Financial Statement Analysis

1
Financial statement analysis
Course Code:
Assignment on:
Financial Statement analysis of Square Pharmaceutical Company Limited
Submitted to:
Submitted by:
Table of Contents
Contents
Introduction
Company History
Objective of the study
Balance sheet analysis
Common size analysis
Ratio analysis
Summary and conclusion
References
Page Number
3
3
5
6-10
10-20
21-32
33
34
Introduction
Financial Statement includes the Balance Sheet, Income statement and other statement which
determine the companys performance. Financial ratio analysis is the calculation and comparison
of ratios which are derived from information in companys financial statements. Financial ratios
are the analysts microscope. It allowed them to get a better view of the firms financial health
than just looking at the raw financial statements.
Company History
Square Pharmaceuticals Ltd. is a renowned company in Bangladesh. It is a flagship company in
the pharmaceutical industry which has reached this mountain of success by fighting many
potential competitors like BEXIMCO Pharma, INCEPTA, ACME, RENETA, OPSONIN, SK+F,
SANOFI-AVENTIS etc. It initially started as a Partnership in 1958. It was incorporated as a
Private Ltd. Company in 1964 and converted into Public Limited Company in 1991. Its initial
public offering started in Dhaka and Chittagong stock exchange simultaneously in 1995. Their
mission is to produce and provide quality & innovative healthcare relief for people, maintain
stringently ethical standard in business operation also ensuring benefit to the shareholders,
stakeholders and the society at large.
Vision
They view business as a means to the material and social wellbeing of the investors, employees
and the society at large, leading to accretion of wealth through financial and moral gains as a part
of the process of the human civilization.
Mission
Their Mission is to produce and provide quality & innovative healthcare relief for people,
maintain stringently ethical standard in business operation also ensuring benefit to the
shareholders, stakeholders and the society at large.
Objectives
Their objectives are to conduct transparent business operation based on market mechanism
within the legal & social frame work with aims to attain the mission reflected by our vision.
Corporate Focus
Their vision, our mission and our objectives are to emphasize on the quality of product, process
and services leading to growth of the company imbibed with good governance practices.
Corporate History
Year of Establishment (Initially as a Partnership)
: 1958
Incorporated as a Private Limited Company
: 1964
Technical Collaboration Agreement with

Janssen Pharmaceuticals of Belgium
(a subsidiary of Johnson & Johnson International Ltd. ) : 1975
Technical Collaboration Agreement with
F. Hoffman-La Roche & Co. Ltd.
: 1984
Converted into Public Limited Company
: 1991
Initially Public Offering (IPO)
: 1994
Stock Exchange Listings
: 1995
Agreement with M/s. Bovis Tanvec Ltd. of UK for

implementation of Dhaka Plant
: 1996
Awarded ISO-9001 Certificate
: 1998
Awarded UK-MHRA Certificate
: 2007
Business Lines
: Manufacturing and Marketing of

Pharmaceutical Finished
Products, Basic Chemicals,
Agro Vet Products and Pesticide
Products
Authorized Capital
: Tk. 5,000 million
Paid-up Capital
: Tk. 1,207.22 million
Number of Employees
: 3,811
Subsidiary Company
Square Spinnings Ltd.

Square Cephalosporins Ltd.
Square Biotechs Ltd.

Square Multi Fabrics Ltd.
Associate Company
Square Textiles Ltd.
Square Knit Fabrics Ltd.
Square Fashions Ltd.
Square Hospitals Ltd.
Problem Identification
Pharmaceutical company is very important for every country. In our country, pharmaceutical
sector is booming. This pharmaceutical sector involves with various medicine production,
distribution and other works. One countrys health and nutrition sectors development almost
depends on the pharmaceutical sector because they provide the medicine which refers by the
doctor. If they dont produce quality or standard medicine the patient will not recover from
illness. The nation will net get healthy human resource.
There are many pharmaceutical companies in Bangladesh now. Square pharmaceutical company
is one of them. In the report we will see how they perform in Bangladesh with their financial
statement analysis.
Objective of the Study

In Bangladesh, pharmaceutical sector is one of the boost sectors. This sector develops their
products and service rapidly. They create fantastic opportunities to export medicine from
Bangladesh to other country. As a result they earn huge amount of profit. They not only export
the medicine but also meet the local demand of medicine. To address the followings components
in this paper:
To know the liquidity ration
To know financial ration
To know coverage ratio
To know activity ratio
To know profitability ratio
And also trend analysis and common size analysis
Limitation of the Study

Limitation of the study is about:
a)
Based on only secondary source of data
b)
Time bound restrict me for further research on the topic
c)
There is not possible to analyze every ratio of the financial statement
Square Pharmaceuticals Ltd.

Balance Sheet
As on 31.03.2013
As on 31.03.2012
As on 31.03.2011
Non-Current assets
9,407,730,001
8,291,290,984
6,804,429,292
Property, Plant and

Equipment-Carrying
Value
4,899,679,832
4,088,432,171
3,531,003,509
Capital Work-inProgress
591,114,649
481,239,419
Investment Long Term

(at Cost)
4,508,050,169
3,611,744,164
2,792,186,364
Current Assets
3,843,512,855
4,411,836,436
3,682,510,712
Inventories
2,098,755,231
2,026,736,322
1,544,191,798
Trade Debtors
477,562,002
360,245,646
322,864,637
Advances, Deposits and

Prepayments
260,330,162
288,806,440
236,455,395
Investment in
20,250,000
Marketable Securities (at
Cost)
20,250,000
20,250,000
Short Term Loan
1,510,502,334
1,418,893,703
693,157,720
Cash and Cash

Equivalents
293,457,740
205,295,694
139,855,179
TOTAL ASSETS
13,251,242,856
12,703,127,420
10,486,940,004
Shareholders Equity
9,949,397,634
8,417,040,705
7,333,257,612
Share Capital
1,207,224,000
894,240,000
596,160,000
Share Premium
2,035,465,000
2,035,465,000
2,035,465,000
General Reserve
105,878,200
105,878,200
105,878,200
Tax Holiday Reserve
1,101,935,237
1,101,935,237
1,101,935,237
Retained Earnings
5,498,895,197
4,279,522,268
3,493,819,175
Non-Current Liabilities
660,976,668
785,241,612
598,116,106
Long Term Loans

Secured
449,757,608
602,584,615
492,569,379
Deferred Tax Liability
211,219,060
182,656,997
105,546,727
Current Liabilities
2,640,868,554
3,500,845,103
2,555,566,286
Short Term Bank Loans
1,534,345,782
2,669,693,184
1,818,777,878
Long Term Loans

Current Portion
295,590,601
297,002,646
225,176,449
Trade Creditors
124,222,699
100,953,258
60,601,743
Liabilities for Expenses
69,573,702
32,290,235
24,565,248
Liabilities for Other

Finance
617,135,770
400,905,780
426,444,968
TOTAL EQUITY AND

LIABILITIES
13,251,242,856
12,703,127,420
10,486,940,004
Square Pharmaceutical Ltd
Income Statement
For the year ended
31-03-13
For the year

ended 31-03-12
For the year ended

31-03-11
NET TURNOVER
9,820,796,568
8,257,843,739
7,500,811,349
Less: COST OF GOODS SOLD
5,672,565,973
4,856,061,933
4,268,447,662
GROSS PROFIT
4,148,230,595
3,401,781,806
3,232,363,687
Less: Operating Expenses
1,779,793,368
1,692,475,988
1,406,611,448
PROFIT FROM OPERATIONS
2,368,437,227
1,709,305,818
1,825,752,239
Other Income
665,520,915
604,628,504
220,144,368
Less: Financial Expenses
397,135,963
351,868,423
236,845,084
NET PROFIT BEFORE WPPF
2,636,822,179
1,962,065,899
1,809,051,523
Less: Allocation for WPPF
125,562,961
93,431,709
86,145,311
NET PROFIT BEFORE TAX
2,511,259,218
1,868,634,190
1,722,906,212
Less: Provision for Income Tax
592,644,226
409,660,827
347,984,083
Less: Provision for Deferred

Income Tax
28,562,063
77,110,270
71,679,289
NET PROFIT AFTER TAX
1,890,052,929
1,381,863,093
1,303,242,840
Earnings Per Share (EPS)
156.56
114.47
145.74
Financial Ratio: Financial ratios are useful indicators of a firms performance and financial
situation. Financial ratios can be used to analyze trends and to compare the firms financials to
those of other firms.
Uses of Ratio Analysis: Ratios are used both internal and external analyst:
1. Internal Uses
Planning
Evaluation of management
Focus on investment for various assets and assets efficiency
Understanding how suppliers of funds analyze the firm
1. External Uses
Credit granting by the financial institution of individual
Performance monitoring
Investment decisions
Policy making decision
Focus on the profitability and long term health of the firm
Focus on the long term cash flow of the firm
Focus on the liquidity of the firm
Categories of Financial Ratio

Financial ratios can be classified according to the information they provide. The following types
of ratios frequently are used:
1. Liquidity Ratio
2. Financial Leverage Ratio
3. Coverage Ratio
4. Activity Ratio
5. Profitability Ratio
Trend Analysis
Trend Analysis is important for the company. The value of the variable tends to increase or
decrease over long period of time. In this aspect financial health of the firm either improves or
not can be seen in the trend analysis.
Common Size Analysis:

It is an analysis of percentage of financial statements where all balance sheet items are divided
by total assets and all income statement items are divided by net sales or revenue.
10
Liquidity Ratio
Liquidity ratios are the first ones to come in the picture. These ratios actually show the
relationship of a firms cash and other current assets to its current liabilities. Two ratios are
discussed under Liquidity ratios. They are:
1. Current ratio
2. Quick/ Acid Test ratio.
1. Current ratio: This ratio indicates the extent to which current liabilities are covered by
those assets expected to be converted to cash in the near future. Current assets normally
include cash, marketable securities, accounts receivables, and inventories. Current
liabilities consist of accounts payable, short-term notes payable, current maturities of
long-term debt, accrued taxes, and other accrued expenses (principally wages).
2. Quick/ Acid Test ratio: This ratio indicates the firms liquidity position as well. It actually
refers to the extent to which current liabilities are covered by those assets except
inventories. Companies with less than 1 cannot pay their current liabilities and should be
looked at with extreme care.
Current Assets (2012-2013): Cash and Cash Equivalence + Inventories + Trade Debtor +
Advance, Deposits and Payment + Investment at Marketable Securities (at cost) + Short Term
Loan
= 293,457,740 +2,098,755,231 + 477,562,002 + 260,330,162 + 20,250,000 + 693,157,720
= 3,843,512,855
Loan
= 205,295,694 + 2,026,736,322 + 360,245,646 + 288,806,440 + 20,250,000 + 1,510,502,334
= 4,411,836,436
Loan
= 139,855,179 + 1,544,191,798 + 322,864,637 + 236,455,395 + 20,250,000 + 1,418,893,703
= 3,682,510,712
11
Current Liability (2012-2013): Short Term Bank Loans + Long Term Loans Current Portion
+ Trade Creditors + Liabilities for Expenses + Liabilities for Other Finance
= 1,534,345,782 + 295,590,601 + 124,222,699 + 69,573,702 + 617,135,770
= 2,640,868,554
Current Liability (2011-2012): Short Term Bank Loans + Long Term Loans Current Portion +
Trade Creditors + Liabilities for Expenses + Liabilities for Other Finance
= 2,669,693,184 + 297,002,646 + 100,953,258 + 32,290,235 + 400,905,780
= 3,500,845,103
Current Liability (2010-2011): Short Term Bank Loans + Long Term Loans (Current Portion) +
Trade Creditors + Liabilities for Expenses + Liabilities for Other Finance
= 1,818,777,878 + 225,176,449 + 60,601,743 + 24,565,248 + 426,444,968
Inventories:
2012-2013: Raw Materials + Packing Materials + Work-in-Process + Finished Goods + Spares &
Accessories + Goods in Transit
= 712,447,113 + 203,170,462 + 146,340,693 + 568,607,732 + 99,673,071 + 368,516,160
= 2,098,755,231
= 688,846,968 + 186,341,475 + 141,106,414 + 581,543,862 + 87,243,576 + 341,654,027
= 2,026,736,322
= 562,131,687 + 166,890,495 + 119,969,662 + 458,007,065 + 90,596,538 + 146,596,351
= 1,544,191,798
Table 1: Calculation of Current Ratio and Quick Ratio
12
Year
Current Assets
(I)
Current Liability
(II)
Inventories
(III)
Current
Ratio IV= I
II
Quick Ratio
2013
3,843,512,855
2640868554
2098755231
1.46
0.66
2012
4,411,836436
3500845103
2026736322
1.26
0.68
2011
3682510712
2555566286
1544191798
1.44
0.84
V = (I III) II
Comment:
Current ratio of Square Pharmaceuticals Ltd. shows that the ability of the company to meet the
current liabilities with available current assets was decreased in the year 2008 and again
increased n 2009. If we take a closer look on the balance sheet, this assumption gets a more
realistic touch. Year by year assets have gone slightly up and the liabilities as well, but
proportionately assets were a littler higher than the liabilities which actually reflected as a
marginal increase in the ratio. As the current ratio is not consistent the management should keep
keen eyes in this regard.
The Quick ratio shows the decreasing trend. It indicates that the company is so much depends on
the inventories to meet the current liability. Their ratio is so much weak to cover an unexpected
draw down of liabilities.
Financial Leverage Ratio
Financial leverage ratio shows the extent that debt is used in a companys capital structure. It
may be defined as the use of fixed financial charges in the firms capital structure t magnifies the
Earning per Share.
1. Debt to Equity Ratio
2. Debt to Asset Ratio
A. Debt to Equity Ratio: It indicates what proportion of the equity and debt using the company
to finance it assets. Sometimes investors uses only long term debt instead of total liabilities for a
more stringent test.
A ratio greater than one means assets are mainly financed with debt, less than one means
equity provides a majority of the financing.
If the ratio is high (financed more with debt) then the company is in a risky position.
Especially if the rate of interest are on the rise.
13
Total Debt (2012-2013): Short Term Bank Loans + Long Term Loans Current Portion + Trade
Creditors + Liabilities for Expenses + Liabilities for Other Finance + Loan Term Loan (secured)
+ Deferred Tax Liability
= 1,534,345,782 + 295,590,601 + 124,222,699 + 69,573,702 + 617,135,770 + 449,757,608 +
211,219,060
= 3301845222
= 2,669,693,184 + 297,002,646 + 100,953,258 + 32,290,235 + 400,905,780 + 602,584,615 +
182,656,997
= 428,60,86715
= 1,818,777,878 + 225,176,449 + 60,601,743 + 24,565,248 + 426,444,968 + 492,569,379 +
105,546,727
= 315, 36, 82392
Shareholders Equity (2012-2013): Share Capital + Share Premium + General Reserve + Tax
Holiday Reserve + Retain Earnings
= 1,207,224,000 + 2,035,465,000 + 105,878,200 + 1,101,935,237 + 5,498,895,197
= 9,949,397,634
= 894,240,000 + 2,035,465,000 + 105,878,200 + 1,101,935,237 + 4,279,522,268
= 8,417,040,705
= 596,160,000 + 2,035,465,000 + 105,878,200 + 1,101,935,237 + 3,493,819,175
= 7,333,257,612
14
Table 2: Debt to Equity Ratio

Year
Debt (I)
Equity (II)
Debt to Equity Ratio

III = I II
2013
3301845222
9949397634
0.33
2012
4286086715
8417040705
0.51
2011
3153682392
7333257612
0.43
Debt to Asset Ratio: It indicates what proportion of the companys assets is being financed
through debt. It is so much similar to the debt equity ratio. A ratio under 1 means a major portion
of assets is financed with equity and above 1 means they are financing more by debt.
Furthermore we can interpret a high ratio as a highly debt leverage firm. When a company with
high ratio then the company is also on high risk, especially in an increasing rate of interest
market.
= 1,534,345,782 + 295,590,601 + 124,222,699 + 69,573,702 + 617,135,770 + 449,757,608 +
211,219,060
= 3301845222
= 2,669,693,184 + 297,002,646 + 100,953,258 + 32,290,235 + 400,905,780 + 602,584,615 +
182,656,997
= 428, 60, 86715
= 1,818,777,878 + 225,176,449 + 60,601,743 + 24,565,248 + 426,444,968 + 492,569,379 +
105,546,727
= 315, 36, 82392
15
Total Assets:
2012-2013: Property Plant and Equipment Carrying Value + Investment Long term (at cost) +
Current Assets
= 4,899,679,832 + 4,508,050,169 + 3843,512,855
2011-2012: Property Plant and Equipment Carrying Value + Capital Work In progress +
Investment Long term (at cost) + Current Assets
= 4,088,432,171 + 591,114,649 + 3,611,744,164 + 4,411,836,436
= 3,531,003,509 + 481,239,419 + 2,792,186,364 + 3,682,510,712
From the financial statement of the Square Pharmaceutical we get the following results:
Table 3: Debt to Asset Ratio
Year
Debt (I)
Assets (II)
Debt to Asset Ratio III

= I II
2013
3301845222
13251242856
0.25
2012
4286086715
12703127420
0.34
2011
3153682392
10486940004
0.30
Comment:
Debt to equity ratio has increased in the year 2012 and then decreased in the year 2013. Square
Pharmaceuticals Ltd. has increased their debt financing from 2011 to 2012 and then again
decreased in the year 2013. The management should keep the debt to equity ratio in a balance
position.
Debt to total asset ratio also increased in 2012 and then decreased in 2013. The assets of Square
Pharmaceuticals Ltd. for 2011 are supported by debt financing more than 2012. But it decreased
in 2013. As we know that the ratio the greater the financing risk higher. So, the company should
keep a moderate debt to asset ratio.
Coverage Ratio
16
Coverage ratio relates the financial charges of a firm to its ability to service of cover them.
Interest Coverage Ratio: It indicates the firms ability to cover interest charges. It is also called
times interest earned. The higher the ratio the greater the likelihood that the company could
cover its interest payments without difficulty. The value of the ratio indicates the firms ability to
cover annual interest by same times with operating income. The ratio also sheds some light on
the firms capacity to take on new debt.
EBIT (2012-2013): Gross Turn Over Cost of goods sold selling and distribution expense
administrative expense
= 11,366,597,928 1,545,801,360 5,672,565,973 1,319,362,317 460,431,051
= 2,368,437,227
= 9,565,715,902 1,307,872,163 4,856,061,933 1,220,979,268 471,496,720
= 1,709,305,818
= 8,711,034,758 1,210,223,409 4,268,447,662 1,000,132,914 406,478,534
Interest Charges (2012-2013): Interest on cash credit + Interest on Overdraft + Interest on
LATR + Interest on Short term loan + Interest on Lease + Interest on long term loan
= 21,820,760 + 37,764,410 + 135,144,391 + 93,716,961 + 43,122,332 + 65,567,109
= 397,135,963
= 32,462,066 + 37,863,050 + 121,482,002 + 86,151,797 + 39,519,065 + 34,390,443
= 38,825,395 + 36,488,368 + 85,890,159 + 47,026,386 + 14,684,279 + 13,930,497
= 236,845,084
From the financial data of the Square Pharmaceutical we get the following results:
17
Table 4: Interest Coverage Ratio

Year
EBIT (I)
Interest Expense (II)
Interest Coverage
Ratio III= I II
2013
2368437227
397135963
5.96
2012
1709305818
351868423
4.86
2011
1825752239
236845084
7.71
Comment
The value of the interest coverage ratio decreased in 2012 and then again increased in 2017. The
management should try to increase its earnings to cover its interest expense with relatively easy.
Activity Ratio
Activity ratio indicates the quality of receivables and how successful the firm is in its collections.
Mainly activity ratios are the indication of financial activities of a firms collection / marketing
department. Activity ratios can be categorized in the following types:
1. Receivable Turn Over
2. Average Collection / Receivable Turnover in Days
3. Inventory Turnover
4. Total Asset Turnover
Receivable Turn Over: This ratio shows the efficiency of the collection team of the company.
How efficient the collection team is to collect the receivables. The mathematical formula to
compute the ratio is:
Annual Net Credit Sales: Assuming that all sales are on credit.
2012-2013: Gross Turnover Value Added Tax
= 11,366,597,928 1,545,801,360
= 9820796568
= 9,565,715,902 1,307,872,163
= 8,257,843,739
18

= 8,711,034,758 1,210,223,409
= 7,500,811,349
The practical data of the Square Pharmaceuticals Ltd. show the following results:
Table 5: Receivable Turnover Ratio
Year
Net Sales (I)
Receivable (II)
Receivables Turnover Ratio

III = I II
2013
9820796568
477562002
20.56
2012
8257843739
360245646
22.92
2011
7500811349
322864637
23.23
Average Collection / Receivable Turnover in Days: This indicates the average number of days
it takes a company to collect unpaid invoices. A ratio indicates that the company is having
problems getting paid for service or products. The ratio is sometimes seasonally affected, rising
during busy seasons, and falling during the off season. To account for this seasonality, the
average accounts receivables (beginning + ending account receivables / 2) could be used instead.
Average collection period can be determined by the following formula:
Table 6: Average Collection Period
Year
Receivable Turnover (I)
Average Collection Period

II = 365 I
2013
20.56
18
2012
22.92
16
2011
23.23
16
Comment
Receivable turnover ratio indicates the quality of receivables and how successful the Square
Pharmaceuticals Ltd. Is in collection. The higher the turnover he shorter the time between sale
and cash collection. The receivable collection shows the decreasing trend. So the management
should try to turn the trend to an increasing trend.
19
For the year 2011 and 2012 time series analysis is stable. But at the year 2013 in comparison
with last two years average collection period has increased. Therefore the company has to take
utmost care to bring down the collection period of receivable.
Inventory Turnover: It is an important ratio for the company. it indicates that how much time
need to produce the product and sale it. a low turnover is usually a bad sign because products
tend to deteriorate as they sit in a warehouse. Companies selling perishable items have very high
turnover. For more accurate inventory figures, the average inventory figure (the opening
inventory + ending inventory / 2) is used when computing inventory turnover. Average inventory
accounts for any seasonality effects on the ratio. Inventory turnover ratio indicates the
effectiveness of the inventory management of the company. It can be calculated by the
following equation:
Cost of Goods Sold:
2012-2013: Raw material consumed+ Packing Material Consumed+ Work in Process (opening)
Work in Process (ending) + Factory Overhead + Purchased of Finished Goods+ Finished Goods
(Opening) Finished Goods (ending)
= 3,004,618,146 + 1,318,695,068 + 141,106,414 146,340,693+ 1,123,414,629 + 218,136,279+
581,543,862 568,607,732
= 5,672,565,973
= 2,770,478,855 + 1,144,141,207 + 119,969,662 141,106,414 + 874,353,806+ 211,761,614+
458,007,065 581,543,862
= 4,856,061,933
= 2,401,727,164 + 927,381,432 + 108,390,739- 119,969,662 + 748,199,160 + 247,748,512 +
412,977,382 458,007,065)
= 4,268,447,662
Inventory:
20
= 712,447,113 + 203,170,462 + 146,340,693 + 568,607,732 + 99,673,071 + 368,516,160
= 2,098,755,231
= 688,846,968 + 186,341,475 + 141,106,414 + 581,543,862 + 87,243,576 + 341,654,027
= 2,026,736,322
= 562,131,687 + 166,890,495 + 119,969,662 + 458,007,065 + 90,596,538 + 146,596,351
= 1,544,191,798
Table 7: Inventory Turnover Ratio

Year
Cost of Goods Sold

(I)
Inventory (II)
Inventory Turnover ratio

III = I II
2013
5672565973
2098755231
2.70
2012
4856061933
2026736322
2.40
2011
4268447662
1544191798
2.76
Total Asset Turnover: It indicates the relationship between assets and revenues. Companies
with low profit margin tend to have high asset turnover, those with high profit margin have low
asset turnover. It indicates pricing strategy. This ratio is more useful for growing company to
check if it n fact they are growing revenues in proportion to sales. This ratio is useful to
determine the amount of sales that are generated from each dollar of asset. The formula for total
asset turnover is as follows:
Net Sales:
21

= 11,366,597,928 1,545,801,360
= 9820796568
= 9,565,715,902 1,307,872,163
= 8,257,843,739
= 8,711,034,758 1,210,223,409
= 7,500,811,349
Assets:
Current Assets
= 4,899,679,832 + 4,508,050,169 + 3843,512,855
= 4,088,432,171 + 591,114,649 + 3,611,744,164 + 4,411,836,436
= 3,531,003,509 + 481,239,419 + 2,792,186,364 + 3,682,510,712
Financial data of Square Pharmaceuticals Ltd. show the following result:
Table 8: Total Asset Turnover Ratio
Year
Net Sales
Total Asset
Total Asset Turnover Ratio III

= I II
2013
9820796568
13251242856
0.74
2012
8257843739
12703127420
0.65
2011
7500811349
1048940004
0.72
22
Comment
The changes in Inventory Turnover Ratio decreased in 2012 comparing to previous year but
increased again in 2013. Though last year trend is an increasing one, still the company should
improve its inventory management to achieve organizations goals.
Firms Total Asset Turnover Ratio is weak. The company should go for more sales to get a higher
asset turnover.
Profitability Ratio
Profitability is the net result of a number of policies and decisions. Profitability ratios show the
combined effects of liquidity, asset management and debt on operating results.
Profitability Ratio can be divided into the following parts:
Gross Profit Margin
Net Profit Margin
Return on Investment Ratio
Return on Equity
Gross Profit Margin: It indicates what the company pricing policy is and what the true mark-up
margin are. The results may skew if the company has very large range of products. This is very
useful when comparing against the margins of previous year. A 33% gross margins means
products are marked up 50% and so on.
The gross profit margin ratio tells us the profit a business makes on its cost of goods sold. We
can compute it from the following formula:
Net Sales:
= 11,366,597,928 1,545,801,360
= 9820796568
= 9,565,715,902 1,307,872,163
= 8,257,843,739
23

= 8,711,034,758 1,210,223,409
= 7,500,811,349
Gross Profit:
2012-2013: Net Sales Cost of Goods Sold
= 9820796568 5,672,565,973
= 4148230595
=8257843739 4856061933
= 3401781806
7,500,811,349 4,856,061,933
= 3232363687
From the profit and loss account of the Square Pharmaceutical Company we get the following
result:
Table 9: Gross Profit Margin Ratio
Year
Gross Profit (I)
Net Sales (II)
Gross Profit Margin

III = I II
2013
4148230595
9820796568
0.42
2012
3401781806
8257843739
0.41
2011
3232363687
7500811349
0.43
Net Profit Margin: The main reason that the profit margin declined is high cost. High cost, in
turn, generally occurs due to inefficient operations. It indicates what proportion of sales
contributes to the income of the company. This ratio is not useful for companies losing money,
since they have no profit. A low profit margin can indicate pricing strategy and or the impact
competition has on margins. The net profit margins ratio tells us the amount of net profit per Tk.
of turnover a business has earned. It is only after taking consideration of cost of sales, the
24
administrative, and selling and distribution cost, pay interest and tax and so on. The formula to
calculate it as follows:
Net Profit after Tax:
2012-2013: Gross Profit Operating Expense + Other Income Financial Expenses Allocation
for WPPF Provision for income tax Provision for deferred income tax
= 4,148,230,595 1,779,793,368 + 665,520,915 397,135,963 125,562,961 592,644,226
28,562,063
= 1,890,052,929
= 3,401,781,806 1,692,475,988 + 604,628,504 351,868,423 93,431,709 409,660,827
77,110,270
= 1,381,863,093
= 3,232,363,687 1,406,611,448 + 220,144,368 236,845,084 86,145,311 347,984,083
71,679,289
= 1,303,242,840
Net Sales:
= 11,366,597,928 1,545,801,360
= 9820796568
= 9,565,715,902 1,307,872,163
= 8,257,843,739
= 8,711,034,758 1,210,223,409
= 7,500,811,349
25
Table 10: Net Profit Margin Ratio

Year
Profit After Tax (I)
Net Sales (II)
Net Profit Margin

III = I II
2013
1890052929
9820796568
0.19
2012
1381863093
8257843739
0.17
2011
1303242840
7500811349
0.17
Comment
Time series analysis shows that the gross profit margin is more or less stable. From the above
findings on Gross profit margin of Square Pharmaceuticals we can say that the management
should try to increase profit gradually.
Time series analysis is stable of 2012 and 2011 and increased in 2013. This is a good symbol for
the company and the management should try to maintain this trend.
Return on Investment (ROI): It indicates what return a company is generating on the firms
investment or assets. The ROA (Return On Asset) is often referred to as ROI. We add the interest
expense to ignore the cost of the cost associated with funding those assets. This is an important
ratio for the companies deciding whether or not initiates a new project. The basis of this ratio is
that if accompany is going to start a project they expect to earn a return on it, and ROA is the
return they would receive. This ratio indicates the profitability on the assets of the firms after all
expenses and taxes. The method for calculating this ratio is as follows:
Net Profit After Tax:
= 4,148,230,595 1,779,793,368 + 665,520,915 397,135,963 125,562,961 592,644,226
28,562,063
= 1,890,052,929
= 3,401,781,806 1,692,475,988 + 604,628,504 351,868,423 93,431,709 409,660,827
77,110,270
26
= 1,381,863,093
= 3,232,363,687 1,406,611,448 + 220,144,368 236,845,084 86,145,311 347,984,083
71,679,289
= 1,303,242,840
Net Sales:
= 11,366,597,928 1,545,801,360
= 9820796568
= 9,565,715,902 1,307,872,163
= 8,257,843,739
= 8,711,034,758 1,210,223,409
= 7,500,811,349
Assets:
Current Assets
= 4,899,679,832 + 4,508,050,169 + 3843,512,855
= 4,088,432,171 + 591,114,649 + 3,611,744,164 + 4,411,836,436
= 3,531,003,509 + 481,239,419 + 2,792,186,364 + 3,682,510,712
Table 11: Return On Investment Ratio
27
Year
Asset (II)
ROI = I II
2013
1890052929
13251242856
0.14
2012
1381863093
12703127420
0.11
2011
1303242840
10486940004
0.12
Return on Equity (ROE): It indicates what return a company is generating on the owners
equity investment. For high growth the company should expect a higher ROE. Average ROE
over past few years can give a better idea of the historical growth. Sometimes ROE is referred to
as stockholders return on investment, it tells the rate that shareholders are earning on their shares.
The ROE ratio tells us how much profit they earn from the investment of the shareholders have
made in their company. The formula as follows:
Net Profit after Tax:
= 4,148,230,595 1,779,793,368 + 665,520,915 397,135,963 125,562,961 592,644,226
28,562,063
= 1,890,052,929
= 3,401,781,806 1,692,475,988 + 604,628,504 351,868,423 93,431,709 409,660,827
77,110,270
= 1,381,863,093
= 3,232,363,687 1,406,611,448 + 220,144,368 236,845,084 86,145,311 347,984,083
71,679,289
= 1,303,242,840
Shareholders Equity:
2012-2013: Share Capital + Share Premium + General Reserve + Tax Holiday Reserve + Retain
Earnings
28
= 1,207,224,000 + 2,035,465,000 + 105,878,200 + 1,101,935,237 + 5,498,895,197

= 9,949,397,634
Earnings
= 894,240,000 + 2,035,465,000 + 105,878,200 + 1,101,935,237 + 4,279,522,268
= 8,417,040,705
Earnings
= 596,160,000 + 2,035,465,000 + 105,878,200 + 1,101,935,237 + 3,493,819,175
= 7,333,257,612
Table 12: Return On Equity Ratio

Year
Shareholder Equity
(II)
ROE
III = I II
2009
1890052929
9949397634
0.19
2008
1381863093
8417040705
0.16
2007
1303242840
7333257612
0.18
Comment
Square Pharmaceuticals Tend analysis of ROI ratio shows that after 2011, it decreased but for the
next year it increased. Profit in 2011 is 12%, in 2012 is 11% and in 2009 is 14%. The company
should take necessary steps to maintain this trend.
ROE indicates the profitability to the shareholders of Square Pharmaceuticals Ltd. after all
expenses and taxes. It is 18% in 2011, 16% I 2008 and 19% in 2013. The investors of the
company got more benefit than the previous year. The management should try to keep this trend
of the profit to satisfy the shareholder.
Square Pharmaceutical Ltd. Common Size Balance Sheets
29
As on 31.03.2013 (%)
As on 31.03.2012
As on 31.03.2011
Non-Current assets
70.99
65.27
64.88
Property, Plant and

Equipment-Carrying
Value
36.97
32.18
33.67
Capital Work-inProgress
4.65
4.59
Investment Long Term

(at Cost)
34.02
28.43
2.66
Current Assets
29.00
34.73
35.12
Inventories
15.84
15.95
14.72
Trade Debtors
3.6
2.83
3.08
Advances, Deposits and

Prepayments
1.96
2.27
2.25
Investment in
0.15
Marketable Securities (at
Cost)
0.159
0.19
Short Term Loan
5.2
11.89
13.53
Cash and Cash

Equivalents
2.2
1.6
1.33
TOTAL ASSETS
100%
100%
100%
Shareholders Equity
75.08
66.26
69.92
Share Capital
9.11
7.0
5.68
Share Premium
15.36
16.0
19.40
General Reserve
0.799
0.8
1.0
30
Tax Holiday Reserve
8.3
8.68
10.50
Retained Earnings
41.49
33.68
33.33
Non-Current
Liabilities
4.99
6.18
5.70
Long Term Loans

Secured
3.39
4.74
4.69
Deferred Tax Liability
1.59
1.44
1.0
Current Liabilities
19.92
27.56
24.36
Short Term Bank Loans
11.57
21.01
17.34
Long Term Loans

Current Portion
2.2
2.34
2.148
Trade Creditors
0.93
0.79
0.578
Liabilities for Expenses
0.52
0.254
0.23
Liabilities for Other

Finance
4.65
3.16
4.06
TOTAL EQUITY AND

LIABILITIES
100%
100%
100%
Square Pharmaceuticals Ltd. Common Size Income Statement

For the year ended
31-03-13 (%)
For the year

ended 31-03-12
(%)
For the year ended

31-03-11 (%)
NET TURNOVER
100%
100%
100%
Less: Cost of goods sold
57.76
58.80
56.90
GROSS PROFIT
42.24
41.19
43.1
Less: Operating Expenses
18.12
20.49
18.75
31
PROFIT FROM OPERATIONS
24.11
20.67
24.34
Add: Other Income
6.77
7.32
2.94
Less: Financial Expenses
4.04
4.26
3.16
NET PROFIT BEFORE WPPF
26.85
23.76
24.12
Less: Allocation for WPPF
1.2
1.13
1.14
NET PROFIT BEFORE TAX
25.57
22.63
22.97
Less: Provision for Income Tax
6.0
4.96
4.64
Less: Provision for Deferred

Income Tax
.29
0.93
.955
NET PROFIT AFTER TAX
19.24
16.74
17.37
32
Summary and Conclusion

Considering the entire financial ratio for the Square Pharmaceutical Ltd. we can say that at
present the overall condition of the company is good. It had a mixed period from the year 2011 to
2013. Though the ROI is increasing gradually and ROE is not stable, it has decreasing tend in
2012 but then again went up in 2013. The company gross profit margin is stable at around 42%
constant rate. Net profit margin was stable at 17% over 2011 2012 and showed an increasing
trend in 2013 to reach 19%. But the company had a weak asset turnover ratio over this period.
But we find that their financial management is as stronger as required to attract large number of
shareholders. At the end we can conclude that, the company has strong growth rate in recent
years with a strong market reputation. But still the company should keep keen eyes in
management operation to improve the financial condition.
33
References
Square Pharmaceuticals Ltd.
1. Annual Report 2012-2013

Financial Statement Analysis

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1

Financial statement analysis

Financial statement analysis

Financial statement analysis

Financial statement analysis

Incorporated as a Private Limited Company

Technical Collaboration Agreement with

Converted into Public Limited Company

Initially Public Offering (IPO)

Stock Exchange Listings

Agreement with M/s. Bovis Tanvec Ltd. of UK for

Awarded ISO-9001 Certificate

Awarded UK-MHRA Certificate

: Manufacturing and Marketing of

: Tk. 5,000 million

: Tk. 1,207.22 million

Square Spinnings Ltd.

Financial statement analysis

Square Biotechs Ltd.

Objective of the Study

To know the liquidity ration

To know financial ration

To know coverage ratio

To know activity ratio

To know profitability ratio

And also trend analysis and common size analysis

Financial statement analysis

Limitation of the Study

Based on only secondary source of data

Time bound restrict me for further research on the topic

There is not possible to analyze every ratio of the financial statement

Square Pharmaceuticals Ltd.

Property, Plant and

Investment Long Term

Advances, Deposits and

Short Term Loan

Financial statement analysis

Cash and Cash

Tax Holiday Reserve

Long Term Loans

Deferred Tax Liability

Short Term Bank Loans

Long Term Loans

Liabilities for Expenses

Liabilities for Other

TOTAL EQUITY AND

Square Pharmaceutical Ltd

Financial statement analysis

For the year

For the year ended

Less: COST OF GOODS SOLD

Less: Operating Expenses

PROFIT FROM OPERATIONS

Less: Financial Expenses

NET PROFIT BEFORE WPPF

Less: Allocation for WPPF

NET PROFIT BEFORE TAX

Less: Provision for Income Tax

Less: Provision for Deferred

NET PROFIT AFTER TAX

Earnings Per Share (EPS)

Financial statement analysis

Focus on investment for various assets and assets efficiency

Understanding how suppliers of funds analyze the firm