PROJECT ON: FINANCIAL

ANALYSIS
SQUARE LTD. and RENATA LTD.

Prepared By:
Nishat Tarannum Pushpa ID: 1922205630
A.Z.M Julfiker Haider ID: 1912785630
Md. Emon Ahmed ID: 1931242030
Md. Towhiduzzaman Khan ID: 1931331630
Kazi Md. Prachurjo Rahman ID: 1831365630

Submitted To:
Syed Asif Hossain

Lecturer, Department of Accounting and

Finance, North South University.
Letter of Transmittal
Date:07-01-2022
Syed Asif Hossain
Department of accounting and Finance
North-South University.
Subject: Letter of transmittal

Dear Sir,
We would gladly like to inform you that we have finally prepared the project assigned to us for
FIN 254, Introduction to Managerial Finance. As the accompanying document is all about the
ratio analysis and interpretations between two pharmaceutical industries in Bangladesh, Square
pharmaceutical Ltd., and Reneta Ltd. Both of the companies had set their goal not only to
operate in the market but to achieve a competitive edge to become an industry leader also in near
future.
From an investor’s perspective, we tried to analyze the ratios with our keen observations and also
put some recommendations on whether to invest or not in the aforementioned companies. We
have researched what is actually going on in the industry and learned many ins and outs. By
these means, we have learned a lot in terms of skills and knowledge required for investing.

Therefore, we would like to thank you for assigning us such project work which will be helpful
not only for our academic purpose but hopefully in our upcoming professional life as well.

Sincerely,
Nishat Tarannum Pushpa ID: 1922205630
A.Z.M Julfiker Haider ID: 1912785630
Md. Emon Ahmed ID: 1931242030
Md. Towhiduzzaman Khan ID: 1931331630
Kazi Md. Prachurjo Rahman ID: 1831365630

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Abstract

This report is all about the ratio analysis of two renowned companies from the pharmaceutical
industry of Bangladesh, one is Square pharmaceutical Ltd. and another one is Reneta ltd. The
year 2018-2020

At first, we made a yearly analysis for both the companies for consecutive years from 2018 to
2020 separately, and then we made comparisons between these two companies to find out which
company is performing better and trying to improve over the years and have better future
prospects.

Based on the ratio analysis of both the companies, which included calculating the liquidity,
profitability, activity, debt, and market ratios, we interpreted these ratios and have used tables
and graphs for better understanding. Furthermore, we added recommendations on basis of our
understanding and thought of what will be effective in improving the performance of both these
companies from an investor’s perspective.

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Introduction

Square Pharmaceuticals Ltd. is a Bangladeshi multinational pharmaceutical company. It was

founded in 1958 by Samson H. Chowdhury along with three of his friends PK Saha, Kazi
Harunur Roshid, and Radhabinod Rai as a private firm. It went public in 1991 and is listed on
the Dhaka Stock Exchange and on the Chittagong Stock Exchange. Square Pharmaceutical
started to export different antibiotics and medicine across the world in 1987. Now it exports its
medicine to 36 countries of the world.

Renata Limited (formerly Pfizer Limited) is one of the leading and fastest-growing
pharmaceutical and animal health product companies in Bangladesh. The company started its
operations in 1972 as Pfizer (Bangladesh) Limited. In 1993, Pfizer transferred the ownership of
its Bangladesh operations to local shareholders and the name of the company was changed to
Renata Limited. The core businesses of Renata Limited are human pharmaceuticals and animal
health products. In Bangladesh, it is the 4th largest pharmaceutical company and the market
leader in animal health products. In addition, Renata products are exported to Afghanistan,
Belize, Cambodia, Ethiopia, Guyana, Honduras, Hong Kong, Kenya, Malaysia, Myanmar,
Nepal, Philippines, Sri Lanka, Thailand, the United Kingdom, and Vietnam.

This report is based on these two companies which are from the same industry. The report
consists of basic Ratios of these two companies and finds out the financial statement of these
companies. The pharmaceutical companies like Square pharmaceutical Ltd. And Renata Ltd. is
going to be analyzed from a time-series perspective and cross-sectional perspective through this
ratio analysis and which one is going to be a much more beneficial investment for the investors.

Financial Ratio Analysis

Liquidity Ratios

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Current Ratio: The Current Ratio is a measure of liquidity calculated by dividing the firm’s
current assets by its current liabilities.

Formula: Current Assets/Current Liabilities

• Square Pharmaceuticals Limiteds’ and Renata Limiteds’ Current Ratios:

Year 2018 2019 2020

Square Pharmaceuticals 4.91 12.93 14.52
Ltd.
Renata Limiteds 2.12 2.55 2.46

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Time Series Interpretation:

Square Pharmaceuticals Limited: Over the past 3 years, Square Pharmaceuticals Limited has
seen a constantly declining Current Ratio. 2.41 in 2020 implies that to pay one taka of current
liability the firm has 2.41 taka of current assets, meaning they are in a worse position in 2020

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than in their previous years.

Renata Limited: On the other hand, Renata Limited have had a rising Current Ratio over the
past 3 years, starting from 1.98 in 2017 to 2.49 in 2020. This 2.49 implies that to pay one taka of
current liability the firm has 2.49 taka of current assets. Olympic are in a better position in 2020
to pay off their current liabilities with their current assets than in their previous years.

Cross-Section Analysis: Renata Limited experienced a slow and steady growth from 1.982 to
2.49 in 3 years, whereas Square Pharmaceuticals Limited experienced a fall from 24.86 to 2.41.
While comparatively Renata might have too many current assets as opposed to Square
Pharmaceuticals Limited, who therefore might have better ability to clear their debts in the short
term.

Quick Ratio:

With the quick ratio the liquidity is measured, the formula is

The formula:
(Current assets-Inventory)/Current liabilities
Depiction of Square Pharmaceuticals Limiteds’ and Renata Limiteds’ current ratios:

Year 2018 2019 2020

Square Pharmaceuticals 4.25 11.38 12.76
Ltd.
Renata Limiteds 1.27 1.64 1.61

Quick ratio
14

12

10

0
2018 2019 5 2020
Square renata
  Time series interpretation:

Square Pharmaceuticals Ltd.: From the statistics we can clearly say that their current ratio
degenerated from 1.937 in 2107 to 1.829 in 2020, this means to pay 1 taka liability the company
has 1.829 assets without inventory, they will not be able to pay their liabilities apparently .
Renata Limited: Their quick ratio slowly rose in the 3 years from 1.721 to
1.935 in the year 2020 .Which means against 1 taka they can pay 1.935 taka of current asset
deducted from stock , this indicates they can pay off their short term debts without utilizing their
stock, and in the year 2020 they were in a better position than previous years.
Cross Section analysis:
In the 3 years Square Pharmaceuticals Ltd quick ratios declined from 1.937 to 1.829, and Renata
Limited industry experienced reverse from 1.721 to 1.935. After analyzing we can say that
Renata Limited industry is in a better position where Square Pharmaceuticals Ltd have more
stocks tied up.

Asset Management Ratios

Inventory turnover

This ratio basically estimates how often the inventory is transformed into sales.
The formula:
Sales/inventory
Depiction of Olympic Square Pharmaceuticals Limiteds’ and Renata Limiteds’ Turnover

Year 2018 2019 2020

Square (5.41) (4.90) (4.36)
Pharmaceuticals
Ltd.

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 Renata Limiteds 2.82 2.91 2.92

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Time Series Interpretation

Square Pharmaceuticals Ltd.: Their turnover ratio changed a lot, from the 3 years analysis it
was the lowest in 2020 that is 2.09, this means they restocked and sold 2.09 times within the
year. This tells us that the stocks were not managed properly due to previous stocks or additional
inventory

Renata Limited: Their inventories also have gone through changes, in the year 2020 it was the
lowest that is 6.171. This means they restocked and sold 6.171 times within the year. This tells us
that the stocks were not managed properly due to previous stocks or additional inventory

Cross Section Analysis

Renata’s inventory turnover is better that Square Pharmaceuticals Ltd, so Renata is better
performing.

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Average collection period:

Is the number of dates credit sales were made and money was received /collected from the
clients.
The formula:
Account receivable / (Sales /365)
Depiction of Square Pharmaceuticals Limiteds’ and Renata Limiteds’ average collection period

Year 2018 2019 2020

Square 10.95 11.21 9.51
Pharmaceuticals Ltd.
Renata Limited 0.54 0.58 1.18

 Time series Interpretation

Square Pharmaceuticals Ltd.: In 2020 the average collection period has been 218.20 this
means it took them 218.20 days to collect cash from their clients. In the year 2019 they were able
to collect faster even though they were slower in the year 2017 and 2018.
Renata Limiteds: In 2020 it took them 8.30days to collect cash from their clients. And
previously there were slight fluctuation in the collection period
Cross Section Analysis
In comparison to Renata Limited Square Pharmaceuticals Ltds’ condition is very risky because
they took 200 days to collect the cash where Renata took 5-9 days.

Summary of Average collection period

To collect cash Olympics Industry took merely 5-9days whereas Fu Wang Foods took over

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200days.

Average Payment Period

Average payment period is a solvency ratio that measures the average number of days it takes a
business to pay its vendors for purchases made on credit. Average payment period is the average
amount of time it takes a company to pay off credit accounts payable.
Formula: Accounts Payables/ (COGS/365).
So, Square Pharmaceuticals Limiteds’ and Renata Limiteds’ Industries Average Payment Period:

Year 2018 2019 2020

Square 81.75 11.48 7.96
Pharmaceuticals
Ltd.
Renata Limited 7.92 7.39 8.61

 Time Series Interpretation:

Square Pharmaceuticals Ltd.:- They take more time to take payment in 2020 than 2019 also
they took less time in 2018 than 2017 but they all take much more time than 2019. They make
15.44 days to make their payment in 2020, 13.18 days in 2019, 26.45 days in 2018 and 27.27
days in 2017. They improved in 2019 but again they fail in 2020 which means they now take
more time to pay this year than they did the last year.

Renata Limited:-They also take more time to take payment in 2020 than 2019 but they took less
time in 2018 than 2020 but more time in 2017. They make 24.43 days to make their payment in
2020, 23.68 days in 2019, 24.05 days in 2018 and 29.30 days in 2017. They improved in 2019
but again they fail in 2020 which means they now take more time to pay this year than they did
the last year.

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Cross-Section Analysis:
Square Pharmaceuticals Ltd and Renata Limited have both experienced an increase in number of
days to pay back their creditors in 2020 but Square Pharmaceuticals Ltd are in a better position
which means the suppliers are more likely to deal with Square Pharmaceuticals Ltd over Renata
Limited.

Total Asset Turnover

Total Asset turnover is the ratio of total sales or revenue to average assets. This metric helps
investors understand how effectively companies are using their assets to generate sales. Investors
use the asset turnover ratio to compare similar companies in the same sector or group.
Formula: Sales/Total Asset.
So, Square Pharmaceuticals Limited’s and Renata Limited’s Total Asset Turnover:

Year 2018 2019 2020

Square 0.99 0.78 0.78
Pharmaceuticals
Ltd.
Renata Limited 1.04 0.98 1.00

 Time Series Interpretation:

Square Pharmaceuticals Ltd.: Fu-Wang’s Total Asset Turnover in 2020 is decrease from last
year which means they have to increase more to improve their asset and to create more sales. In
2017 their Turnover was 0.42, 2018 was 0.41, 2019 was 0.52 which was improving but than in
2020 again decreased to 0.43.
Renata Limited: Renata’s Total Asset Turnover in 2020 is increase from not only last year but

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also previous 3 years. It is their highest in 2020. They have improved their asset and generate
more sales. In 2017 their Turnover was 1.24, 2018 was 1.20, 2019 was 1.25 and 2020 the highest
1.35 which means they are improving and generating more sales.
Cross-Section Analysis:
Renata Limited have improved their efficiency in the latest year where Square Pharmaceuticals
Ltd have still been more efficient at utilizing their assets to generate more sales with a higher
Total Asset Turnover.

Fixed Asset Turnover

The fixed asset turnover ratio is used by analysts to measure operating performance. These
efficiency ratios compared to net sales to fixed assets and measure a company's ability to
generate net sales from its fixed-asset investments namely property, plant, and equipment.
Formula: Sales/Net Fixed Assets.
So, Square Pharmaceuticals Limited’s and Renata Limited’s Fixed Asset Turnover:

Year 2018 2019 2020

Square Pharmaceuticals 2.03 1.90 2.12
Ltd.
Renata Limited 2.18 2.22 2.40

 Time Series Interpretation:

Square Pharmaceuticals Ltd.: Square Pharmaceuticals Limited’s fixed Asset Turnover in 2020
has decreased from last year. It was increasing from the previous 3 years but in 2020 it decreased
which means they are unable to using investments in their fixed asset to generate more income.
In 2017 the Turnover was 1.13, 2018 was 1.16, 2019 was 1.50 and then suddenly decrease to
1.24 in 2020.

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Renata Limited: Renata’s Fixed Asset Turnover in 2020 is increase from last year. The highest
turnover was in 2017 but then it is constantly falling but in 2020 it improved. So it means they
are unable to using investments in their fixed asset to generate more income. In 2017 the
Turnover was 4.78, 2018 was 4.07, 2019 was 3.52 and then suddenly increase to 4.01 in 2020.

Cross-Section Analysis: Renata Limited have improved their efficiency in the latest year
where Square Pharmaceuticals Limited have still been more efficient at using investments in
their fixed assets to generate more income or more sales with a higher Fixed Asset Turnover.

Profitability Ratios

Gross Profit Margin

The Gross Profit Margin outlines the amount of profit generated before eliminating selling,
general, and administrative costs incurred, giving us an overview of a company's financial health.

Year 2018 2019 2020

Square 54.75% 45.88% 44.40%
Pharmaceuticals Ltd.
Renata Limited 50.20% 47.72% 47.69%

 Time Series Analysis:

Square Pharmaceuticals Ltd.: From 2017 to 2020, Square Pharmaceuticals Ltd’s Gross Profit

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Margin has been steadily decreasing. The 22.5 % in 2020 indicates that Fu-Wang Foods' Cost of
Goods Sold is likely greater than in prior years, indicating that they should reconsider their
spending strategies.

Renata Limited: Gross Profit Margin improved slightly in 2019, reaching 33.12 % before
declining to 31.89 percent in 2020. This lower Gross Profit Margin % indicates that the firm may
have suffered a greater cost of goods sold, causing the company to reconsider its expenditure
plan.

Cross section Analysis:

While Square Pharmaceuticals Ltd.’s Profit Margin has been declining over time, Renata Limited
Industries has experienced ups and downs but has maintained a greater margin percentage,
indicating that they have been better at regulating and making spending decisions in terms of
cost of goods sold than Square Pharmaceuticals Ltd.

Operating Profit Margin

The Operating Profit Margin is a measure of a company's ability to earn profit from its core
operations.

Year 2018 2019 2020

Square Pharmaceuticals 84.11% 79.32% 65.33%
Ltd.
Renata Limited 24.08% 24.71% 23.30%

 Time Series Analysis:

Square Pharmaceuticals Ltd: Operating Profit Margin improved slightly from 2017 and 2019,
before falling to 11.84 percent in 2020. This decline indicates that they have not made effective
continuous improvement and expenditure evaluations in the recent past.

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Renata Limited: Operating Profit Margin has been steadily decreasing during the last four
years. This drop is an indication of poor management and expense measures made during this
time period.

Cross section Analysis:

Despite the fact that Square Pharmaceuticals Ltd had shown signs of improvement in previous
years while Renata Limited’s Operating Profit Margin has been steadily declining, Renata
Limited still has a higher operating profit margin of 16.7% in recent year compare to Fu-Wang,
which means that they are more efficient at managing operations than Square Pharmaceuticals
Ltd.

Net Profit Margin

The Net Profit Margin Ratio measures a company's net income or profit as a proportion of
revenue.

Year 2018 2019 2020

Square Pharmaceuticals 15.53% 20.77% 22.21%
Ltd.
Renata Limited 17.21% 17.09% 17.21%

 Time Series Analysis:

Square Pharmaceuticals Ltd.: Since 2017, Square Pharmaceuticals Ltd’s Net Profit Margin has
been declining, decreasing from 9.05 percent in 2017 to 6.59 percent in 2020. This signifies
either an increase in expenditures or a decrease in revenue is the reason for the fall.

Renata Limited: Net Profit Margin has been steadily declining from 2017, falling from 14.55
percent in 2017 to 12.74 percent in 2020. This, too, is a sign of rising expenses or reduced sales.

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Cross section Analysis:
Renata Limited has a greater Net Profit Margin than Square Pharmaceuticals Ltd, which may be
attributed to more sales or lower expenses incurred – implying that Renata Limited has superior
cost management than Square Pharmaceuticals Ltd.

Basic Earnings Power (BEP):

The Basic Earnings Power depicts the firm’s assets’ ability to generate operating income before
taxes. This holds up the raw earning power of a company’s assets before taxes and debt come
into the equation.
Formula: Earnings before Interest Tax/Total Assets x 100

• Square Pharmaceuticals Limited’s and Renata Limited’s Basic Earnings Power (BEP)
Percentages:

Year 2018 2019 2020

Square Pharmaceuticals 83.48% 62.02% 51.27%
Ltd.
Renata Limited 25.05% 24.20% 23.19%

 Time Series Interpretation:

Square Pharmaceuticals Ltd.: Square Pharmaceuticals Ltd’s Basic Earning Power saw an
improvement from 2017 to 2019 before dropping down to 5.07% in 2020. This drop shows that
Fu-Wang have been less efficient in the recent year in terms of generating cash flow from their
asset base.

Renata Limited: Renata Limited’s Basic Earning Power has been on a fall since 2017, stopping

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at 22.49% in 2020. This slow yet steady decrease implies that Olympic, too, have been lesser and
lesser efficient in the recent years in terms of generating cash flow from their asset base.

Cross-Section Analysis:
Square Pharmaceuticals Ltd had shown signs of improvement in the earlier years whereas Renata
Limited has had a constant drop on their BEP ratio, since Renata Limited have a higher ratio
nonetheless, they can be deemed more efficient at generating cash flow from their asset base.

Return on Asset (ROA)

Return on Assets (ROA) Ratio of a company calculates how much of a firm’s total assets
contribute to the generated net income.
Formula: Net Income after Tax/Total Assets x 100
Square Pharmaceuticals Limited’s and Renata Limited’s ratios percentages of Return on Assets
(ROA) is given below:

Year 2018 2019 2020

Square 15.41% 16.24% 17.43%
Pharmaceuticals Ltd.
Renata Limited 17.90% 16.74% 17.13%

 Times-series interpretation:

Square Pharmaceuticals Ltd.: Square Pharmaceuticals Ltd’s ROA was 3.82% in 2017 which
dropped in 2018 and became 3.62 and the percentage improved in 2019, but went on to drop to
almost half in 2020, standing at 2.82%. This implies that the firm has not been effectively
utilizing their total assets to generate sufficient incomes.
Renata Limited: Renata Limited’s ROA percentage dropped in 2018 and has been improving
ever since, standing at 17.16% in 2020. This implies that the management has been effectively
utilizing their total assets to generate sufficient incomes.

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Cross-Section Analysis:
Renata Limited Industries have a higher ROA percentage than Square Pharmaceuticals Ltd,
which therefore implies that Renata Limited have always been more efficiently using their total
assets to generate sufficient incomes, giving them a competitive advantage over Square
Pharmaceuticals Ltd.

Return on Common Equity (ROE)

The Return on Common Equity (ROE) Ratio measures the rate of return of a company on a
common stockholder’s investment in a firm.
Formula: Earnings Available for Common Stockholders/Total Common Stockholders’ Equity x
100 OR Net Income after Tax/Stockholders’ Equity x 100
Square Pharmaceuticals Limited and Renata Limited’s ratios percentages of Return on Equity
(ROE) is given below:

Year 2018 2019 2020

Square 18.55% 18.76% 19.65%
Pharmaceuticals Ltd.
Renata Limited 20.56% 22.21% 27.07%

 Times-series Interpretation:

Square Pharmaceuticals Ltd.: Square Pharmaceuticals Ltd’s ROE percentage improved5.55%

in 2017 to 6.80% in 2019, but went on to drop to almost half in 2020, standing at 4.13% as of

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late. This implies that the firm has not been sufficiently using their stockholders’ investments to
generate income.

Renata Limited: Renata Limited’s ROE percentage has constantly been dropping over the span
of 4 years from 2017 to 2020 from 30.36% to 28.41 to 25.94% to 24.57%, meaning that they
have been failing to put their stockholders’ investments to use in terms of generating income.

Cross-Section Analysis:
Renata Limited have had higher Return on Equity (ROE) percentages than Square
Pharmaceuticals Ltd, meaning that Renata Limited have always been more efficient at putting
their investors’ money to use to generate higher incomes and sales.

Earnings per Share (EPS)

The Earnings per share (EPS) is the company's net profit divided by the number of common
shares it has outstanding. EPS indicates how much money a company makes for each share of its
stock and is a widely used metric for estimating corporate value.
Formula: Earnings Available for Common Stockholders or Net Income/Number of Shares of
Common Stock Outstanding
So, Square Pharmaceuticals Limited’s and Renata Limited’s Earnings per Share (EPS):

Year 2018 2019 2020

Square Pharmaceuticals 15.72 16.03 15.82
Ltd.
Renata Limited 38.57 46.63 41.17

 Time Series Interpretation:

Square Pharmaceuticals Ltd.: Square Pharmaceuticals Ltd’s EPS in 2020 is lower than the last
year. It had increased from 2017 to 2019 but in 2020 it fell. It means that the firm has lost their
capabilities to earnings per share which could lead to lower incomes. EPS in 2017 was 0.57 same

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as 2018 than in 2019 it was 0.80 but in 2020 it fell to 0.50.
Renata Limited: Renata Limited’s EPS has been rising since 2017 to 2020. It means that the
firm has been growing more capable in terms of giving out the earnings per share and generates
higher incomes. EPS in 2017 was 8.22, 2018 was 8.96, 2019 was 9.36 and 2020 its 10.13.
Cross-Section Analysis:
Renata Limited have a higher EPS than Square Pharmaceuticals Ltd which gives an advantage
the investors would be more pulled towards investing in Renata Limited than in Square
Pharmaceuticals Ltd.

Debt Ratios

The Debt Ratio measures the proportion of total assets financed by the firm’s creditors.
Formula: (Total Current Liabilities + Long-Term Debt)/Total Assets
Square Pharmaceuticals Limited’s and Renata Limited’s Debt Ratios:

Year 2018 2019 2020

Square Pharmaceuticals 12.50% 6.54% 5.97%
Ltd.
Renata Limited 21.56% 19.19% 21.02%

 Time Series Interpretation:

Square Pharmaceuticals Ltd.: Square Pharmaceuticals Ltd’s Debt Ratio has seen an
insignificant drop after falling from 2017 to 2018 from 31.06 to 31.04, and from 31.76 to 31.71 a
decrease in debt management from 2019 to 2020. If they have high profitability, they might have
lesser buffer time to pay their creditors. But a debt ratio of 31.71 would mean creditors would
probably be more likely to give them credit due to this.

Renata Limited: Renata Limited’s Debt Ratio was on a steady rise from 2017 to 2019 before

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dropping to almost half in 2020, from 3.79% to 1.96%. The case is the same for them – if they
have high profitability, they might have lesser buffer time to pay their creditors but the lower
ratio also implies that mean creditors would probably be more likely to give them credit due to
this.

Cross-Section Analysis:
With Square Pharmaceuticals Ltd Lower Debt Ratio of 31.71 as opposed to Renata Limited’s
1.96, they are drastically different and the company with lesser debt ratio is more likely to be
favored by creditors in terms of taking credit.

Times Interest Earned (TIE)

The Times Interest Earned (TIE) Ratio measures a firm’s ability to make contractual interest
payments, sometimes called the interest coverage ratio.
Formula: Earnings before Interest Tax (EBIT)/Interest Expense
Square Pharmaceuticals Limited’s and Renata Limited’s Times Interest Earned (TIE) Ratio:

Year 2018 2019 2020

Square Pharmaceuticals 5.14 7.51 5.92
Ltd.
Renata Limited 15.51 12.91 15.4

 Time Series Interpretation:

Square Pharmaceuticals Ltd.: Square Pharmaceuticals Ltd’s Times Interest Ratio has fluctuated
quite a bit before spiking sharply in 2020, jumping from 6.75 times to 5.14 times. This decrease
means Fu-Wang Foods haven’t been properly generating income to back up their interest
expenses.

Renata Limited: Renata Limited’s Times Interest Ratio had actually been dropping in the past

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years before they saw a rise to 15.51 times in 2020 from 12.91% in 2019. This rise implies that
Olympic have been properly generating income to back up their interest expenses.

Cross-Section Analysis:
Square Pharmaceuticals Ltd and Renata Limited Industries have always been head-to-head when
it comes to the TIE rate, but 2020 has been a deciding year where Renata Limited have gained a
competitive edge with a higher TIE rate than Fu-Wang foods, meaning that they have been more
efficient at generating income to cover for their interest expenses. Since Square Pharmaceuticals
Ltd has less times interest earned, the firm should reduce their debt financing to avoid any
possible bankruptcy situations.

Market Ratios
Price Earnings Ratios (P/E)

In Price Earnings Ratio, we actually calculate what amount of money investors are willing to pay
for any share in return of $1 of Earning per Share.

Formula: Market Price per share/Earnings per share.

Square Pharmaceuticals Limited’s and Renata Limited’s Market Ratios:

Year 2018 2019 2020

Square Pharmaceuticals 14.16 13.93 10.38
Ltd.
Renata Limited 21.98 19.14 20.60

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  Time Series Interpretation:

Square Pharmaceuticals Ltd.: From the data set and line graph we can observe that the P/E
ratio of Square Pharmaceuticals Ltd has decreased to 10.38 from 2018 to 2020. This gives us the
understanding that the investors are willing to invest 23.39 to purchase the shares of Square
Pharmaceuticals Ltd. Generally, P/E ratio above 20 is regarded as healthy and this means that the
investors have put trust on Square Pharmaceuticals Ltd as they are willing to pay higher price for
the shares.

Renata Limited: The P/E ratio of Renata Limited is decreasing very significantly. It has
decreased from 33.89 in 2017 to 14.83 in 2020. This suggests that investors are losing
confidence on Renata Limited and reluctant to invest behind them. However, Lower P/E ratio
does not always mean bad. The current P/E ratio of them might be suggesting that the market
price is correctly reflecting the share’s earning capability and not overvalued.

Cross Section Analysis:

Comparatively Square Pharmaceuticals Ltd has better P/E Ratio in 2020 of 23.39 than Renata
Limited who has only 14.83. This suggests that in the medicine industry, the investors have more
confidence on the Square Pharmaceuticals Ltd over Renata Limited that they will be able to give
better earnings per share in the future and as a result Square Pharmaceuticals Ltd will be able to
generate more capital or funds in the future which can be used to expand their business operation
or to introduce new products.

Market to Book Ratio

In M/B Ratio, we actually calculate what amount of money investors are willing to pay for any
share in return of $1 of Book Value of Share. That means this ratio evaluates a company’s current
market price to its actual book value.

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Formula: Market Price per share/Book Value per share

Square Pharmaceuticals Limited’s and Renata Limited’s Market to Book Ratio:

Year 2018 2019 2020

Square Pharmaceuticals 4.45 3.52 2.21
Ltd.
Renata Limited 4.89 5.14 4.89

 Time Series Interpretation:

Square Pharmaceuticals Ltd.: The M/B Ratio of Square Pharmaceuticals Ltd. has decreased
slightly in the year 2019 but since then it decreased significantly to 2.21 in 2020. This steep fall
suggests that the investors are not that optimistic about the future performance of their share may
be due to the fact of decrease in their brand image and hence the shares are undervalued in the
stock market since it is less than 1.

Renata Limited: The M/B Ratio of Renata Limited has increased from the year 2018 to 2019
and again decreased in 2020 to 4.89. This implies the investors are doubtful about the future
performance of their share and they are losing confidence in them but still we can see that the
share of Renata is overvalued in the market since the market value is still greater than their book
value per share.

Cross Section Analysis:

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Although both of the companies’ M/B ratios are not up to the mark, but if we compare, M/B
Ratio of Renata Limited was constantly better over the years compare to the Square
Pharmaceuticals Ltd. Share of Olympic is always overvalued and investors are more confident
and optimistic about them compare to Square Pharmaceuticals Ltd. However, very high M/B
ratio is not expected either because it shows the stock market is inefficient and the share price is
volatile.

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