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Group Members Name:

1. Tamanna Akter Suma ID: 11840020

2. Farzana Afrin Faiza ID: 11941059
3. Washima Yesamin ID: 11840005
4. Rabaya Akter ID: 11941017
5. Jakia Sultana Juthi ID: 11840019

Project Title:

Financial Ratio Analysis of Square

Pharmaceuticals Ltd. (Financial year
2016-17 & 2017-18)
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Introduction:

Financial ratios are mathematical comparisons of financial statement accounts or

categories. These relationships between the financial statement accounts help investors,
creditors, and internal company management understand how well a business is
performing and areas of needing improvement. Financial ratios are the most common and
widespread tools used to analysis a business financial standing. Ratios are easy to
understand and simple to compute. They can also be used to compare different companies
in different industries. Since a ratio is simply a mathematically comparison based on
proportions, big and small companies can be use ratio to compare the financial
information. In a sense, financial ratios don’t take into consideration the size of a
company or the industry. Ratios are just raw computations of financial position and
performance.

Keyword:
Square Pharmaceuticals Ltd, Financial Analysis, Ratio Analysis, Liquidity Ratio,

Profitability Ratio, Asset Management Ratio, Debt Management Ratio.

Objectives of the Report:

a) To analysis financial ratios of Square Pharmaceuticals Ltd.

b) To assess the performance and financial condition of Square Pharmaceuticals Ltd.
c) To compare the financial condition between last two years.

Methodology of the Report:

A well designed work always deserves appraisal and greetings. Every work is needed to
have a standard methodology to make it quite successful in the course of its preparation.
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To make this report the best one as well as a means to further necessary analysis that are
given below:

 Research Problem
For the convenience of the study, causal research approach is applied to conduct the
study and presented the result so obtained.

 Sampling:
 Liquidity Ratio

 Quick ratio

 Profitability Ratio

 Asset Management

 Debt Management

 Market value

 Data collection
To quantify the relationship between dependent variable and independent variable, data
was collected by using different procedures. Sample of one company is taken from
Square Pharmacy of Bangladesh for the period of two years from 2016-17 to 2017-18.
The data has been collected from the annual reports of the company listed at Dhaka stock
exchange for the period of 2016-17 to 2017-18. The purpose of this article is to see the
relation between Dividends either Cash Dividend or Stock Dividend with Stock Prices
after controlling Earnings per Share, Retention Ratio and Return on Equity.
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 Variable Description
Dependent variable

Market Price (MP):

Market Price of share is calculated by taking the average of high and low market prices of
the shares. It is expected that Cash Dividends are positively related to Stock Prices. In the
absence of clientele effect, if the company pay larger amount of cash Dividends then it
will result in high market value of shares.

Independent variable
Stock Dividend
Stock Dividend is an important type of dividends. Its effect on Stock Prices will depend
on the perception of investors. So it can positively or negatively affect the Stock Prices.

Earnings per Share (EPS):

Earnings per Share are calculated by subtracting preferred stock from net income and by
dividing the resulting amount with the number of outstanding shares. It is considered as
an indicator for measuring the profitability of the companies

Return on Equity (ROE):

Return on Equity is also considered as important variables in this study. Return on Equity
is calculated by dividing profit after tax with shareholders’ equity. It is expected that
Return on Equity is positively associated with Stock market Prices.

 Procedure of data analysis

 Current ratio = Current Asset ÷ Current liability
 Quick Ratio = (Current Asset-inventory) ÷ Current liability
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 Inventory Turnover Ratio = Cost of goods sold ÷ inventory

 Days Sales Outstanding = Accounts receivable ÷ average daily sales
 Fixed asset Turnover Ratio = Sales ÷ Net fixed asset
 Total Asset Turnover Ratio = Sales ÷ Total asset
 Debt Ratio = Total Liability ÷ Total asset
 Times Interest Earned Ratio = Earnings before interest & tax ÷ Interest
charges
 Net Profit Margin = Net profit ÷ Sales
 Return on Total Asset = Net income ÷ Total asset
 Return on Common Equity = Net income available to common stockholders ÷
Common Equity

Conceptual Discussion of the report:

1. Current Ratio:

Current ratio is an efficient tool to measure that the organization is capable in meeting up
its short term debts or not. Current ratio basically assesses a firm’s liquidity because, if a
firm is enough liquid and it has enough resources then it can pay back the all debts that
need to cover during 12 months.

Formula: Current ratio = Current assets / Current liabilities

2. Quick Ratio:

This ratio assesses the capacity of an organization to recover its current liabilities by
using the organization’s quick assets. The asset which can be turned into cash rapidly at
an amount that is very close to its book value is known as quick asset.
Quick ratio is also known as Acid-test ratio and liquid ratio. If any quick ratio less than 1
means that the firm cannot pay back its current debts.

Formula: Acid test = (Current assets – Inventory) / Current liabilities.

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3. Inventory Turnover Ratio:

In the business, the sufficient volume of inventory is must and we can judge that enough
inventories are being produced or not through the inventory turnover ratio. This ratio
basically shows that over a period, how many times the inventories are sold and
renovated in a business. Generally, a company with high inventory turnover ratio is
assumed as strong one. When the inventory level is very high then the ratio will be low
which means the inventories are kept idle in the warehouse so definitely it is bad for
future growth.

Formula: Inventory turnover ratio = cost of goods sold / inventory

4. Days Sales Outstanding:

It is the ratio by which we can know that within how much days the firm collects its
money from the sales, so it means that how much times a firm takes to convert its
accounts receivables into cash. If the ratio is lower, then it is good for the organization as
it indicates that the organization collects its receivables at the shortest possible time. If an
organization collects money quickly then can meet up the cash demand to operate the
business and also can reinvest more money thus more sales can be occurred.

Formula: Days sales outstanding = (Accounts receivable * 360)/ Annual sales

5. Fixed Asset Turnover:

It is the ratio where sales are compared with the fixed assets of the firm. The ratio
actually clarifies that the firm is capable enough to use its fixed assets to earn revenues or
not. In fixed asset turn over, normally investments on property, plant and equipment are
counted and the depreciations of these are subtracted. A high fixed asset turnover is
always appreciable as it signals towards the firm’s high productivity. Higher fixed asset
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turnover means the firm is utilizing its fixed assets and generating revenues from these.
On the other hand, low fixed asset is the signal that the firm is not productive and the
firm fails to generate sales revenue by utilizing the fixed assets.

Formula: Fixed assets turnover ratio = Sales / Net fixed assets

6. Total Asset Turnover:

Total Asset Turnover judge that how much sales revenue is gathered in against of each
dollar of assets. Through this ratio, the effectiveness of asset management of the firm is
measured. Higher the ratio, higher the efficiency of the firm and the vice versa.
Formula: Total assets turnover ratio = Sales / total assets

7. Debt to total assets Ratio:

This ratio finds out that how much of the total asset is funded through debt. So, it actually
shows the dependency on debt in order to manage assets. If the ratio is higher, then it
means that the firm has higher debt and it is more dependent to its creditors for necessary
financing.
If the ratio is higher than 1, it indicates excess debt over total assets and the vice versa.
Although higher debt is not a problem if interest payments are made on time, if it is not,
then definitely a great risk for the firm.

Formula: Debt to total assets ratio = Total liabilities / total assets

8. Time Interest Earned Ratio:

Time Interest Earned ratio is basically a solvency ratio which assesses that firm has the
capacity or not to pay back all its loans. This ratio is also known as interest coverage
ratio. Through this ratio it can be judged that how many times a firm can face its interest
expenses that are due to the taken borrowings. If the ratio is higher, then it means that the
firm has the ability to payback its loans. On the other hand, if the ratio is less than 1 then
it means that the firm is not achieving much profit to meet up the debt obligations.
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Formula: Times interest earned ratio (TIE) = EBTI / Interest changes

9. Net Profit Margin:

This is the ratio of Net Income to Sales or Revenues. Through the net profit margin, we
asses that out of each dollar of sales how much is kept as earning. Higher the profit
margin, better the condition of the firm.

Formula: Net profit margin = Net profit /Sales

10. Return on Assets (ROA):

It measures that the firm how efficiently uses its assets to generate profits. This is also
known as Return on Investment (ROI) as it tells that a firm how effectively transforms its
investments on profits. It is often expressed in percentage. Higher ROA is always desired
as it indicates that higher profit has been made through fewer investments.

Formula: Return on total assets (ROA) = Net income / total assets

11. Return on equity:

Return On Equity is the ratio of net income to total shareholder’s equity. It measures that
the firm how much earns from the shareholders’ equity. Increasing ROE indicates
improved performance.
Formula: ROE= Net Income/Total Equity Capital

12. Price Earnings Ratio or P/E:

This is the ratio of market value to EPS. Through this ratio, the recent trading price of the
firm is compared with its EPS. The P/E ratio actually represents the expectation of
investors about the firm. Higher P/E means that investors have high expectations about
the firm’s future growth and that’s why they are interested to invest
Formula: P/E ratio= Market Price/EPS
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13. The ratio of a stock’s market price to its book value gives indication of how investors
regard the company. The stock of companies with relatively high rates of return on equity
generally sells at higher multiples of book value than those with low returns.

Formula: Market/ Book (M/B): Market Price per share / Book value per share
 P a g e | 10

Financial Ratio Analysis at a Glance:

Ratios Formula For Calculation 2016-2017 7 2017-2018

Tk. Ratio Tk. Ratio

Current
Ratio
Current assets 7499373281 9732170099
1
3.82:
Liquidity Current liabilities 2394537126 3.13:1
2549018066
Quick 9732170099−
Ratio 3310086668 2.51
Current assets− 7499373281
Inventory −2737085779 1.98:1 :1
Current
Liabilities 2394537126
2549018066

Inventory
4.514
Turn Over 4.74 times
times

Cost of good 12960738683 14942870155

Inventory 2737085779 3310086668

Asset
Management
Account receivable 766634978 894543303
1.86 2.06
DSO
Annual sales/360 64634481 74123814
Fixed 1.048
Assets times
Turn
Over
Sales 23268413217 26684573116
0.99
Net fixed assets 23546701250 times 25458986164
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0.75 0.76
times 26684573116 times

Sales 23268413217

Total 35191156263
Assets
Turn Total assets
Over
31046074531
Debt
Debt to total
Management Assets
42971227
Total liabilities 99
310460745 40995238
31 13.8 43 * 100 11.6
Total assets * 100
35191156
263 5%
∗ 100 4%

Net
profit
Margin
Net profit margin 18.2
42505808 51864368
63 *100 69 *100 19.4

232684132 26684573
Net profit/sales 17 6% 116 3%
∗ 100

15.8 16.6
Profitability 425058086 51864368
Ratio Net income 3 69 8%
*100 9% *100
Common 26739581 31093302
ROE equity * 100 929 284
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Return
on
total 51864368
assets 69 * 14.7
13.6
425058086 35191156
Net income 3 263

Total 310460745
assets * 100 31 * 100 9% 100 4%
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Organizational overview:
Square pharmaceutical limited, the pharmaceutical giant in the country, is a trusted name
in the industry of manufacturing quality medicines for more than four decade.

The company was founded in 1958 By Samsong H Chowdhury along with three of his
friends as a private firm. It went to Public in 1991 and is currently listed on the Dhaka
stock exchange. Square Pharmaceutical limited, the flagship company of SQUARE
Group, is holding the strong leadership position in the pharmaceutical company of
Bangladesh since 1985 and it has been continuously in the 1 st position among all national
and multinational companies since 1985. Square Pharmaceutical limited, is now on its
way to becoming a high performance global player.

Result and Discussion:

2016-17 and 2017-18 financial ratio analysis:
Liquidity Ratio:
In 2016-17,
Current Ratio = Current Assets / Current Liabilities.
= 7499373281
2394537126

= 3.13:1

In 2017-18,
Current Ratio = Current Assets / Current Liabilities.
= 97321700992549018066

= 3.82:1

Comparative Ratio Analysis:

In 2016-17 & 2017-18 Current ratios are 3.13 & 3.82 respectively. The Current Ratio of
2017-18 is higher than 2016-17 because the Current Asset of 2017-18 is greater than
2016-17 but the current liability of 2017-18 is almost same of 2016-17.
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In 2016-17,
Quick ratio = (Current Assets-Inventory) / Current Liabilities
= 7499373281−2737085779
2394537126

= 1.98 : 1

In 2017-18,
Quick ratio = (Current Assets - Inventory) / Current Liabilities
= 9732170099−3310086668
2549018066

= 2.51: 1

Comparative Ratio Analysis:

I found that the Quick Ratio of 2017-18 is upper than 2016-17. Because the Current
Assets and Inventory increases but liability does not increases.

Profitability Ratio:

In 2016-17,
Net Profit Margin = Net Income / Net Sales
4250580863
= 23268413217 *100

=18.26 %

In 2017-18,
Net Profit Margin = Net Income / Net Sales
5186436869
= 26684573116 *100

=19.43 %

Comparative Ratio Analysis:

In 2016-17 & 2017-18 Net Profit Margin are 18.26% & 19.43% respectively. The Net
Profit Margin of 2017-18 is higher than 2016-17, because the Net Income & Net Sales
increases from 2016-17 to 2017-18.

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In 2016-17,
Return on assets (ROA) = Net Income / Total assets *100
= 310460745314250580863 * 100

= 13.69 %

In 2017-18,

Return on assets (ROA) = Net Income / Total assets *100

= 351911562635186436869 * 100

=14.74 %

Comparative Ratio Analysis:

I found that the Return on assets (ROA) of 2017-18 is upper than 2016-17, because the
Net Income and Total assets are increases from 2016-17 to 2017-18.

In 2016-17,
Return on Equity (ROE) = Net Income / Shareholders’ equity *100
4250580863
= 26739581929 *100

= 15.89 %

In 2017-18,

Return on Equity (ROE) = Net Income / Shareholders’ equity *100

5186436869
= 31093302284 *100

= 16.68 %

Comparative Ratio Analysis:

In 2016-17 & 2017-18 the Return on Equity (ROE) are 15.89% & 16.68% respectively,
because the Net income & shareholders’ equity of 2017-18 is higher than 2016-17.

Asset Management:

In 2016-17,
Inventory Turnover = Cost of goods sold / Inventory
12960738683
=
2737085779

= 4.74 times
 P a g e | 16

In 2017-18,
Inventory Turnover = Cost of goods sold / Inventory
14942870155
=
3310086668

= 4.514 times

Comparative Ratio Analysis:

Here, I found that the Inventory Turnover of 2017-18 is superior to 2016-17, because the
Cost of goods sold & Inventory increases from 2016-17 to 2017-18.

In 2016-17,
Days Sales Outstanding (DSO) = Accounts Receivable/(Annual sales/360)
766634978
=
64634481

= 11.86

In 2017-18,

Days Sales Outstanding (DSO) = Accounts Receivable/(Annual sales/360)

= 894543303
74123814

= 12.06

Comparative Ratio Analysis:

From the calculation, I found that the Days Sales Outstanding (DSO) of 2017-18 is better
than 2016-17, because the Accounts Receivable & Annual sale increases from 2016-17 to
2017-18.

In 2016-17,
Fixed asset turnover = Sales/Net fixed assets
23268413217
=
23546701250
= 0.99 times

In 2017-18,
 P a g e | 17

Fixed asset turnover = Sales/Net fixed assets

2668457316
=
2545898614
= 1.048 times
Comparative Ratio Analysis:

In 2016-17 & 2017-18 the fixed asset turnover are 0.99 times & 1.048 times
respectively. For the reason that the Sales & Net fixed assets increases but the net fixed
assets are more increases than sales.

In 2016-17,
Total assets turnover = Sales/Total assets
23268413217
=
31046074531
= 0.75 times

In 2017-18,

Total assets turnover = Sales/Total assets

26684573116
=
35191156263
= 0.76 times

Comparative Ratio Analysis:

From the equation, I found that the Total assets turnover of 2017-18 is better than 2016-
17, as the Sales & Total assets increases from 2016-17 to 2017-18.

Debt Management:
In 2016-17,
Debt to assets = Total Liabilities/Total assets
4297122799
= 31046074531 * 100
= 13.84%

In 2017-18,

Debt to assets = Total Liabilities/Total assets

4099523843
= 35191156263 * 100
= 11.65%

Comparative Ratio Analysis:

 P a g e | 18

In 2016-17 & 2017-18 the Debt to assets are 13.84% & 11.65% respectively. Because the
Total Liabilities drops but Total assets rises in 2017-18 from 2016-17.

Conclusion:
SQUARE today, symbolize a name – a state of mine from the inception in 1958 it has
today burgeoned into one of the top line conglomerates in Bangladesh. Square
pharmaceutical limited, the pharmaceutical giant in the country, is a trusted name in the
industry of manufacturing quality medicines for more than four decade. Square
Pharmaceutical limited, the flagship company of SQUARE Group, is holding the strong
leadership position in the pharmaceutical company of Bangladesh since 1985 and it has
st
been continuously in the 1 position among all national and multinational companies
since 1985. Square Pharmaceutical limited, is now on its way to becoming a high
performance global player.

Reference
 Kumar Debasis Dutta, Assistant Professor, Department of Finance and Banking, Paruakhali
Science and Technology University
 Essentials of Managerial Finance by Besley & Brigham
 www.dse.com. (25/11/2015)
 www.squarepharma.com.bd
 https://en.wikipedia.org/wiki/square pharmacy

Appendix:

 Income Statement of Square Pharmaceutical

 Balance Sheet of Square Pharmaceutical