Accounting ratios used, their description and their limitation:

To understand and critically evaluate the financial performance of the Square

Pharmaceuticals LTD , I have taken the help of the some ratio and did their analysis .

‘’Ratio analysis is a quantitative method of gaining insight into a company's liquidity,

operational efficiency, and profitability by studying its financial statements such as the
balance sheet and income statement. Investors and analysts employ ratio analysis to
evaluate the financial health of companies by scrutinizing past and current financial
statements. Comparative data can demonstrate how a company is performing over time
and can be used to estimate likely future performance. This data can also compare a
company's financial standing with industry averages while measuring how a company stacks
up against others within the same sector’’. (Andrew, 2021)

Below are given description of the ratios used :

1. Profitability ratio:

According to the author (Andrews,2021) , he states profitability ratio as a means to

know how the business is performing in terms of operation . for example: how well
the business is selling its goods and controlling its expenses which will be ultimately
portrayed in terms of profit . the ratios used from here are percentage increase in
revenue , gross profit margin , net profit margin , return on capital employed(ROCE) ,
return on equity (ROE) .

2. Liquidity ratio:

The author (Andrews,2021) states that liquidity ratios gives an indication of the
company’s ability to pay off its short term debts , how much money or resources the
company has for carrying out the business and paying its obligation . The ratios used
are current ratio, asset test ratio , working capital ratio

3. Debt and gearing ratio:

The (kaplan, 2020)states that by calculating the debt and gearing ratio , a company’s
stable conditions can be found out, since if a business has high gearing ratio then it
might lose some of the potential investor in the future and the money earned is
stuck in paying the debts making the company vulnerable . moreover , it gives the
shareholder’s an idea about the company’s capital structure , that is how much is
financed by shareholder’s fund and how much through credit . the ratios used can be
seen as a measure to know about the stability of Square Pharmaceuticals , such as by
using debt-to-gearing ratio , interest cover .
 4. Investor’s ratio:

(kaplan, 2020) claims investor’s ratio as a means of calculating investor’s and future
investor’s interest in the business . the amount of return generated with the money
invested , income earned and ultimately to found out the growth of the ratios .Therefore ,
for understanding the interest and stake of the investor’s I decided to use ratios which are
dividend per share(DPS), Price Earnings ratio(PE), earnings per share ( EPS), Dividend yield .

Limitations:
However , despite ratio analysis helping the interested party to look into any business in a
microscopic level , it too possess some limitations .it can be used to analysis any business of
same sixe and in same industry , it doesnot take into account of inflation means it depends
on historic value . it heavily focuses quantitative measures and ignore the qualitative
aspects which might affect the business negatively as well as positively as well .

Accounting evaluation :

‘’The pharmaceutical industry in Bangladesh is moving forward with great potential

as 98% of the country’s total demand for medicine is being met by domestic
institutions. In addition to meeting the domestic demand, the companies also export
medicines to several countries of the world. In the fiscal year of 2019-20,
Bangladesh’s pharmaceutical export revenue was 136 million. Besides, Bangladesh
ranks 71st out of 134 countries in the world in terms of global pharmaceutical
exports.
With a market value of about 3 billion, it currently accounts for about 1.83 percent
of Bangladesh’s GDP that contributes to the country’s pharmaceutical industry.
According to a report by the Directorate General of Drug Administration (DGDA)’’
(Hossain, 2021)

1. Profitability ratio:
a) sales growth :

Sales growth will help to identify that whether square pharmaceuticals has
increased its sales revenue and if they are growing or not.
 Details of sales Year ended 2020- Year ended 2019- Year ended 2018-
2021(000’s) 2020(000’s) 2019(000’s)

Gross revenue 58,346,258 52,926,219 44,595.486

Percentage 10.24% 18.68% 28.9%
change
Export sales 1507750 1650000 1490000
Percentage (8.83%) 10.95% 2.76%
change
Domestic sales 56,840,000 51276219 43105486
Percentage 10.86% 18.95% 2.76%
change

From the above table it is seen that the gross revenue amount is increasing
year on year where in 2020-2021 , it is 58,346,258 and in 2019-2020 it was
52,926,219 showing an increase of 10.24% . although the increase is not
greater than the previous year. The fall in percentage may be due to the fall
in export sales of 8.83% despite the increase of sales from 42 countries to 45
countries ,is affected due to the covid 19 situation where many countries
closed their borders and there exists heavy restrictions and custom duties
and delays making the medicines expensive .
Moreover , during the covid situation peoples income decreases since many
people lost job and was redundant therefore the full potential of the market
was not explored .

b. gross profit :

‘’Gross profit is the profit a company makes after deducting the costs
associated with making and selling its products’’ (hayes, 2022). The higher
the percentage , the better the company is managing its sales and costs .

Details Year ended 2020- Year ended 2019- Year ended 2018-
2021(000’s) 2020(000’s) 2019(000’s)

Net revenue 58346258281 45876448841 38685655814

Gross profit 51.09% 50.88%
percentage 49.05%
The gross profit margin of square pharmaceuticals increased by 0.42% in
2020-2021. the increase is due to the rise of net revenue . pharmaceuticals is
a medicine , health and safety sector and recently in 2020-2021 the company
started to export to 45 counties . ( see swot analysis).

Moreover , in 2019-2020 despite covid 19 situation the company has

increased gross profit margin from 49.05% to 50.88% which means the
economy Is growing as well .’’Over the past five years, the pharmaceutical
industry in Bangladesh has been growing at a CAGR of 15.6% every year. In
2018, the pharmaceutical market size of Bangladesh was about 2.42
billion dollars, which increased to 3 billion dollars in 2019. (Hossain, 2021)‘’