in the event of liquidation. The owners on the other hand can benefit from leverage because it magnifies earnings, and thus the return to stockholder. But, too much debt often leads to financial difficulty, which eventually might cause bankruptcy. It is calculated as follows: Debt Ratio= Total Debt/ Total Assets The following table shows the debt ratio data of the 2 companiesCompany Renata Square 2003 32.20% 25.53% 2004 31.42% 34.22% 2005 39.26% 29.58% 2006 44.71% 31.15% 2007 40.71% 30.07% 2008 47.44% 33.74%
The above table reflects that the long term solvency of Renata is weaker than Square. But this debt is taken for further expansion of the company. So we can say that in long run it is good for the company as well as shareholders. Further more this is also a sign that the demand for the product is on the rise both in local and international market which justify the expansion project. They are giving handsome dividend to their shareholders over the years. So share holders are also satisfy with the company. However, Renata can enjoy tax advantage due to interest on debt and it will be rationalized by an increased EPS. From 2003 to 2008, the debt ratio of Renata started to rise at a steady rate from 32.20% to 47.44%. During 2006 and 2007, the proportionate rise in debt was higher compared to rise in total assets. Renata is a highly levered firm and since interest charges are compulsory obligation the Renata must take initiatives to decrease the debt ratio as much as possible. Creditors might be reluctant to lend Renata more money, and management would be subjecting the firm greater chance of bankruptcy if it decides to increase the debt 30
ratio much further by borrowing additional funds. However, since interest on debt enjoys tax advantage, this is evident in the gradual increment in EPS figures. Whereas, the debt ratio of Renata is higher compared to Square and it shows that Renata has higher debt burden.
Debt Ratio
Renata, 50.00% 45.00% 40.00% 35.00% Debt Ratio 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% 2003 2004 2005 Time 2006 2007 2008 32.20% 34.22% 31.42% 25.43% 39.26% 29.58% 31.15% Square 44.71% 40.71% 33.74% 30.07% 47.44%
Fig 23: Total Debt Ratio of Renata and Square for the years 2003-2008
4.2.2
Time Interest Earned (TIE) Ratio:
The TIE ratio measures the extent to which earnings before interest and taxes (EBIT), also called operating income, can decline before the firm is unable to meet its annual interest cost. Failure to meet this obligation can bring legal action by the firms creditor, possibly resulting in bankruptcy. The TIE ratio is computed by dividing earning before interest and taxes (EBIT) by interest charges. It measures the ability of the firm to meet its annual interest payments. The TIE ratio is calculated as follows: Time interest earned ratio = EBIT/ Interest charges
31
The following table shows the times interest ratio data of the 2 companiesCompany Renata Square 2003 9.54 9.60 2004 9.96 15.92 2005 13.78 12.51 2006 10.17 8.64 2007 9.57 6.58 2008 8.40 7.64
The Above table reflects that the TIE ratio of Renata is increasing from 2003 to 2005, but after 2006 the TIE ratio started to decline from 10.17 times to 8.4 times. In 2006, there was rise in EBIT of around 27% from TK 316,958,675 to TK 404,424,412, whereas the rise in interest was around 72.87 % from TK 23,002,949 to TK 39,765,188. In 2007 and 2008, the interest charges have increased, but the proportionate increase in EBIT is lower than increase in interest charges. In addition, the TIE ratio of Renata is much lower compared to Square over the years.
Times Interest Earned

Renata 18.00 16.00 Times Interst Earned 14.00 12.00 10.00 8.00 6.00 4.00 2.00 0.00 2003 2004 2005 Year 2006 2007 2008 9.54 9.60 9.96 15.92 13.78 12.51 10.17 8.64 9.57 6.58 8.40 Square
7.64
Fig 24: Times Interest Earned (TIE Ratio) of Renata & Square for the years 2003-2008 This graph reflects that over the time Renata grew stronger in financial position to pay its interest with the aid of increasing EBIT. So it is a good sign for the company because though it has more loan but it have the capacity to pay them off.
4.3 ASSET MANAGEMENT RATIO:

32
A set of ratios that measure how effectively a firm manages its assets compared to its sales. These ratios are designed to find out whether the total amount of each type of asset as reported on the balance sheet appear reasonable, too high, or too low considering current and projected sales levels. Asset Management Ratio is done based on inventory turnover ratio, days sales outstanding and fixed asset and total asset turnover ratio.
4.3.1
Inventory Turnover Ratio:
Inventory Turnover Ratio tells how often a business' inventory turns over during the course of the year. Inventories are the least liquid form of asset and a high inventory turnover ratio is generally positive. On the other hand, an unusually high ratio compared to the average for the industry could mean that the business is losing sales because of inadequate stock on hand. The ratio is calculated as follows: Inventory turnover ratio= Cost of goods sold /Inventories The following table shows the inventory turnover ratio data of the 2 companiesCompany Renata Square 2003 1.83 3.54 2004 1.93 2.76 2005 2.13 2.63 2006 1.53 2.76 2007 1.96 2.40 2008 1.59 2.70
The above table reflects that although Renata have a fluctuation and lower than industry standard inventory turnover ratio, it is still should not be viewed negatively. Because it is also a sign of rising demand of the products and strong sales drive both locally and internationally. Therefore they some times have to hold inventories longer than other company to meet the markets instant demand. Then again
33
steps
may
be
taken
to
improve
the
inventory
management
system.
Inventory Turnover Ratio

Renata 4.00 Inventory Turnover Ratio 3.50 3.00 2.50 2.00 1.50 1.00 0.50 0.00 2003 2004 2005 Year 2006 2007 2008 1.83 1.93 3.54 2.76 2.13 1.53 2.63 2.76 2.40 1.96 1.59 2.70 Square
Fig 25: Inventory Turnover Ratio of Renata and Square for the years 2003-2008
4.3.2 Days Sales Outstanding (DSO):

The DSO ratio is calculated by dividing accounts receivable by average sales per day which indicates the average length of time it takes the firm to collect its credit sales. It is also called the average collection period, is used to evaluate the firms ability to collect its credit sales in a timely manner. DSO is calculated as follows: Daily Sales Outstanding (DSO) =Receivables/Average sales per day
34
= Receivables/ [Annual sales/360] The following table shows the current ratio data of the 2 companiesCompany Renata Square 2003 33.93 14.78 2004 30.07 15.54 2005 36.31 14.67 2006 37.09 13.34 2007 27.66 13.56 2008 40.11 17.97
From the table, we can see that the days sales outstanding (DSO) is increasing at an alarming rate over the years. It suggests that Renata collects sales too slowly compared to Square. The collection performance is getting worse day-by-day as the DSO in increasing from 33.93 days to 40.11 days over 6 years. It has a poor credit policy. On the other hand, the sales collection of Square is much faster and it is quite steady over the years, which reflects that Square has a better credit policy in comparison to Renata. Therefore, Renata should take steps to improve the time it takes to collect the account receivables. Considering that DSO is already poor, the firm can not relax the credit terms any more, so to reduce the sales price and/or aggressive market campaign may be a good option to promote sales by proper monitoring. To improve the DSO, the firm should be more punctual in its collection of credit sales. In addition, cash discount can be increased.
Days Sales Outstanding

Renata 45.00 40.00 35.00 30.00 DSO 25.00 20.00 15.00 10.00 5.00 0.00 2003 2004 2005 Year 2006 2007 2008 14.78 15.54 17.97 14.67 13.34 13.56 33.93 30.07 36.31 37.09 27.66 Square 40.11
Fig 26: Days Sales Outstanding (DSO) of Renata and Square for the years 2003-2008 35
4.3.3
Total Asset Turnover Ratio:
Total Asset Turnover ratio measures the amount of sales generated for every dollar's worth of assets. The total asset turnover ratio is calculated by dividing sale by total assets. It is calculated as follows: Total Assets Turnover Ratio = Sales/ Total Assets The following table shows the current ratio data of the 2 companiesCompany Renata Square 2003 1.29 0.91 2004 1.30 0.78 2005 1.26 0.76 2006 1.09 0.83 2007 1.18 0.75 2008 0.98 0.86
From the above table, we can see that from 2003 to 2008 mostly the total asset turnover ratio of Renata is declining. In 2008 there was a sharp fall in the total asset turnover ratio. But this is not reflecting the original picture as their sales also increased significantly (i.e. 31 % in 2007, 21% in 2008 over previous year) but not enough in proportionate increase in total asset.
Total Asset Turnover

Renata 1.40 1.20 Total Asset Turnover 1.00 0.80 0.60 0.40 0.20 0.00 2003 2004 2005 Year 2006 2007 2008 0.91 0.78 0.76 1.29 1.30 1.26 1.09 0.83 Square
1.18 0.98 0.86 0.75
Fig 27: Total Asset Turnover Ratio of Renata and Square for the years 2003-2008 36
When compare to industry average the performance of Renata is good because it is always better than that of Square over the years.
4.4 PROFITABILITY RATIO:

Profitability ratios show the combined effect of liquidity, asset management, and debt management on operating results. It is the net result of a number of policies and decisions.
4.4.1
Net Profit Margin on Sales:
Profit Margin is the ratio of profitability calculated as net income divided by revenues, or net profits divided by sales. It measures how much out of every dollar of sales a company actually keeps in earnings. Profit margin is very useful when comparing companies in similar industries. A higher profit margin indicates a more profitable company that has better control over its costs compared to its competitors. Profit margin is displayed as a percentage; a 20% profit margin, for example, means the company has a net income of $0.20 for each dollar of sales. It is calculated as follows: Profit margin on sales = Net Income/ Sales The following table shows the current ratio data of the two companiesCompany Renata Square 2003 9.51% 17.67% 2004 10.76% 20.26% 2005 11.97% 16.45% 2006 12.56% 14.96% 2007 13.26% 14.45% 2008 14.02% 16.63%
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Profit Margin
Renata 25.00% 20.26% 20.00% Profit Margin 15.00% 10.00% 5.00% 0.00% 2003 2004 2005 Year 2006 2007 2008 9.51% 10.76% 17.69% 11.97% 16.45% 16.63% 14.96% 14.45% 13.26% 14.02% 12.56% Square
. Fig 28: Profit Margin of Renata and Square for the years 2003-2008 The above table and the figure below illustrates that from 2003 to 2008 the profit margin of Renata is improving at increasing rate from 9.51% to 14.02%. Whereas, from 2003 to 2008 the profit margin of Square is almost steady. Although the profit margin of Renata is below than Square from 2003 to 2008, But hopefully it will reach industry standard in few years. This are all good sign for the company 4.4.2 Return on Asset (ROA):
Return on Asset (ROA) an indicator of how profitable a company is relative to its total assets. It gives an idea as to how efficient management is at using its assets to generate earnings. It is calculated by dividing a company's annual earnings by its total assets, ROA is displayed as a percentage. Sometimes this is referred to as "return on investment". The ROA after interest and taxes are computed as follows: Return on Asset (ROA) = Net Income / Total Assets The following table shows the current ratio data of the 2 companiesCompany Renata Square 2003 12.24% 16.52% 2004 14.00% 15.88% 2005 15.11% 12.54% 2006 13.63% 12.43% 2007 15.59% 10.88% 2008 13.70% 14.26%
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The above table illustrates that the return on asset of Renata is increasing from 12.24% to 15.59% during 2003 to 2007 afterward it drop in 2008. But it is also noticeable that the return on asset of in line with industry average
Return on Asset
Renata 18.00% 16.00% 14.00% 12.24% 12.00% ROA 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% 2003 2004 2005 Year 2006 2007 2008 16.52% 15.88% Square
14.00%
15.11% 13.63% 12.54% 12.43%
15.59%
14.26% 13.70%
10.88%
Fig: 29 Return on Asset (ROA) of Renata and Square for the years 2003-2008
4.4.3
Return on Equity (ROE):
Return on Equity (ROE) is the amount of net income returned as a percentage of shareholders equity. It measures a company's profitability by revealing how much profit a company generates with the money shareholders have invested. The return on equity (ROE) is measured as follows: Return on Equity (ROE) = Net income / Total Shareholders Equity The following table shows the current ratio data of the 2 companies2003 Renata Square 18.05% 21.13% 2004 25.00% 22.55% 2005 24.88% 18.21% 2006 24.65% 17.77% 2007 26.29% 16.42% 2008 26.06% 19.00%
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The above table indicates that the rate of return on equity of Renata shows an increasing pattern from 18.05% to 26.06% during 2003 and 2008. It indicates that the rate of return on the common stockholders investment is rising over the years, which is a good indicator for the company. Whereas, the return on equity of Square is declining over the years at a steady rate. In addition, the return on equity of ACI has increased in 2008, which will help Renata to gain shareholders trust.
Return on Equity
Renata 30.00% 25.00% 20.00% 18.05% ROE 15.00% 10.00% 5.00% 0.00% 2003 2004 2005 Year 2006 2007 2008 24.88% 21.13% 20.42% 22.55% 18.21% 24.65% Square 26.29%
26.06% 19.00%
17.77%
16.42%
Fig 30: Return on Equity (ROE) of Renata and Square for the years 2003-2008
4.5 MARKET VALUE RATIO:

The market value ratios represent a group of ratios that relates the firms stock price to its earnings and book value per share. These ratios give management an indication of what investors think of the companys past performance and future prospect. If the firms liquidity, asset management, debt management, and profitability ratios are all good then market value ratios will be high which will lead to an increase in the stock price of the company.
4.5.1
Earnings Per Share (EPS):

40
Earnings per Share (EPS) are the portion of a company's profit allocated to each outstanding share of common stock. It serves as an indicator of a company's profitability. It is generally considered to be the single most important variable in determining a share's price. It is also a major component used to calculate the price-to-earnings valuation ratio. It is calculated as follows: EPS = Net Income/ Number of Shares Outstanding The following table shows the current ratio data of the 2 companiesCompany Renata Square 2003 227.07 269.46 2004 260.79 269.46 2005 287.66 290.71 2006 301.41 234.67 2007 348.47 218.61 2008 374.44 157
Earnings Per Share

Renata 400.00 350.00 300.00 250.00 227.07 EPS 200.00 150.00 100.00 50.00 0.00 2003 2004 2005 Year 2006 2007 2008 269.46 269.46 260.79 287.66 290.71 301.41 234.67 218.61 156.56 Square 374.44
348.47
Fig 31:Earnings per Share (EPS) of Renata and Square for the years 2003-2008 The above table illustrates the EPS of Renata has been increasing at healthy rate over the years. This is good news because this will help attract the investors and thus the company can collect more money from stock market. The EPS of Renata is increasing from TK 227.07 to TK 374.44 during 2003 to 2008 which helped to increase the share price. It is good that the EPS of Renata is much higher than the industry 4.5.2. Price/Earning (P/E) Ratio:
41
This is the ratio of the price per share to earnings per share. It shows how much investors are willing to pay per dollar of reported profit. It is calculated as follows: P/E Ratio = Market Price per Share/ Earnings per Share The following table shows the current ratio data of the 2 companiesCompany Renata Square 2003 5.35 6.75 2004 12.27 14.10 2005 10.43 8.41 2006 10.28 9.65 2007 21.50 16.84 2008 20.80 20.13
From the above table, we can see that the price/earning ratio of Renata is significantly increased over the years. This indicates the demand and trust of this share to the investors. The investors willing to pay 20.80 taka for earning 1 taka profit from the company. The company has a proven track record in stock market so its share may be considered as blue chip. This High P/E Ratio means that Renata has a very high growth potential. If we compare the P/E ratio of Renata with Square we can see it has over taken Square from the year 2005 & maintaining it till date.
Price Earning Ratio

Renata 25.00 20.00 20.13 P/E Ratio 15.00 10.00 5.00 5.35 0.00 2003 2004 2005 Year 2006 2007 2008 6.75 12.27 14.10 9.65 8.41 10.43 10.28 16.84 Square 21.50
20.80
Fig : 32 P/E Ratio of Renata and Square for the years 2003-2008
4.5.3
Book Value Per Share:
42
Common stockholders' equity is determined on a per-share basis. Book value per share is calculated by subtracting liabilities and the par value of any outstanding preferred stock from assets and dividing the remainder by the number of outstanding shares of stock. It is calculated as follows: Book Value per Share=Equity/Number of Shares Outstanding The following table shows the current ratio data of the 2 companiesCompany Renata Square 2003 1258.20 1275.04 2004 1042.96 1289.07 2005 1156.38 1288.65 2006 1222.80 1230.08 2007 1325.32 941.25 2008 1436.81 824.16
The above table shows the book value per share of Renata and Square from 2003 to 2008. The book value per share of Renata is increasing from TK 1258.20 to TK 11436.81 from 2003 to 2008. In addition, Renata has higher market value than the book value over the years, which is a good indicator for the company. The level of equity is rising over the years, but during 2007 and 2008 the equity rose by from TK 1,277605506 to TK 1662073357, which led to a rise in the book value per share. Whereas, the book value per share of Square is decreasing from TK 1275.04 to TK 824.16 during 2003 to 2008. However, the book value per share of Square is much lower than Renata.
Book Value per Share

Renata 1600.00 Book Value Per Share 1400.00 1258.20 1275.04 1200.00 1000.00 800.00 600.00 400.00 200.00 0.00 2003 2004 2005 Year 2006 2007 2008 1042.96 1325.33 1289.07 1288.651222.80 1230.08 1156.38 941.25 Square 1436.81
824.16
43
Fig 33: Book Value per Share of Renata and Square for the years 2003-2008
4.5.4
Market/Book (M/B) Ratio:
The ratio of a stocks market price to its book value gives another suggestion of how investors regard the company. Companies with relatively high rates of return on equity generally sell at higher multiples of book value than those with low returns. The formula for Market/Book Value is given below: Market /Book Ratio = Market Price per Share / Book Value per Share The following table shows the current ratio data of the two companiesCompany Renata Square 2003 0.97 1.43 2004 2.97 2.95 2005 2.60 1.90 2006 2.53 1.84 2007 4.71 3.91 2008 5.66 3.82
The above table shows the market to book value per share of Square and Renata from 2003 to 2008. The market/book ratio of Renata shows an increasing pattern from 0.97 times to 5.66 times during 2003 to 2008. However the market/book ratio of Square is also increasing from 1.43 times to 3.82 times during 2003 to 2008. The cross section analysis indicates that the market/book ratio of Renata is much higher than Square, which means that market value of Square is not increasing at a faster compared to book value per share. Investors are willing to pay more for the book value of Renata than for that of an average pharmaceutical company. This should not be surprising, because as it is discovered previously Renata has generated above average returns with respect to both total asset and common equity.
44
Market/Book Value
Renata 6.00 5.00 M/B Value 4.00 2.97 3.00 2.00 1.00 0.00 2003 2004 2005 Year 2006 2007 2008 1.43 2.95 1.90 0.97 1.84 2.60 2.53 3.91 4.71 5.66 3.82 Square
Fig: 34 Market /Book Ratio of Renata and Square for the years 2003-2008 The overall market value ratios of Renata are high, which indicates that the firm retains its good position in the industry. Investors are very confident about Renatas future prospects. Due to this, Renatas market value ratios are getting better in recent years.
4.5.5
Dividend Payout Ratio:
The dividend payout ratio indicates how much of the dividend is being paid to the shareholders. Dividend Payout Ratio= Dividend Paid/Number of Shares Outstanding
The following table shows the current ratio data of the 2 companiesCompany Renata Square 2003 49.60 58.33 2004 41.37 92.00 2005 40.93 66.96 2006 41.28 62.50 2007 40.95 33.33 2008 41.07 29.63
45
The above table shows that the dividend payout ratio of Renata is steady from 2003 to 2008, which has lead to the rise in the market value of the shares. In addition, the dividend payout ratio of Renata is higher than Square in recent years. Therefore, it is good news for Renata and its stakeholders since the market value per share is increasing due to the rise in the level of dividend payout ratio.
Dividend Payout Ratio

Renata 100.00 90.00 Dividend Payout Ratio 80.00 70.00 60.00 50.00 40.00 30.00 20.00 10.00 0.00 2003 2004 2005 Year 2006 2007 2008 49.60 33.33 29.63 41.37 92.00 58.33 66.96 40.93 41.28 62.50 40.95 41.07 Square
Fig; 35 Dividend Payout Ratio of Renata and Square for the years 2003-2008
4.6
OVERALL COMMENT ON RENATA & SQUARE
Analyzing the liquidity ratios we can see that Renata does not have adequate short term solvency. Both the current ratio and the cash ratio are lower than the industry benchmark. It is identified that during 2007 and 2008, Renata was holding excessive stock of inventory. In 2008, there was a huge rise in the level of inventory around 52.42%. However, the pile up of huge amount of inventory that may become its competitive advantage in an inflationary economy as it may enjoy in the future. This is good news for the
46
investors and this fact is reflected in the higher market price of Renata than its book value per share from 2003 to 2008. It is observed that there is an industry trend to invest for expansion during the period of 2005 to 2006. Because as there is a facility for Bangladesh pharmaceutical company to manufacture any patented drug of any company of the world till 2016. All the pharmaceuticals companies have invested heavily to capitalize on this opportunity. Renata was also not out of this trend. So we saw in that years its asset increased significantly which has portrayed certain ratios weaker. According to the asset management ratios conducted it is fair to say that Renata has room for improvement when it comes to inventory management, credit policy management. But when we look at the asset turnover ratio, it is higher than the market. This indicates improving sales of Renata. Consequently this has contributed theoretically poor DSO and inventory turnover ratio. In case of debt management ratio it is obvious that Renata is highly levered company but than again as we mentioned before during 2005 and 2006 the company invested heavily for expansion purpose via debt financing. Given the scope of market both locally and internationally this was necessary to cope up with the increasing demand but good news is that the company is utilizing this loan efficiently and effectively. When it comes to profitability the company is in very encouraging position. Profit margin wise Renata has been increasing at steady mode despite being lower than the market. As per ROA and ROE investors would be extremely happy because it at par with the competitor and above respectively. Furthermore Renata has very good EPS and steady dividend pay out ratio which will be eventually helped the company to increase the stock price. Overall the market ratio also show healthy sign as Book value par share and market value ratio show greater competence than the market which cause the company share price to higher. All this justifies why the market value is a lot higher than the book value of the company.
CONCLUSION
The whole point of the thorough analysis conducted on Renata Limited was to asses this entity in terms of liquidity, profitability, solvency, cash health, comparison with rival and so on. Accordingly, it would safe to say that Renata Limted is a company with great potential for the
47
future. As it is since the beginning, this entity has come a long way. During 2005-2006, it has taken made big investments for expansion of its operations and as of today, the company has been running quite successfully both in Bangladesh and abroad, particularly in Sri Lanka. Furthermore, to vouch for its success, the company has been able to hold a very good price in the stock market. Although not yet as a large a business entity as Square Pharmaceuticals, but it is competing well at par with the local pharmaceutical giant. In fact, in various aspects mentioned in the report, Renata has proved to be in rather more suitable condition compared to its competitor in question.
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1.

1 INTRODUCTION OF THE COMPANY

1.2 IDENTIFICATION OF PROBLEM

1.3 OBJECTIVE OF THE STUDY

2.0 ANALYSIS OF BALANCE SHEET

Current Asset 455,136,2 573,416,4 672,355,2 979,254,8 988,092,8 1,506,070, Year

Fig:1 Current Asset

Fig2: Tangible Assets

Fig3: Capital Work in Process 8

2.2 LIABILITY & EQUITY

Fig: 5: Total Liability

Net Working Capitalt

Fig:6: Net Working Capital

Total Equity 467,671,95 581,841,45 774,117,20 982,312,79 1,277,605,5 1,662,073,3 Year

Fig: 7: Total Equity

Fig: 8: Change in Market Value

2.3 RATIONALE BEHIND DIFFERENT BOOK VALUE & MARKET

2008 1,506,070, 972 515,340,51 7 640,332,67 4 8,362,687, 396 10,510,631 ,559

1,500,159, 577 9,010,471, 982 10,51,06,31, & 559

3.0 CASH FLOW ANALYSIS: 3.1 CHANGES IN INVENTORY:

Inventory 959,414,59 662,012,14 638,784,95 388,384,00 404,933,01 322,849,09 Year

Figure 9: Changes of Inventory of Renata Ltd. from 2003 to 2008

3.2 CHANGES IN ACCOUNT RECEIVABLE:

Change in Account Receivables

344,226,9 194,727,8 198,626,0 162,224,0 103,542,0 95,395,30 Year

3.3 CHANGES IN ACCOUNT PAYABLE:

Accounts Payable 127,107,6 37,929,10 51,607,32 16,645,26 14,371,92 34,553,75 Year

3.4 CHANGES IN PLANT & EQUIPMENTS:

Change in Fixed Assets

Fixed Assets 1,014,435, 796,846,7 689,066,4 399,239,7 555,269,5 460,331,3 Year

3.5 NET CASH FLOW FROM OPERATION:

3.6 NET CASH PROVIDED BY INVESTMENT ACTIVITIES:

Cash Flow From Investment

50,000,000 Value in BDT (50,000,000) (100,000,000) (150,000,000) (200,000,000)

3.7 NET CASH PROVIDED BY FINANCING ACTIVITIES:

3.8 OVERALL COMMENT ON CASH FLOW:

4.0 RATIO ANALYSIS:

4.1 LIQUIDITY OR SHORT TERM SOLVENCY:

1.50 Current Ratio Renata Square

0.00 Renata Square

2003 1.59 1.62

2004 1.60 1.66

2005 1.75 1.78 Year

2006 1.49 1.44

2007 1.38 1.26

2008 1.15 1.46

4.2 LONG TERM OR DEBT MANAGEMENT RATIOS:

Time Interest Earned (TIE) Ratio:

Times Interest Earned

4.3 ASSET MANAGEMENT RATIO:

Inventory Turnover Ratio:

Inventory Turnover Ratio

4.3.2 Days Sales Outstanding (DSO):

Days Sales Outstanding

Total Asset Turnover Ratio:

Total Asset Turnover

1.18 0.98 0.86 0.75

4.4 PROFITABILITY RATIO: