Executive Summary: Financial Analysis of Square Pharmaceuticals

FINANCIAL ANALYSIS OF SQUARE PHARMACEUTICALS
Executive Summary
The report compares the financial statements of Square Pharmaceuticals for the years ended
2003 to 2007. Square Pharmaceuticals Limited is the largest pharmaceutical company in
Bangladesh and it has been continuously in the 1 st position among all national and
multinational companies since 1985. It was established in 1958 and converted into a public
limited company in 1991.
The objective of the report is to provide both an internal financial analysis of the company
during this period. The internal analysis has been done on the facts and figures of the
company itself. The figures have been obtained from the company annual reports.
The internal comparison is done on the basis of four different analyses. These are the
horizontal analysis, vertical analysis, trend analysis and ratio analysis. The calculations of
taka changes or percentage changes in the statement items or totals are know as horizontal
analysis. Vertical analysis consists of the study of a single financial statement in which each
item is expressed as a percentage of a significant total. Trend percentages are similar to
horizontal analysis except that a base year or period is selected, and comparisons are made to
the base year or period. And finally the ratios show a relationship between two items on the
same financial statements or on different financial statements.
The overall financial condition of the company during this period had been commendable. All
of the ratios indicate a sound performing company: a good liquid position, efficient
leveraging and increasing profitability. The vertical, horizontal and trend analysis also reflects
the effective financial operations of the company. As we shall see from the interpretations the
company succeeded in maintaining a stable financial position.
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INTRODUCTION
Origin of the Report
This report titled “Square Pharmaceuticals Ltd.: Analysis of the Financial Performance
2002-2006” has been prepared as a partial requirement for the course, Financial
Management instructed by Mr. Jawadur Rahim Zahid, IBA, University of Dhaka.
Objectives
 The report is meant to relate the financial statement analysis theories learnt in class to the
context of a real world scenario to understand their practical implications.
 To analyze the financial statements of Square Pharmaceuticals Ltd to get an insight of
the financial performance of the company from the different perspectives. The analysis is
done on the financial statements during the time period of 2002 to 2006.
 Inferences are made from the analysis regarding whether potential investors should invest
in the companies and whether existing ones should continue to hold their shares in the
companies. It also looks at ratios from the management and creditors’ perspectives.
Scope
This report has been focused on the financial performance of Square Pharmaceuticals Ltd. for the
years ending 2002 through 2006 by means of analysis of Income Statements, Balance Sheets
and Cash flow Statements. The vertical, horizontal and trend analysis of the company’s Income
Statement and Balance Sheet for the five financial years has been portrayed in this report. It
also includes common size balance sheet and income statement for 5 years. And finally, it
also includes an analysis of the following ratios: Leverage Ratios, Liquidity ratios,
Profitability tests, Efficiency Ratios, and Market Ratios
Sources of Information
 Accounting Principles, Fifth Edition; Hermanson, Edwards and Maher; Irwin.

 Square Pharmaceuticals Ltd. Website- www.squarepharma.com.bd
 Dhaka Stock Exchange
Limitations
There were financial terms that vary from the book and that are individual to each company. Best
effort was made to reconcile and interpret them. But some ambiguity may still be left.
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OVERVIEW OF PHARMACEUTICAL INDUSTRY
The Pharmaceutical Industry plays a vital role in Bangladesh by means of improving general
health care standards, providing employment opportunities for thousands of people and having a
positive impact on the Balance of Payments of the country by exporting.
The pharmaceutical industry of Bangladesh has made significant progress. Some of the industries
are equipped with modern infrastructure facilities and producing pharmaceutical items of
international standard. 164 enterprises, out of registered 232 have been manufacturing medicine
mainly based on imported raw materials. Among the entrepreneurs a highly professional
committed group is endeavoring to upscale the production and export of pharmaceutical items.
The inception of the pharmaceutical industry in Bangladesh dates back to the 1950s when a few
multinationals and local entrepreneurs started with manufacturing facilities in the erstwhile East
Pakistan. By two decades many top ranking Multi-National Companies (MNCs) established their
manufacturing facilities in this part of the world. Pfizer, Glaxo, Fisons, Squibb, Hoechst, May and
Baker and Organon were prominent among them.
Before liberation the pharmaceutical sector was largely dependent on import and very few local
companies were involved in this sector. The local companies were only taking part in the
distribution channel of MNCs. Immediately after liberation the war-torn economy; disrupted
infrastructure and deficit in foreign currency aggravated the overall healthcare situation of the
country. The pharmaceutical sector remained as an Import based sector during early 70s. In 1981,
there were around 160 licensed pharmaceutical manufacturers, but local production was
dominated by the 8 multinational companies, which manufactured about 75% of the products.
The pharmaceutical industry has mainly evolved in the last 25 years after the 1982 Drug
Ordinance Act was passed, which limited the production of drugs to 150 essential drugs provided
by WHO. After the introduction of the Drug (Control) Ordinance of 1982, local companies
improved the range and quality of their products and began to emerge as key players in the
industry. The Government also fixed the price ceiling for 117 necessary drugs as well as banned
import of any medicaments, already being produced in Bangladesh.
Since the time when pharmaceutical market was largely dominated by the MNCs the
pharmaceutical industry has grown from strength to strength. Today nearly 25% of the market
share in the pharmaceutical industry is owned by the two local companies- Beximco and Square,
and most of the foreign companies are out of the country. At present the market leader is Square
Pharmaceuticals which has a market share of around 15%.
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However, multinationals are still competing on the basis of better-formulated drugs. Apart from
150 drugs, every year they add 100 of new drugs to the list. Thus, the struggle continues between
local and foreign pharmaceutical companies to dominate the industry worth Tk. 28 billion.
In 2005 Bangladesh pharmaceutical market was worth US$ 504Mn. And it is growing at a steady
average rate of 17.18%. The Pharmaceutical Sector is the second highest contributor to the
National Ex-Chequer and the largest White Collar Labor intensive employment sector of the
country. The finished formulation- manufacturing base of Bangladesh is very strong as most of
the pharmaceutical companies have their own manufacturing facilities. Unlike most of the
import-based countries of South Asia and Africa, 97% of the total demand of Bangladesh is being
met by local manufacturing. The remaining 3% basically constitutes import of very specialized
products like vaccines, anticancer products etc. Now, among the top 10 pharmaceutical
companies of Bangladesh, 8 are local companies. The top two domestic manufacturers, namely
Square and Beximco Pharma are having a combined market share of about 25% of the total
pharmaceutical market of the country.
Bangladesh is exporting pharmaceutical items to 69 countries. At first, only 1/2 major company
took proactive efforts to initiate export of pharmaceuticals. They stated exporting bulk drugs as
well as finished formulations to some of the less regulated overseas markets like Myanmar, Sri-
Lanka and Nepal. In early 90s, few companies took initiative to explore some of moderately
regulated markets like Russia, Ukraine, Georgia and Singapore. Today, Bangladesh
Pharmaceutical Industry’s 69 export destinations compare favorably to only 17 in 2001.
According to the World Trade Organization Patent Regulations, as an LDC Bangladesh is exempt
from meeting WTO patent regulations (TRIPs) till 2015. Under this declaration, all the 50 LDCs
can now legally reverse-engineer patented products and sell it in domestic market as well as in all
other LDCs, non-WTO member countries and countries where product patent is not in force. It so
happened that among all the 50 LDCs, Bangladesh is the only country, which has a strong
pharmaceutical manufacturing base. There are as good as 16 LDCs, which do not have any
pharmaceutical manufacturing capabilities, whereas others have very limited or insufficient
manufacturing capabilities.
This has created an enormous opportunity for the pharmaceutical manufacturers of Bangladesh.
They have the potential to achieve strong growth and establish themselves firmly in both
domestic and foreign markets. Under these circumstances it is anticipated that, in the absence of
any competition from India and China, Bangladesh Pharmaceutical Industry is going to have
ensured return with high profitability
Moreover, the low labor cost is likely to boost production and export. Therefore, the
pharmaceutical industry has the potential to prosper in both locally and globally.
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OVERVIEW OF SQUARE PHARMACEUTICALS

LIMITED
SQUARE today symbolizes a name – a state of mind. But its journey to the growth and
prosperity has been no bed of roses. From the inception in 1958, it has flourished into one of the
top line conglomerates in Bangladesh today. Square Pharmaceuticals Ltd., the flagship company,
is holding the strong leadership position in the pharmaceutical industry of Bangladesh since 1985
and is now on its way to becoming a high performance global player.
Square Pharmaceuticals Limited is the largest pharmaceutical company in Bangladesh and it has
been continuously been the market leader since 1985. It was established in 1958 as a partnership
and in 1964, Square was converted into a Private Limited Company. In 1991, it was listed in the
Dhaka Stock Exchange (DSE) and Chittagong Stock Exchange (CSE) as a Public Limited
Company. In 1994, Square commenced Initial Public Offering (IPO) of Square Pharmaceutical
Limited shares with authorized capital of Tk 1,000 million.
The company has extended its range of services towards the highway of global market. SPL has
pioneered exports of medicines from Bangladesh in 1987 and has been exporting antibiotics and
other pharmaceutical products since then. This extension in business and services has manifested
the credibility of Square Pharmaceuticals Limited.
In 1997, SPL had won the National Export Trophy for exporting pharmaceuticals overseas. Later
in 1998, SPL had been awarded with the “ISO-9001 Certificate” for its high product standards. In
2007, SPL has been awarded with “UK-MHRA” Certificate.
Currently, SPL manufactures and markets its own ‘branded generics' for many diseases like
AIDS, Cancer, Asthma, Hypertension, Diabetes, both nationally and globally. Many of Square’s
products are brand leaders in their respective fields. The company produces pharmaceutical
specialties of uncompromising quality. Its comprehensive range of about 120 formulations, cover
all major therapeutic groups. Square's products come in tablet, capsule, powder, liquid, cream and
suppository and inhaler forms.
In the recent past, the sales of SPL was more than Tk 5 Billion with about 15% market share
having a growth rate of about 16%. It currently has 13,009 shareholders and 3001 staff.
Square strives for: Top quality health care products at the least cost reaching the lowest rungs of
the economic class of people in the country; Protection of shareholder’s capital & to ensure
highest return and growth; Best compensation to all the employees; Best co-operation of the
creditors & debtors the banks & financial institutions, the suppliers of raw materials &
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suppliers, and the customers; Fulfillment of responsibility to the Government through

payment of entire range of due taxes, duties, and claim to various public agencies
Theoretical Framework
(I) Financial Ratio Analysis
Financial ratio analysis is the calculation and comparison of ratios, which are derived from the
information in a company's financial statements. The level and historical trends of these ratios can
be used to make inferences about a company's financial condition, its operations and
attractiveness as an investment. They are useful indicators of a firm's performance and financial
situation.
Financial ratios are calculated from one or more pieces of information from a company's financial
statements. Most ratios can be calculated from information provided by the financial statements.
In isolation, a financial ratio is a useless piece of information. In context, however, a financial
ratio can give a financial analyst an excellent picture of a company's situation and the trends that
are developing.
A ratio gains utility by comparison to other data and standards. E.g. a gross profit margin for a
company of 20% is meaningless by itself. If we know that this company's competitors have profit
margins of 10%, we know that it is more profitable than its industry peers, which is quite
favorable. If we also know that the historical trend is upwards, for example has been increasing
steadily for the last few years, this would also be a favorable sign that management is
implementing effective business policies and strategies.
Financial ratios can be classified according to the information they provide. Each category tells us
about different facets of a company's finances and operations. The following types of ratios
frequently are used:
 Liquidity Ratios: Liquidity ratios provide information about a firm's ability to meet its
short-term financial obligations. Generally, the higher the value of the ratio, the larger the
margin of safety that the company possesses to cover short-term debts. They are of
particular interest to those extending short-term credit to the firm. Bankruptcy analysts
and mortgage originators frequently use the liquidity ratios to determine whether a
company will be able to continue as a going concern.
 Leverage Ratios: These show the extent of debt used in a company's capital structure.
Any ratio used to calculate the financial leverage of a company to get an idea of the
company's methods of financing or to measure its ability to meet financial obligations.
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There are several different ratios, but the main factors looked at include debt, equity,
assets and interest expenses.
 Efficiency Ratios: Efficiency ratios indicate of how efficiently the firm utilizes its assets.
These use turnover measures to show how efficient a company is in its operations and use
of assets. They sometimes are referred to as asset turnover ratios, asset utilization ratios,
or asset management ratios.
 Profitability Ratios: These use margin analysis and show the return on sales and capital
employed. Profitability ratios are used to determine the performance of the companies.
These ratios use two sources:
 Company’s ability to recover costs and expenses using the income statement.
 The company’s ability to earn income on the assets employed using the
balance sheet.
 Market Ratios: Market ratios measure investor response to owning a company's stock
and also the cost of issuing stock. These ratios relate the firm’s stock price to its earnings
and book value per share & indicate what investors think of the company’s past
performance and future prospects.
It is imperative to note the importance of the proper context for ratio analysis. A cross industry
comparison of the leverage of stable utility companies and cyclical mining companies would be
worse than useless. Examining a cyclical company's profitability ratios over less than a full
commodity or business cycle would fail to give an accurate long-term measure of profitability.
Using historical data independent of fundamental changes in a company's situation or prospects
would predict very little about future trends.
Use and Limitations of Financial Ratios
Attention should be given to the following issues when using financial ratios:
 A reference point is needed. To be meaningful, most ratios must be compared to historical
values of the same firm, the firm's forecasts, or ratios of similar firms.
 Most ratios by themselves are not highly meaningful. They should be viewed as
indicators, with several of them combined to paint a picture of the firm's situation.
 Year-end values may not be representative. Certain account balances that are used to
calculate ratios may increase or decrease at the end of the accounting period because of
seasonal factors. Such changes may distort the value of the ratio. Average values should
be used when they are available.
 Ratios are subject to the limitations of accounting methods. Different accounting choices
may result in significantly different ratio values.
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Credit analysts, those interpreting the financial ratios from the prospects of a lender, focus on the
"downside" risk since they gain none of the upside from an improvement in operations. They pay
great attention to liquidity and leverage ratios to ascertain a company's financial risk. Equity
analysts look more to the operational and profitability ratios, to determine the future profits that
will accrue to the shareholder.
Although ratio analysis is well developed and the actual ratios are well known, practicing
financial analysts often develop their own measures for particular industries and even individual
companies. Analysts will often differ drastically in their conclusions from the same ratio analysis.
(II) Common Size Financial Statements
A common size financial statement displays all items as percentages of a common base figure. It
allows for easy analysis between companies or between time periods of a company. The values on
the common size statement are expressed as percentages of a statement component such as
revenue. While most firms don't report their statements in common size, it is beneficial to
compute if you want to analyze two or more companies of differing size against each other.
Formatting financial statements in this way reduces the bias that can occur when analyzing
companies of differing sizes. It also allows for the analysis of a company over various time
periods. By expressing the items in proportion to some size-related measure, standardized
financial statements can be created, revealing trends and providing insight into how the different
companies compare.
Common size statements usually are prepared for the income statement and balance sheet,
expressing information as follows:
 Income statement items - expressed as a percentage of total revenue
 Balance sheet items - expressed as a percentage of total assets
The ratios in common size statements tend to have less variation than the absolute values
themselves, and trends in the ratios can reveal important changes in the business. Historical
comparisons can be made in a time-series analysis to identify such trends. Common size
statements also can be used to compare the firm to other firms.
Limitations
 As with financial statements in general, the interpretation of common size statements is
subject to many of the limitations in the accounting data used to construct them. For
example:
 Different accounting policies may be used by different firms or within the same firm at
different points in time. Adjustments should be made for such differences.
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 Different firms may use different accounting calendars, so the accounting periods may not
be directly comparable.
FINANCIAL RATIOS FOR SQUARE
PHARMACEUTICALS
LIQUIDITY RATIOS
1. CURRENT RATIO
Current ratio = Current assets / Current liabilities
Current Ratio=
Year Current Asset Current Liabilities
Current Asset/Current Liabilities
2002-2003 1,441,552,330 1,247,966,832 1.16
2003-2004 2,016,056,187 1,243,575,200 1.62
2004-2005 3,242,502,312 1,949,949,426 1.66
2005-2006 4,031,684,955 2,260,755,481 1.78
2006-2007 3,682,510,712 2,555,566,286 1.44
Investors are interested in the current ratio because it indicates the ability of a company to pay its
current liabilities form current assets and, in this way, shows the strength of the company’s
working capital position.
Current Ratio
2.00
1.50
1.00
0.50
0.00
2002- 2003- 2004- 2005- 2006-
2003 2004 2005 2006 2007
The current ratio of Square Pharmaceuticals is relatively in a stable position, which is

encouraging for the investors. From the years 2002-2003 to 2005-2006, current ratio has been
more or less steadily increasing. The tendency of a high current ratio is a concern, because it
could have been caused by idle cash, slow paying customers, and slow moving inventories.
Although in 2006-2007 current ratio has drastically reduced. We can see from the above table that
current liability has been more or less stable- but current assets have fallen. This could be due to
management taking action to reduce idle money; otherwise it could be a source of concern since
current ratio should be ideally 1.5.
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2. QUICK RATIO
Quick ratio = (Current Asset - Inventory) / Current liabilities

Current Asset - Quick Ratio=
Year Current Liabilities
Inventory Quick Asset/Current Liabilities
2002-2003 701,716,898 1,247,966,832 0.56
2003-2004 1,213,099,672 1,243,575,200 0.98
2004-2005 2,097,589,956 1,949,949,426 1.08
2005-2006 2,689,320,477 2,260,755,481 1.19
2006-2007 2,138,318,914 2,555,566,286 0.84
Quick ratio or the acid test measures the company’s immediate liquidity without relying on
inventory. Inventories are the least liquid of a firm’s current assets.
Acid-Test Ratio
1.40
1.20
1.00
0.80
0.60
0.40
0.20
0.00
2002- 2003- 2004- 2005- 2006-
2003 2004 2005 2006 2007
A quick glance of the above chart will show a reverse U-shaped graph for the quick ratio for
Square Pharmaceuticals. The quick ratio had been rising steadily until 2005-2006, when it fell
drastically from 1.19 to 0.86, mainly due to the marked decrease in quick assets. This can be a
reason for concern since both the current ratio and the quick ratio indicate that Square’s liquidity
condition is not very sound. Its current and quick asset seems to insufficient to cover its short-
term obligations. However, similar trends for current and quick ratios indicate that inventories are
not too high- its other liquid assets are too low.
3. CASH RATIO
Cash ratio = (Cash + short-term securities) / Current liabilities
Current
Cash + marketable Cash ratio =
Year
securities Liabilitie (Cash + marketable securities) / Current liabilities
s
2002-2003 50387159 1,247,966,832 0.04
2003-2004 65229899 1243575200 0.05
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2004-2005 402324333 1949949426 0.21

2005-2006 336970982 2,260,755,481 0.15
2006-2007 160,105,179 2555566286 0.06
The cash ratio measures the extent to which a corporation or other entity can quickly liquidate
assets and cover short-term liabilities, and therefore is of interest to short-term creditors.
Cash Ratio
0.25
0.20
0.15
0.10
0.05
0.00
2002- 2003- 2004- 2005- 2006-
2003 2004 2005 2006 2007
Cash ratio is quite steady for years 2002-2003 and 2003-2004, the cash ratio rose sharply in
2004-2005. After that it showed constant decrease to 0.06- almost equal the cash ratio in the first
year. Thus we can see that Square has a problem with managing its cash- and this is probably the
reason for its recent decline in other liquidity ratios. It may not be a source of concern if Square
has can borrow cash on short notice- and it probably can.
4. NWC TO ASSETS
NWC to assets= Current assets-current liabilities / Total assets
Year NWC= Current Assets- NWC to assets=

Total Assets
Current Liabilities Current assets-current liabilities / Total assets
2002-2003 193,585,498 3916353393 0.05
2003-2004 765,380,681 4626686161 0.17
2004-2005 1,292,552,886 7907932662 0.16
2005-2006 1,770,929,474 9298987312 0.19
2006-2007 1,126,944,426 10486940004 0.11
The NWC to Total Assets ratio measures a company's ability to cover its short-term financial
obligations by comparing its net current assets to its Total Assets. This ratio can provide some
insight as to the liquidity of the company, since this ratio can uncover the percentage of remaining
liquid assets compared to the company's Total Assets.
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NWC to assets
0.20
0.15
0.10
0.05
0.00
2002- 2003- 2004- 2005- 2006-
2003 2004 2005 2006 2007
Like all the other previous ratios, this ratio has been increasing in previous years and then shows
a rapid fall in the year 2006-2007. The reason for this must be investigated. A low or decreasing
ratio indicates the company may have too many Total Current Liabilities, reducing the amount of
Working Capital available. The net working capital is a very small portion of the total assets. This
is again not a very good sign of the liquidity of the company.
5. INTERVAL MEASURE
Interval Measure = (Cash marketable securities + receivables) / (Operational costs/365)

Interval Measure =
Cash + short-term Costs from
Year (Cash + short-term securities + receivables) /
securities + receivables operations/365
(Costs from operations/365)
2002-2003 651329739 2148463 303.16
2003-2004 1147869773 2396529 478.97
2004-2005 1695265623 2287308 741.16
2005-2006 2352349495 2696707 872.30
2006-2007 1,978,213,735 3853730 513.32
The interval measure ratio evaluates the number of days a company can continue paying for its
cash expenses without any additional funding. The greater the interval measure ratio, the longer
the company can keep paying its cash expenses and continue doing business.
Interval Measure Ratio
1000 2002-2003
2003-2004
500
2004-2005
2005-2006
0
Interval Measure 2006-2007
The Interval measure ratio had been increasing over the last 4 years. However the previous year,
2006-2007 has seen a sharp drop in this ratio. This has been because of the fall in current assets,
mainly cash assets. This ratio shows that Square Pharmaceuticals at the end of each year they
have enough cash to sustain the daily operating cost for 1.5 years at the minimum (2006-2007)
and the maximum the year before, for 2.5 years (2005-2006).
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6. ACCOUNTS PAYABLE TURNOVER RATIO
Accounts Payable Turnover Ratio = Total supplier

purchases / Average accounts payable
Total supplier Average accounts Accounts Payable Turnover Ratio =
Year
purchases payable Total supplier purchases / average accounts payable
2002-2003 2314500487 32308325 71.64
2003-2004 2292302189 43645622 52.52
2004-2005 2729388226 68247332 39.99
2005-2006 2,962,703,863 81619315 36.30
2006-2007 3,490,436,776 69995955 49.87
Accounts Payable Turnover Ratio is a short-term liquidity measure used to quantify the rate at
which a company pays off its suppliers. The measure shows investors how many times per period
the company pays its average payable amount.
Accounts Payable Turnover Ratio
80.00
70.00
60.00
50.00
40.00
30.00
20.00
10.00
0.00
2002- 2003- 2004- 2005- 2006-
2003 2004 2005 2006 2007
We can see that for Square, the accounts payable turnover ratio has been falling for the past 4
years, with a slight increase in the last year 2006-2007. The falling turnover ratio is a sign that the
company is taking longer to pay off its suppliers than it was before. Thus in the last year, Square
paid off its supplier faster than before. This maybe the reason why in 2006-2007, other liquidity
ratios fell. A lot of cash was paid to suppliers, which reduced cash more than current liabilities
reduced- perhaps because of penalties for previous delays.
7. CASH DEBT COVERAGE
Cash Debt Coverage = (Cash flow from operations -

Dividends) / Total Debt
Cash flow from Total debt Cash Debt Coverage=
Year Dividends (B) A-B
operations (A) (A-B)/ Total debt
2002-2003 815,102,770 187,500,000 627,602,770 1,313,221,765 0.48
2003-2004 1,113,352,513 210,000,000 903,352,513 1,287,218,664 0.70
2004-2005 918,331,427 252,000,000 666,331,427 2,339,142,506 0.28
2005-2006 1,189,155,215 332,640,000 856,515,215 2,896,972,540 0.30
2006-2007 1,449,868,123 372,600,000 1,077,268,123 3,153,682,392 0.34
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The cash debt coverage ratio shows the percent of debt that current cash flow can retire. This
ratio indicates a company’s ability to repay its liabilities from cash generated from operating
activities without having to liquidate the assets used in operations.
Cash Debt Coverage
0.80
0.60
0.40
0.20
0.00
2002- 2003- 2004- 2005- 2006-
2003 2004 2005 2006 2007
We can see from the above graph, other than the sharp fall in cash debt coverage ratio in 2003-
2004, Square has been experiencing more or less steady figures in this measurement. The
decrease in ratio in that year has probably been probably been due to the rise in total debt- almost
twice. Cash flow from operations has been quite satisfactory over the years- generally showing a
positive trend- and it goes for the operational cash flow less dividends. So, due to sudden rise in
debt Square has poor ability to repay its liabilities from cash generated from operating activities.
PROFITABILITY RATIOS
1. NET PROFIT MARGIN RATIO
Net Profit Margin Ratio =Net Income/ Sales

Net Profit Margin=
Year Net Income Sales
Net Income/ Sales
2002-2003 764884789 4065850882 18.81%
2003-2004 970043543 4721551742 20.55%
2004-2005 1255848153 5332046635 23.55%
2005-2006 1165864616 6089905396 19.54%
2006-2007 1303242840 7500811349 17.37%
Net profit margin ratio measures the proportion of revenue that finds its way into profit. This ratio
measures how much net profit remains out of each dollar of sales after all are expenses covered.
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Net Profit Margin
25%
20%
15%
10%
5%
0%
2002- 2003- 2004- 2005- 2006-
2003 2004 2005 2006 2007
We can see that, from the year 2002-2003 to 2004-2005, the net profit margin of SPL was
increasing, then after reaching the peak the margin again came down in 2005-2006. But the
encouraging part for the investors is that the increase or decrease of percentage has been minimal
over the years; as result we can say the NPM has been steady for the last 5 years. This is a very
positive sign for the company, although the reason for decline should be investigated.
2. OPERATING PROFIT MARGIN
Operating Profit Margin= (Net Income+ Interest) /Sales
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Operating Profit Margin=

Year Net Income Interest Sales
(Net Income+ Interest) / Sales
2002-2003 764884789 124494965 4065850882 21.87%
2003-2004 970043543 108673997 4721551742 22.85%
2004-2005 1255848153 106451324 5332046635 25.55%
2005-2006 1165864616 139863636 6089905396 21.44%
2006-2007 1303242840 236845084 7500811349 20.53%
This ratio is similar to Net profit margin except the fact that Interest is considered in calculating
this ratio. The rationale being companies are usually financed partly by debt. This debt costs the
company to pay interest which makes the company seem less profitable and under performing.
Operating profit margin reveals the operating efficiency of the company - how well the company
can convert its sales into profits from its day-to-day activities by its core operations.
Operating Profit Margin Ratio
0.3
0.25
0.2
0.15
0.1
0.05
0
2002- 2003- 2004- 2005- 2006-
2003 2004 2005 2006 2007
Square Pharmaceuticals Ltd. has reasonable amounts of debt over the years, but this interest
payment doesn’t hamper the consistency of the performance of the company. Like the Net
operating margin, SPL’s Operating profit margin is pretty consistent and impressive for the
investors and creditors. The two profitability ratios show similar trend lie over the years. This
indicates that interest expenses has been steady over the years, and is not too much of a worry.
Although like Net Profit Margin, reason for decline in the margin in 2005-2006 needs to found.
3. RETURN ON ASSETS
Return on Assets = (Net Income +Interest)/Average Total assets
Return on Assets=
Average total
Year Net Income Interest (Net Income +Interest)/Average
assets
Total assets
2002-2003 764884789 124494965 4845217778 18.36%
2003-2004 970043543 108673997 5520840946 19.54%
2004-2005 1255848153 106451324 6892647165 19.76%
2005-2006 1165864616 139863636 8603459987 15.18%
2006-2007 1303242840 236845084 9892963658 15.57%
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This is one of the most important ratios which investors are interested in any company. This ratio
shows the return on firm’s all assets. It measures how well the investments of the company (the
Total Assets) have generated earnings (Net Earnings) back to the company.
Return on Assets
0.25
0.2
0.15
0.1
0.05
0
2002- 2003- 2004- 2005- 2006-
2003 2004 2005 2006 2007
In SPL, this ratio has been pretty attractive for the last five years. The percentage has been
hovering around 17%, which is quite impressive for any venture. But, in the recent time (from
2004-05 to 2006-07), there has been a decline of around 4%, which should be carefully observed
by the investors and creditors. This has been the case of all profitability ratios, and probably due
to some external or internal conditions- which may have been remedied, since the margin has
picked up in the following year.
4. RETURN ON EQUITY
Return on Equity = Net Income/Average Equity

Return of Equity=
Year Net Income Average Equity
Net Income/Average Equity
2002-2003 764884789 3562406066 21.47 %
2003-2004 970043543 4220620232 22.98%
2004-2005 1255848153 5079466080 24.72%
2005-2006 1165864616 5985402464 19.48%
2006-2007 1303242840 6867636192 18.98%
Return on Equity is another important measurement of the income-producing ability of a
company, which shows the relationship of net income to average stockholders’ equity. It describes
how well contributions from stockholders generated earnings for the company. ROE shows how
any dollars of earnings were generated per dollar of equity the stockholder's provided.
Chart Title
0.3
0.25
0.2
0.15
0.1
0.05
0
2002- 2003- 2004- 2005- 2006-
2003 2004 2005 2006 2007
17
Potential investors in Square Pharmaceuticals should be cautious about the decrease in the rate of
return on equity from 2004-05 to 2006-07.Return on Equity has been slumped almost by 5% in
this time. This has been the case of all profitability ratios, and probably due to some external or
internal conditions-which although for other ratios had picked up like the ROA, but for ROE it
has further fallen in 2006-2007. This is a significant reason for concern and caution.
5. PAYOUT RATIO
Payout Ratio = Dividend per Share/ Earnings per Share

Cash Earnings Per Payout Ratio=
Year
Dividend Share Dividend per Share/ Earnings per Share
2002-2003 70 128.3 0.546
2003-2004 70 162.72 0.430
2004-2005 77 210.66 0.366
2005-2006 75 195.56 0.384
2006-2007 50 218.61 0.229
The payout ratio measures the proportion of earnings that is paid out as dividends. In the above
table, we haven’t considered the Stock dividend in our calculation.
Payout Ratio
0.6
0.5
0.4
0.3
0.2
0.1
0
2002- 2003- 2004- 2005- 2006-
2003 2004 2005 2006 2007
From the above ratios it is clear that the payout ratio for SPL has been decreasing significantly
over the past few years. But investors shouldn’t be very worried since the company is paying out
dividends in the form of stock dividend and it’s been increasing each year. In the year 2006-2007,
stock dividend has been reached to 50%, which is really prospective for the investors.
6. PLOWBACK RATIO
Plowback Ratio = 1- Payout Ratio
Plowback Ratio=
Year Payout Ratio
1- Payout Ratio
2002-2003 0.546 0.454
2003-2004 0.430 0.570
2004-2005 0.366 0.634
2005-2006 0.384 0.616
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2006-2007 0.229 0.771
Plowback ratio shows the proportion of earnings not paid out as dividends. It shows the portion
of earnings not paid out as dividends and retained or plowed back into the business for future
investment. This ratio is simple to calculate; simply subtracting the payout ratio from 1.
Plow back Ratio
0.5
0
2002- 2003- 2004- 2005- 2006-
2003 2004 2005 2006 2007
From the above table, it is clear that the company has been plowing back more money each year.
Apparently, it might not seem very favorable, but if the company can invest this retained money
properly, it will be very profitable for the shareholders in future time.
7. GROWTH IN EQUITY FROM PLOWBACK
Growth in Equity from Plowback = Plowback Ratio X Return on Equity
Growth in Equity from

Year Plowback Ratio Return of Equity
Plowback
2002-2003 0.454403741 0.214710164 9.76%
2003-2004 0.569813176 0.229834358 13.10%
2004-2005 0.634482104 0.247240189 15.69%
2005-2006 0.616485989 0.194784665 12.01%
2006-2007 0.771282192 0.189765853 14.64%
Growth in equity from plowback or Sustainable Growth Rate is the Plowback ratio multiplied by
the Return on Equity (ROE). It measures roughly how rapidly the shareholders' investment is
growing on an annual basis as a result of plowback. This is a very crucial ratio for the investors to
take their decision.
Growth in Equity from Plowback
20.00%
15.00%
10.00%
5.00%
0.00%
2002- 2003- 2004- 2005- 2006-
2003 2004 2005 2006 2007
19
The Growth in Equity from Plowback ratio has been very lucrative for SPL for the last 5 years.
The growth has been moved from 9.76% in 2002-03 to 14.64% in 2006-07.This rate of growth in
Equity of SPL is really favorable for the investors. For example, in the year 2006-07, the Growth
in Equity from Plowback ratio is 14.64%, which means that if SPL continue to earn 19% on its
book equity and plow back 77% of earnings, both earnings and equity will go at around 15%.
EFFICIENCY RATIOS
1. TOTAL ASSET TURNOVER
Total Asset turnover = Sales / Average total assets

Total Asset turnover=
Year Sales Avg. Total Assets
Sales / Average total assets
2002-2003 4,065,851,000 5,164,320,000 78.73%
2003-2004 4,721,552,000 5,592,908,500 84.42%
2004-2005 5,332,046,000 6,964,715,000 76.56%
2005-2006 6,089,905,000 8,603,460,000 70.78%
2006-2007 7,500,811,000 9,892,963,500 75.82%
Asset turnover measures a firm's efficiency at using its assets in generating sales or revenue - the
higher the number the better. It also indicates pricing strategy: companies with low profit margins
tend to have high asset turnover, while those with high profit margins have low asset turnover.
Total Asset Turnover
90%
85%
80%
75%
70%
65%
60%
2002- 2003- 2004- 2005- 2006-
2003 2004 2005 2006 2007
The above graph shows that the asset turnover for SPL has a cyclical trend, with the ratio rising
one year and falling the next year. But the overall trend shows that total asset turnover is
declining. Thus SPL is failing to utilize its assets fully to generate sales. This is probably due to
increase in size of total assets, but failure to generate compensating sales from it.
2. AVERAGE COLLECTION PERIOD
Average Collection Period= Average receivables / (Sales/365)

Average Average Collection Period=
Year Sales/365
Receivables Average receivables / (Sales/365)
2002-2003 143340556 11,139,318 12.87
2003-2004 182825740 12,935,759 14.13
2004-2005 246321375 14,608,345 16.86
20
2005-2006 278129393 16,684,671 16.67

2006-2007 305798387 20,550,167 14.88
The Average Collection Period measure the approximate amount of time that it takes for a
business to receive payments owed, in terms of receivables, from its customers and clients.
Possessing a lower average collection period is seen as optimal, because this means that it does
not take a company very long to turn its receivables into cash. Ultimately, every business needs
cash to pay off its own expenses (such as operating and administrative expenses).
Average Collection Period
20.00
15.00
10.00
5.00
0.00
2002- 2003- 2004- 2005- 2006-
2003 2004 2005 2006 2007
The above figure shows that the average collection period for SPL has been gradually rising over
the past 5 years. This can be reason for concern, since this signifies that customers are taking
longer to pay bills. This is turn signifies the inefficiency the credit control department and cause
problems cash problems for the company.
3. Account Receivables Turnover
Account Receivables Turnover= Sales / Average receivables

Account Receivables Turnover=
Year Sales Average Receivables
Sales/Average Receivables
2002- 2003 4065850882 143340556 28.36
2003- 2004 4721551742 182825740 25.82
2004- 2005 5332047635 246321375 21.64
2005-2006 6089905396 278129393 21.89
2006- 2007 7500811349 305798387 24.52
The ‘Accounts Receivable Turnover’ indicates the rate of collection of average amount of
receivables per year. This ratio is important for the creditors because it provides an indication of
how quickly receivables are being collected. The failure to maintain a reasonably high accounts
receivable turnover may in some cases even lead to bankruptcy.
21
Account Receivables Turnover
30
25
20
15
10
5
0
2002- 2003- 2004- 2005- 2006-
2003 2004 2005 2006 2007
The accounts receivable turnover for Square Pharmaceuticals as seen from the past few years is
gradually declining. This corresponds with the previous finding of increasing average collection
period. This can be significant reason for concern, since this signifies that SPL is taking longer to
get full payment for sales. This may mean a deteriorating cash flow situation, and even though
paper profits are being shown on accounts, actual monetary condition may be quite poor.
4. Day sales in Inventory
Day sales in Inventory= Average inventory / (Cost of goods sold/365)
Average C.G.S
Day sales in Inventory=
Year Inventor
Average inventory / (Cost of goods sold/365)
y
2002- 2003 627055879 2599568438 87.6
2003- 2004 767845820 2814959729 98.55
2004- 2005 970384282 3159453706 109.5
2005-2006 1242138417 3525402669 127.75
2006- 2007 1443278139 4268447662 120.45
This ratio measure the number of days that inventory is held prior to being sold. An increasing
age of inventory ratio indicates a risk in the company's inability to sell its products. Individual
inventory items should be examined for obsolete or overstocked items. A decreasing age of
inventory may represent under-investment in inventory.
Day sales in Inventory
150
100
50
0
2002- 2003- 2004- 2005- 2006-
2003 2004 2005 2006 2007
Square Pharmaceuticals has a high “Days in Inventory” ratio, which has been on the rise for the
last five years. This should be investigated since this could a result in too much obsolete stocks,
and causing rising inventory costs. Too high inventory results in high risk of inability to sell
22
goods & thus waste, and tied up capital problem. This ratio can be used to estimate and prepare
for future demands. With the high ratio, SPL is well equipped to handle over demand in short run.
5. INVENTORY TURNOVER
Inventory Turnover= C.G.S/Average Inventory.

Inventory Turnover=
Year C.G.S Average Inventory
C.G.S/Average Inventory.
2002- 2003 2599568438 627055879 4.14
2003- 2004 2814959729 767845820 3.66
2004- 2005 3159453706 970384282 3.25
2005-2006 3525402669 1242138417 2.83
2006- 2007 4268447662 1443278139 2.95
The inventory turnover ratio measures the number of times a company’s average inventory is sold
during a period. It relates a measure of sales volume to the average amount of goods on hand to
produce this sales volume. Creditors would prefer a high inventory turnover, which is achieved
by maintaining a substantial average inventory.
Inventory Turnover
5
4
3
2
1
0
2002- 2003- 2004- 2005- 2006-
2003 2004 2005 2006 2007
Over the past five years Square Pharmaceuticals has been able to maintain a high enough
inventory turnover to encourage positive financing by creditors, but the gradual decrease over the
five years will be a subject of scrutiny from conscious creditors. This is probably due to the
increase in inventory seen in the previous analysis, and may be problematic in future.
6. SALES TO NET WORKING CAPITAL
Sales to net working capital = Sales / Average net working capital

Sales to Net Working Capital=
Year Sales Avg NWC
Sales / Average NWC
2002- 2003 4065850882 232303053 1.75
2003- 2004 4721551742 474483089 9.95
2004- 2005 5332047635 1028966784 5.18
2005-2006 6089905396 1531741180 3.97
2006- 2007 7500811349 1448936950 5.17
The Sales to NWC ratio shows the relationship between sales and net working capital. It shows
how much investment in working capital is yielding returns in terms of higher sales. A high ratio
may indicate inadequate working capital, which reflects negatively on liquidity.
23
Sales to NWC
12
10
8
6
4
2
0
2002- 2003- 2004- 2005- 2006-
2003 2004 2005 2006 2007
SPL has had a relatively stable ratio in this case other than the aberration in the year 2003-2004.
This is an anomaly and could be due to abnormal circumstances, and thus is not very important.
They are generating more or less same level of sales each year from their investments in the net
working capital. This is because investments in assets and sales are increasing at the same rate.
7. FIXED ASSET TURNOVER
Fixed Asset Turnover= Sales/ Net Fixed Assets

Fixed Asset Turnover=
Year Sales Net Fixed Assets Sales/ Net Fixed
Assets
2002- 2003 4065850882 1434538187 2.83
2003- 2004 4721551742 2302532806 2.05
2004- 2005 5332047635 2277248681 2.34
2005-2006 6089905396 2295559816 2.65
2006- 2007 7500811349 2902382335 2.58
Fixed asset turnover ratio shows how hard the firm’s fixed assets are put to use. The higher the
ratio, the more effective the company's investments in Net Property, Plant, and Equipment have
become. It may take a year or more for the company to fully utilize those investments.
Fixed Asset Turnover
3
2.5
2
1.5
1
0.5
0
2002- 2003- 2004- 2005- 2006-
2003 2004 2005 2006 2007
Square Pharmaceuticals has a high fixed asset turnover, which is relatively steady other than the
dip in 2003-2004. This was probably due to increase in investment in fixed assets that year.
Although the increase didn’t produce significant returns that year, the effects of it could be seen
in later years-with gradually increasing fixed asset turnover.
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8. AVERAGE OBLIGATION PERIOD
Average Obligation Period = Accounts payable / Average daily purchases

Average Obligation Period=
Year Accounts Average daily Accounts payable / Average daily
Total Purchases
payable purchases purchases
2002-2003 32308325 2314500487 6341097.2 5.10
2003-2004 43645622 2292302189 6280280.0 6.95
2004-2005 68247332 2729388226 7477776.0 9.13
2005-2006 81619315 2,962,703,863 8116996.9 10.06
2006-2007 69995955 3,490,436,776 9562840.5 7.32
The average obligation period ratio measures the extent to which accounts payable represents
current obligations rather than overdue ones. Increasing average obligation period ratio means
that a higher proportion of accounts payable are being made up of overdue obligations. Decrease
in the ratio, on the other hand indicates more current obligations.
Average Obligation Period
12
10
8
6
4
2
0
2002- 2003- 2004- 2005- 2006-
2003 2004 2005 2006 2007
Average obligation period for Square has been rising steadily from the years 2002-2003 to 2005-
2006, until it decreased during the year 2006-2007. From this trend we can deduce that up to
2005-2006 overdue obligations made up greater proportions of the accounts payable/ liabilities
rather than current ones. Thus, Square was delaying payment of its suppliers, until the last year-
when it paid most of its old accounts, resulting in a sharp in the ratio.
9. CASH DIVIDEND COVERAGE
Cash Dividend Coverage = (Cash flow from operations) / Dividends

Cash flow from Cash Dividend Coverage =
Year Dividends (B)
operations (A) (Cash flow from operations) / dividends.
2002-2003 815102770 187500000 4.35
2003-2004 1113352513 210000000 5.30
2004-2005 918,331,427 252,000,000 3.64
2005-2006 1189155215 332640000 3.57
2006-2007 1449868123 372600000 3.89
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The cash dividend coverage ratio reflects the company's ability to meet dividends from operating
cash flow. A cash dividend coverage ratio of less than 1:1 (100%) indicates that dividends are
draining more cash from the business than it is generating.
Cash Dividend Coverage
6.00
5.00
4.00
3.00
2.00
1.00
0.00
2002- 2003- 2004- 2005- 2006-
2003 2004 2005 2006 2007
From the above figure we can see that the cash dividend coverage ratio for Square is in a quite
healthy position. The average ratio for 5 years is very high from the minimum required 1.0. The
lowest was 3.64 in 2005-2006. As for the trend in the ratio, other than the decrease in 2003-2004,
it has been generally increasing over the years, although it has not reached the high levels of
earlier years before the fall. Still, the ratio is healthy with lots of leeway.
LEVERAGE RATIOS
1. LONG TERM DEBT RATIO
Long term debt ratio= Long term debt/(Long term debt + Shareholder’s Equity)
Year Long Term Debt Equity Long-Term Debt + Equity Ratio
2002-2003 65254933 3,851,098,000 3,916,352,933 0.017
2003-2004 36,544,158 4,590,142,000 4,626,686,158 0.008
2004-2005 389,193,080 5,568,790,000 5,957,983,080 0.065
2005-2006 636,217,059 6,402,015,000 7,038,232,059 0.090
2006-2007 598,116,106 7,333,258,000 7,931,374,106 0.075
This ratio measures the proportion of a company's long-term debt compared to its available
capital. Using this investors can evaluate the leverage utilized by the company and compare it to
others to help analyze the company's risk exposure. Generally, companies who finance a greater
portion of their capital via debt are considered riskier than those with lower leverage ratios.
26
The long term debt ratio for SPL has been very low over the past 5 years. This shows that the
major part of Square Pharma’s financing has come from sale of shares or through internal
financing. Finance from equity has always been 10-12 times higher than that from borrowing.
Hence the ratio has been low. However in the year 2005 the graph has shown an upward trend
which shows the borrowing has increased, and this can be seen from the table that from 2004 to
2005 the amount of borrowing has almost doubled, while there has been minor change in equity.
However last year the ratio has fallen, with decrease in long term debt.
2. LONG TERM DEBT TO EQUITY RATIO
Long term Debt-equity ratio = (Long-term debt) / Equity

Year Long Term Debt Equity Ratio
2002-2003 65254933 3,851,098,000 0.017
2003-2004 36,544,158 4,590,142,000 0.008
2004-2005 389,193,080 5,568,790,000 0.070
2005-2006 636,217,059 6,402,015,000 0.099
2006-2007 598,116,106 7,333,258,000 0.082
The long-term debt to equity ratio measures how much money a company should safely be able
to borrow over long periods of time. It is also known as the gearing ratio. The result obtained
after dividing debt by equity is the percentage of the company that is indebted (or "leveraged").
The normal level of debt to equity has changed over time, and depends on both economic factors
and society's general feeling towards credit.
The long-term debt to equity ratio saw a drop in 2004 from 2003. However, the next 2 years,
Square Pharma recovered and gradually increased to 0.45 in 2006. In 2007 the ratio once again
fell but it was a slight drop. Thus throughout the 5 years we can see capital is mostly financed
through investment rather through debt. In fact, total equity increased rapidly while debt capital
tended to remain more stable. The 5 year trend reveals that Square Pharma’s ratio is usually
slightly higher to that of the entire industry. So, in general, the companies are usually financing
projects and expansions by selling stock rather than taking loans.
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3. TOTAL DEBT RATIO
Total Debt Ratio=Total Liabilities/Total Assets

Year Total Liabilities Total Assets Ratio
2002-2003 1313221765 5,164,320,000 0.254
2003-2004 1287218664 6,021,497,000 0.214
2004-2005 2339142506 7,907,933,000 0.296
2005-2006 2896972540 9,298,987,000 0.312
2006-2007 3153682392 10,486,940,000 0.301
The Debt Asset ratio shows the proportion of company assets, which are financed through debt
capital. It indicates what proportion of debt a company has relative to its assets. The measure
gives an idea to the leverage of the company along with the potential risks the company faces in
terms of its debt-load. A debt ratio of greater than 1 indicates that a company has more debt than
assets, meanwhile, a debt ratio of less than 1 indicates that a company has more assets than debt.
Total Debt Ratio
0.350
0.300
0.250 2002-2003
0.200 2003-2004
2004-2005
0.150 2005-2006
0.100 2006-2007
0.050
0.000
The above chart shows that debt asset ratio for SPL has remained relatively stable over the 5-year
period. It reaches its peak in 2006 at 0.312 and is at its lowest during 2004 at 0.214. All the ratios
are under 0.5, which indicates that majority of the company’s assets, were acquired using funds
from selling stock and other equity capital. The minor fluctuations may indicate that the firm
depends on short-term debt financing to meet changes in the market. The industrial trend line
remained rather static. Throughout, Square Pharma’s ratio is above the average trend line proving
that on general, the competitors in the industry rely more on equity capital to finance assets.
4. ASSET TO EQUITY RATIO
Asset To Equity Ratio=Total Asset/Owners' Equity
Year Total Asset Owners Equity Ratio

2002-2003 5,164,320,000 3,851,098,000 1.341
2003-2004 6,021,497,000 4,590,142,000 1.312
2004-2005 7,907,933,000 5,568,790,000 1.420
2005-2006 9,298,987,000 6,402,015,000 1.453
2006-2007 10,486,940,000 7,333,258,000 1.430
28
The asset/equity ratio shows the relationship of the total assets of the firm to the portion owned
by shareholders. It depends on the industry in which it operates its size, economic conditions, and
other factors. There is no ideal asset/equity ratio. A ratio may indicate the company has taken on
substantial debt merely to remain in business. But it can also point to a company that is wisely
"trading on the equity." By the same token, a low asset/equity ratio can indicate a strong firm that
needs no debt, or an overly conservative company, foolishly foregoing business opportunities.
The asset to equity ratio for SPL has been relatively stable over last 5 years. There was a minor
fall in 2004 to 1.312 but it picked up & reached its peak in 2006 to 1.453. In 2007 there was once
again a decline to 1.43. The low ratio indicates that most of its assets has been financed internally
or thorough the issue of shares. The shareholders have more control and share of the assets.
5. TIMES INTEREST EARNED
Times Interest Earned=EBIT/Interest Payments

Year EBIT Interest Payments Ratio
2002-2003 1054099051 124494965 8.467
2003-2004 1325331196 108,673,997 12.195
2004-2005 1619469923 106,451,324 15.213
2005-2006 1672906250 139,863,636 11.961
2006-2007 1959751296 236,845,084 8.274
Times interest earned ratio compares the cash received from operations with cash paid for interest
payments. It tells creditors whether a borrower can meet interest payments when they are due.
Creditors look for companies, which have a high ratio, which is a sign of the profitability.
29
Square Pharma’s times interest earned ratio has increased steadily from 2002 to 2005. This
indicates that they are more likely to make interest payments, making it easier for the company to
obtain loans. The peak was 14.21, which was reached in 2005. However, in 2006, the ratio
decreased to 10.96. Future decrease such as that could undermine creditor confidence. Between
2002 and 2004, Square Pharma’s ratio was lower than the industrial average. However, Square
continued to improve its ratio, thus by 2005, it was higher than the industry in general, meaning
creditors were more likely to give loans to Square as opposed to other organizations.
6. CASH COVERAGE RATIO
Cash Coverage Ratio=(EBIT+ Depreciation)/Interest Payments
Year EBIT Depreciation Interest Payments Ratio

2002-2003 1054099051 305157073 124494965 10.918
2003-2004 1325331196 337,715,013 108,673,997 15.303
2004-2005 1619469923 357,726,818 106,451,324 18.574
2005-2006 1672906250 295,996,773 139,863,636 14.077
2006-2007 1959751296 521,753,906 236,845,084 10.477
Cash coverage ratio measures the amount of cash flow available to meet annual interest and
principal payments on debt, including sinking fund payments. A cash coverage ratio of less than 1
would mean a negative cash flow; and that there is only enough net operating income to cover
95% of annual debt payments. Generally, lenders frown on a negative cash flow, but some allow
it if the borrower has strong outside income.
The cash coverage ratio or Square Pharma has been fluctuating over the last 5 years. It was the
lowest in 2003 at 10.918. From there it saw an increasing trend till 2005 when it reached its peak
at 18.574. Once again the ratio started declining, falling to 10.477 in 2007. However the overall
cash coverage ratio has been significantly high. This means that Square Pharma has enough cash
to settle their debts when they fall due. Square Pharma will be able repay its liabilities from cash
generated from operating activities without having to liquidate the assets used in operations. It
also means that are able to make their interest payments on time. Hence Square Pharma must
have a good credit record with the banks. This will help in obtaining more loans in the future.
7. RETAINED EARNINGS TO TOTAL ASSETS RATIO

30
Retained Earnings to Total Assets = Retained Earnings / Total Assets

Year Retained Earnings Total Assets Ratio
2002-2003 1417302130 5,164,320,000 0.274
2003-2004 1,235,067,597 6,021,497,000 0.205
2004-2005 2,075,810,668 7,907,933,000 0.262
2005-2006 2,816,192,882 9,298,987,000 0.303
2006-2007 3,493,819,175 10,486,940,000 0.333
This ratio indicates the extent to which assets have been paid for by company profits and also
measures the company's ability to accumulate earnings using its Total Assets. Retained earnings
to total assets ratio near 1:1 (100%) indicates that growth has been financed through profits not
increased debt. A low ratio indicates that growth may not be sustainable as it is financed from
increasing debt, instead of reinvesting profits. A high or increasing retained earnings to total
assets ratio is usually a positive sign, showing the company is able to continually
retain increasingly more earnings. As a company grows and matures, this ratio increases.
The Retained earnings to total assets ratio of Square Pharma has seen a rising trend in the past
three years. It fell from .274 in 2003 to .205 in 2004. From then onwards it has kept increasing
reaching it highest in 2007 at .333. This increasing pattern shows that retained earnings have
increased steadily over the years and most of it has been used in the financing of assets. This was
also evident from the long term debt ratio and total debt ratio that Square Pharma is more
dependent on internal sources of financing rather through debt financing.
8. NON CURRENT ASSETS TO NON-CURRENT LIABILITIES
Non-Current Assets To Non-Current Liabilities =

Non-Current Assets / Non-Current Liabilities
Year Non-Current Assets Non-Current Liabilities Ratio
2002-2003 3722767895 65254933 57.050
2003-2004 3861305480 36,544,158 105.661
2004-2005 4665430350 389,193,080 11.987
2005-2006 5,267,302,357 636,217,059 8.279
2006-2007 6,804,429,292 598,116,106 11.376
31
This ratio indicates protection (collateral) for long term creditors. A lower ratio means that there
is a lower amount of assets backing long-term debt.
For Square Pharma this ratio has always been high. The highest was in 2004 with the ratio
being 105.66. It has however fallen in the last 3 years with the lowest in 2006 at 8.276. The
sudden sharp in crease in 2004 was due the fact that Square Pharma had purchased some
major fixed asset during that year. The high ratio indicates that SPL has enough assets to
cover its long-term debts and it will not go bankrupt, as it will be able to pay its liabilities
when they fall due.
9. OPERATING LEVERAGE
Operating Leverage = Percent Change in EBIT / Percent Change in Sales

Year EBIT Sales % Change in EBIT % Change in Sales Ratio
2002-2003 1054099051 4065851000 0.074 0.108 0.688
2003-2004 1325331196 4721552000 0.257 0.161 1.596
2004-2005 1619469923 5332047000 0.222 0.129 1.716
2005-2006 1672906250 6089905000 0.033 0.142 0.232
2006-2007 1959751296 7500811000 0.171 0.232 0.740
The operating leverage reflects the extent to which a change in sales affects earnings. A high
operating leverage ratio, with a highly elastic product demand, will cause sharp earnings
fluctuations. A business that makes few sales, with each sale providing a very high gross margin,
is said to be highly leveraged. As the volume of sales in a business increases, each new sale
contributes less to fixed costs and more to profitability. A business that has a higher proportion of
fixed costs and a lower proportion of variable costs is said to have used more operating leverage.
32
The operating leverage of Square Pharma has been very fluctuating. It was relatively high in the
years 2004 and 2005. It fell to a minimum of .232 in 2006. But again it picked up in 2007 with .
740. This fluctuating trend can be attributed to the type of industry it is operating. Demand for
medicines is not stable. And thus sales vary very year. Sales have seen a rising trend and so has
the earnings before interest and tax (EBIT). The sudden decline in the demand for medicine in
the years 2005 and 2006 can be due to new trade laws and also because of the entry of new drug
producing companies.
MARKET RATIOS
1. Earning Per Share (EPS)
Earning Per Share= Net Income/ No. of shares outstanding

EPS= Earnings available to
Number of shares
Year Net Income stockholder’s/No. of shares
outstanding
outstanding
2002-2003 764884789 3000000 254.96
2003-2004 970043543 3600000 269.46
2004-2005 1255848153 4320000 290.71
2005-2006 1165864616 4968000 195.56
2006-2007 1303242840 5961600 218.61
EPS is the measure used most widely to appraise a company’s operation is earnings per share of
common stock. This is one of the most important factors for prospective investors in the company
as it plays a significant role in determining the market price of the share and the dividends to be
distributed. This ratio also allows comparing various organizations in the related industry.
33
Over the last five years thee has been a steady reduction in the EPS of Square. A cautious glance
on the figures though illustrates a sharp slump over the last couple of years. The investors in
Square Pharmaceuticals probably will see a decrease in the EPS but they should take into
consideration the prevailing market situation, and the overall industry trend.
2. PRICE EARNING RATIO (PER)
Price Earnings ratio = Market Price per share / Earnings per share
Market price per Price earnings ratio=

Year Earnings per share
share Market Price per share / Earnings per share
2002-2003 1178 254.96 4.62
2003-2004 2272 269.46 8.43
2004-2005 3768 290.71 12.96
2005-2006 2276 195.56 11.64
2006-2007 2447 218.61 11.19
Price-earnings ratio helps investors to judge whether the stock is under priced or overprice. A
high price earnings ratio means that investors are willing to pay a premium for the company’s
stock because is expected to have higher than average future earnings growth. Companies with
high P/E ratios are more likely to be considered "risky" investments than those with low P/E
ratios, since a high P/E ratio signifies high expectations.
34
The high market price per share of the common stock of Square Pharmaceuticals during the 2004-
2005 periods has contributed to the significant increase in the price earnings ratio for that period.
Otherwise we can see from the table that the price-earning ratio is relatively stable and is on a
gradual rise. The higher the P/E the more the market is willing to pay for the company’s earnings
but an extremely high P/E ratio would deem the stock of Square Pharma to be overpriced.
Therefore there is need for caution on the part of investors in the valuation of the stock. For
Square the recent trend of steady growth of P/E ratio, as can be seen from the graph, can only
bode well as it indicates the investors’ belief in the long-term prospects of the company.
3. DIVIDEND PER SHARE
DPS = Total dividends paid ÷ No. of shares in issue
Year Dividend Per Share (Annual Report)

2002-2003 70
2003-2004 70
2004-2005 77
2005-2006 75
2006-2007 50
DPS is the amount of the dividend that shareholders have (or will) receive, over an year, for each
share they own. That is what a company’s pays out to investors in the form of monetary returns.
Growing companies will typically retain more profits to fund growth and pay lower or no
dividends. Companies that pay higher dividends may be in mature industries where there is little
room for growth and paying higher dividends is the best use of profits.
From the graph above it can be assumed from the reduction of the dividend figure that Square is
undertaking expansion programs. Therefore investors are receiving fewer returns but can expect a
spurt of income in the future. Either way investors need to b prudent with their ventures and
scrutinize the overall industry scenario along with the company profiling.
4. Dividend Yield
Dividend yield on common stock = Dividend per share/ Market price per share
35
Dividend per Market price per Dividend yield on common stock=

Year
share share Dividend per share/ Market price per share
2002-2003 70 1178 5.9%
2003-2004 70 2272 3.08
2004-2005 77 3768 2.04
2005-2006 75 2276 3.29
2006-2007 50 2447 2.04
Dividend Yield is the rate of return investors get from holding the share. For dividend investors,
one of the telling metrics is Dividend Yield. Not all companies pay out dividends, but this ratio
can be used for those that do. Older, well-established companies tend to payout a higher
percentage and their dividend history can be more consistent.
The dividend yield on common stock for Square Pharmaceuticals has shown a general trend of
decline over the period of last five years barring the financial period of 2005-06 when there was a
lopsided increase of dividend. This signifies the diminishing returns on the company’s stocks for
the investors. Management needs to look at this situation and needs to improve the yield in order
to attract future investment. DPS had been relatively stable until the last year when it fell sharply,
resulting in a lower Dividend Yield.
5. MARKET TO BOOK RATIO
Market-to-book ratio = Market price per share / Book value per share
Market M/B ratio = Market price per share /

Year Book value/share
price/share Book value per share
2002-2003 1178 1284 0.92
2003-2004 2272 1275 1.78
2004-2005 3768 1289 2.92
2005-2006 2276 1289 1.77
2006-2007 2447 1230 1.99
Market-to-Book Ratio is the ratio of the current share price to the book value per share. It
measures how much a company worth at present, in comparison with the amount of capital
invested by current and past shareholders into it.
36
From the above chart, we can see that since the company was doing well in 2003-04, the share
price was highest in these 5 years. Interestingly, the impact on shares depends to a large degree on
the influence that they have on the market as well. During 2005-06 financial year the capital
market situation deteriorated to the level that the DSE General Index fell by 14.91%. The overall
hostile market situation put a negative impact on Square Pharmaceutical’s stock price too.
Therefore, the investors should not be concerned much about the particular M/B ratio.
6. CASH FLOW PER SHARE OF COMMON STOCK
Cash flow/ share of common stock= Operating cash flow/ Avg. no. of outstanding share
Operating Cash Avg. number of Cash flow per share of common stock=
Year
flow outstanding share Operating cash flow/ Avg. number of share
2002-2003 815102770 2750000 296.40
2003-2004 1113352513 3300000 337.38
2004-2005 918,331,427 3960000 231.90
2005-2006 1189155215 4644000 256.06
2006-2007 1449868123 5464800 265.31
Cash flow per share of common stock ratio is a measure of a firm's financial strength. This ratio
can be used to judge a company’s ability to pay dividends and pay liabilities.
We can see from above that for Square Pharmaceuticals, this ratio shows a zigzag trend- with it
first increasing, then decreasing and then increasing again. The average number of outstanding
ordinary stocks has been increasing steadily. So, the variations are due to changes in operating
cash flow. The big decrease was due to abnormally lower operating cash flow in 2004-2005. But
37
the overall trend is decreasing for this ratio. This is due increasing number of outstanding shares,
but not proportional increase in operating cash flow.
COMMON SIZE INCOME STATEMENT ANALYSIS
2002-2003 2003-2004 2004-2005 2005-2006 2006-2007

(All items expressed as percentage of gross turnover)
Gross Turnover 100 100 100 100 100

Less Value Added Tax (14) (14) (14) (14) (14)
Net Turnover 86 86 86 86 86
Cost of Goods Sold (55) (51) (51) (50) (49)
Gross Profit 31 35 35 36 37
Operating Expenses (13) (14) (15) (14) (16)
Selling and Distribution Expenses (11) (11)
Administrative Expenses (3) (5)
Profit From Operations 18 20 20 22 21
Other Income 3 2 6 2 3
Financial Expenses (2) (3)
Net Profit Before WPPF 21 22 26 23 21
Allocation for WPPF (1) (1) (1) (1) (1)
Net Profit before tax 20 21 24 22 20
Provision for Income Tax (3) (3) (4) (5) (4)
Provision for Deferred Income Tax (0) (1)
Net Profit After Tax 16 18 20 16 15
Appropriation
Cash Dividend 4 4 4 1 4
Stock Dividend 13 13 1 1 1
Tax holiday reserve 4 4 1 0 2
Dividend Distribution Tax 0 0 0 0 0
Retained Earnings (5) (3) 14 14 8
16 18 20 16 15
From the above common size income statement for Square Pharmaceuticals Ltd with all figures
presented as a percentage of gross sales we can get relative view of the financial condition of
SPL. Our analysis yields the following findings:
 The VAT has been constant for 5 years resulting in same proportion of net turnover.
 The Cost of goods sold has been declining slowly as percentage of sales, indicating
greater efficiency. Consequently, Gross Margin percentage has been rising.
 Profit from operations proportion has also been rising over the years, until 2005-2006
when it decreased slightly as a percentage of sales. This is reflected in all other previous
profitability ratios and must be investigated to prevent aggravation of problem.
38
 As a result of reduced other incomes, Net Profit before tax reduced from 2005-2006 as a
percentage of sales. By 2006-2007 it was equal to the percentage 5 years ago.
 Tax has been a greater portion of sales perhaps due to greater tax rates by government.
 As for appropriation of the Net Income, cash dividends have been a constant portion of
sales except the year 2005-2006 when most of the usual dividend payment was retained.
 Stock Dividend was huge portion of sales in the two earlier years (13%). But after that
that it was drastically decreased to only 1% of sales, most probably due to rise in sales.
 Appropriation to tax holiday reserve also decreased in the later 3 years. As a result of the
2 above points, Net Profit After Tax has also reduced.
 Addition to retained Earnings in 2002-2003 and 2003-2004 were negative, but then it rose
to 14% the next year. It has been high until in 2006-2007 when it was only 8%
COMMON SIZE BALANCE SHEET ANALYSIS

2002-2003 2003-2004 2004-2005 2005-2006 2006-2007
(All items expressed as percentage of Total Assets)
Assets
Non-Current Assets 72 66 59 57 65
Property, Plant and Equipment 46 38 29 24 34
Capital Work-in-Progress 3 7 9 12 5
Investment - Long Term (at Cost) 23 21 21 21 27
Current Assets 28 34 41 43 35
Inventories 14 14 14 14 15
Trade Debtors 3 4 3 3 3
Advances, Deposits, Prepayments 2 2 2 2 2
Investment in Marketable Securities 0.4 0.3 0.3 0.2 0.2
Short Term Loan 7 14 16 20 14
Cash and Cash Equivalents 1 1 5 3 1
Total Assets 100 100 100 100 100
Shareholder's Equity & Liabilities
Shareholder's Equity 75 78 70 69 70
Share Capital 6 6 5 5 6
Share Premium 26 35 26 22 19
General reserve 2 2 1 1 1
Tax holiday reserve 13 15 12 10 10
Retained Earnings 27 21 26 30 33
Non-current Liabilities 1.3 0.6 4.9 6.8 5.7

Long Term Loans - Secured 1 1 5 6 5
Deferred Tax Liability
Current Liabilities 24 21 25 24 24
Short Term Bank Loans 18 15 17 16 17
Long Term Loans - Current Portion 2 1 2 3 2
Trade Creditors 1 1 1 1 1
Liabilities for Expenses 0.4 0.3 1.3 0.5 0.2
39
Liabilities for Other Finance 4 4 3 4 4

Total Shareholder's Equity & Liabilities 100 100 100 100 100
From the above common balance sheet for Square Pharmaceuticals Ltd with all figures presented
as a percentage of total assets we can get relative view of the financial condition of SPL. Our
analysis yields the following findings:
 Non- Current Assets has been declining as a proportion of total assets for the first 4 years,
although in the year 2006-2007, it increased sharply to 65% from 57%.
 This is most probably due to increase in sales in those years, but no investment. But in the
last year there has been an increase in investment in Property, Plant and Equipment and -
Long Term Investment in other companies.
 The capital work in progress was high in 2005-2006, although it fell below previous
proportions the very next year.
 Current Assets as a proportion of total assets have been steadily rising over the years,
except in 2006-2007 when it decreased by a great margin.
 Within current assets, inventory forms the highest portion of sales with a constant 14%
 Trade debtors, Advances, Deposits, Prepayments & investment in marketable securities
were all small proportions of total assets, but short term loans to subsidiaries were a high
percentage.
 Cash and cash equivalents have been consistently only 1%, other than 2004-2005 and
2005-2006 when it was quite higher than normal.
 Now coming to shareholder’s equity and liabilities, equity forms the highest proportion
although it has been decreasing in recent years.
 Among equity, share premium and tax holiday reserves have the highest share. Variations
in share premium are likely to be due to increase in other factors.
 Appropriation to General Reserves has also been reduced over the years perhaps because
of lower level of cautionary attitude.
 Retained Earnings have been a high percentage of total assets in all years. Except the
decrease in 2003-2004, it has been steadily rising in all years.
 Non-current liabilities or long term liabilities although a smaller percentage of total
assets, have been increasing over the years.
 Current liabilities have consistently formed a much higher proportion of total assets and
also total liabilities/debt.
 Among current liabilities short term loans from banks have been the higher proportion of
total assets, with trade creditors forming mere 1% share of total assets.
40
HORIZONTAL ANALYSIS OF STATEMENS
Horizontal analysis means measuring the absolute and percentage increases or decreases for an
item from one accounting period to the next. Financial statements of the same company for two
or more successive periods are placed side by side so that the changes over those periods are
easily visible. Horizontal analysis therefore depicts the increase or decrease in the items of
financial statements. Use of this analysis helps detect changes in company’s performance and
highlights trends.
The following two tables show the changes in income statement items and balance sheet items
over the period 2003-2007. For the ease of understanding the format and structure of the income
statements, and later the balance sheets, have been changed to include just the totals of the
significant items.
HORIZONTAL ANALYSIS OF INCOME STATEMENTS
From the above table it can be seen that the percentage change in net turnover has been
fluctuating over the period. The most significant change occurred in the 2004 with a 16.13% rise.
The cost of goods sold has also been fluctuating, with a sharp decline in 2004. Consequently the
effect on the gross profit has been due the fluctuation in the net turnover and cost of goods sold.
Because of the sharp decline in cost and rise in the net turnover in 2004 the gross profit change is
the highest in that period. The total operating expenses saw a sharp increase in the same period.
But it has decline in the recent years. Profit from operations was highest in the following period
41
in 2005 with a stunning percentage change of 142%. The net profit after tax has been decreasing
particularly in the last year there has been negative growth.
HORIZONTAL ANALYSIS OF COMPARATIVE BALANCE SHEETS
42
FINDINGS
 The current asset has been increasing over the years.
 The most significant contribution to current assets has been form inventories and cash and
cash equivalents.
 Investment in marketable securities has been completely wiped out and accounts
receivable shows a declining trend.
 Total fixed assets have declined in the previous year with highest change occurring in
2005. Current liabilities have been fairy low except for a sharp increase in the period
2005. This has been mainly due the liabilities in expenses.
 Other current liabilities were generally high in that period. Long-term liabilities
experienced a sharp increase in the same period of 2005.
 This may be due the fact since fixed assets has increased in the same year the company
might have used external sources of funds like bank loans to finance the asset purchase.
 Finally the shareholders’ equity has also declined in the last year. This was due to a sharp
decline in the retained earnings and the tax holiday reserve.
43
44
TREND ANALYSIS
Trend analysis is used to compare financial information over time to a base year. This is done
selecting a base year and then assigning a weight of 100 % to the amounts appearing on the
base-year financial statements. The corresponding amounts shown on the other years’
financial statements are expressed as a percentage of base-year or period amount. Trend
analysis indicates changes that are taking place in an organization and highlights the direction
of these changes.
In the following analysis the year 2002 has been taken as the base year.
TREND ANALYSIS OF INCOME STATEMENTS
The table above shows the trend variations in the income statement of Square Pharma for five
years, taking 2002 as the base year. Therefore in 2002 all items have been assigned a value
of 100% and each item in the remaining years items have been expressed as a percentage of
the consequent base.
The table shows that both net turnover and gross profit has been increasing over the period.
The cost of goods sold has also been rising, but this had no significant effect on the income
from operations, because net profit from operation also has a rising trend. Income from other
sources has declined drastically in the last year. In fact income from other sources has been
fluctuating over the time period. Net profit before tax is increasing with time. However net
profit after tax has fallen sharply in the last year. This is because of the drastic rise in the
income tax in the year 2005. The overall income statement analysis reflects a healthy scenario
for Square Pharma with all the significant items showing a rising trend.
45
Income Statement Trend Analysis
TREND ANALYSIS OF BALANCE SHEETS
The current assets and the fixed assets the company have increased over the years and this
trend may follow through in to the years to come. Total current assets of the company have
increased at a steady rate and so has the fixed assets. The trend of the current liabilities of the
company has been increasing for the five years. The growth in current liability has however
been followed by a good growth in current assets. On the other hand the long term liabilities
46
of Square Pharma have also been increasing. In fact it has increased drastically in the period
2004-2006.
The shareholders equity has also increased over the three years. The reserves and surpluses
however have experienced a healthy growth, which means that more is now distributable to
the same number of shareholders. As the assets increase, it is good for the shareholders. They
will have a profitable return from the shares and think about investing more and buying more
shares of this company.
Balance Sheet Trend Analysis
47
CONCLUSION
This analysis consisted of Square pharmaceuticals from an investor’s point of view. The report
concentrates on the financial aspects of the company that are of most importance to the investors.
Although many factors determine an investor’s preference to invest in a company, most often
than not they prefer to invest in companies that have an overall high standard performance.
After analyzing all the ratios, we have found out the following information:
 Liquidity Ratios: In the liquidity ratio we can see that both current ratio and quick
ratio improved over time marginally. The situation was almost stable.
 Profitability Ratios: Net profit has steadily increased over the years and along with
consistent level of operating profit shows impressive reading for an investor. But
these advantages have been balanced by a slump in the return on assets and equity
figures. Although the decrease rate is very minimal still it is a problem for Square and
they need to try to improve these ratios. A notable showing in the plowback and
growth in equity ratios will certainly help their cause.
 Efficiency Ratios: Inventory turnover, Total Asset Turnover, Fixed Asset Turnover all
had been relatively stable throughout the duration of the report. Average Collection
period is also very good. The only problem here is the Average collection period,
which is quite high. However, it is actually pretty much normal for big companies.
 Leverage Ratios: Debt ratio has improved over time and has remained pretty much
stable. SPL is mainly finance by equity, although proportion of debt is rising.
 Market Value Ratios: Both P/E ratio and M/B ratio declined in the year 2005-06. This
because the whole market was not so friendly for investment in that year.. Enhanced
performance in subsequent year belies the faith of the market’s high valuation of
SPL’s stocks. But a sharp fall in the dividends and consequently dividend yield
columns is indeed alarming. This along with a decreasing trend of earnings per share
should occupy the management’s time and resources in the ensuing periods.
Financial figures from the past five years show that at present Square Pharmaceuticals have
impressive financial records. Square Pharmaceuticals is one of the most sought after company by
investors due to their constantly improving financial figures which they have been able to
maintain over the years. It is true in the financial year of 2005-06 their return did decline but they
bounced back strongly in subsequent period and maintained a satisfactory level of financial
48
performance. Therefore, we can conclude that Square Pharmaceuticals Ltd. is a good enough
company to invest on.
Consolidated BALANCE SHEET
2002-2003 2003-2004 2004-2005 2005-2006 2006-2007

('000) ('000) ('000) ('000) ('000)
Assets
Non-Current Assets 3,722,767 3,861,304 4,665,429 5,267,302 6,804,429
Property, Plant and Equipment 2,367,926 2,237,138 2,317,358 2,273,761 3,531,003
Capital Work-in-Progress 157,641 402,266 687,238 1,077,707 481,239
Investment - Long Term (at Cost) 1,197,200 1,221,900 1,660,833 1,915,833 2,792,186
Current Assets 1,441,552 2,016,056 3,242,502 4,031,684 3,682,510

Inventories 739,835 795,856 1,144,912 1,342,364 1,544,191
Trade Debtors 140,536 225,115 267,527 288,732 322,864
Advances, Deposits, Prepayments 124,458 107,177 146,042 166,492 236,455
Investment in Marketable Securities 20,250 20,250 20,250 20,250 20,250
Short Term Loan 386,334 815,577 1,281,695 1,897,124 1,418,893
Cash and Cash Equivalents 30,137 52,080 382,074 316,720 139,855
Total Assets 5,164,319 5,877,360 7,907,932 9,298,987 10,486,940
Shareholder's Equity & Liabilites

Shareholder's Equity 3,851,098 4,590,142 5,568,790 6,402,015 7,333,258
Share Capital 300,000 360,000 432,000 496,800 596,160
Share Premium 1,367,245 2,035,465 2,035,465 2,035,465 2,035,465
Genereal reserve 105,878 105,878 105,878 105,878 105,878
1,101,935,23
Tax holiday reserve 660,673 853,731 919,636 947,678 7
Retained Earnings 1,417,302 1,235,067 2,816,192 3,493,819
Non-current Liabilities 65,254 36,544 389,193 636,217 598,116

Long Term Loans - Secured 65,254 36,544 389,193 602,349 492,569
Deferred Tax Liability 33,867 105,546
Current Liabilities 1,247,967 1,250,674 1,949,949 2,260,755 2,555,566
Short Term Bank Loans 918,693 896,145 1,370,262 1,471,158 1,818,778
Long Term Loans - Current Portion 86,214 55,921 142,875 261,416 225,176
Trade Creditors 34,645 52,646 83,848 79,390 60,601
Liabilities for Expenses 21,859 16,928 102,395 49,771 24,565
Liabilities for Other Finance 186,553 229,033 250,567 399,018 426,445
Total Shareholder's Equity &

Liabilities 5,164,319 5,877,360 7,907,932 9,298,987 10,486,940
49
Consolidated income statement

2002-2003 2003-2004 2004-2005 2005-2006 2006-2007
('000) ('000) ('000) ('000) ('000)
Gross Turnover 4,729,743 5,482,088 6,199,135 7,085,553 8,711,034

Less Value Added Tax (663,892) (760,536) (867,088) (995,648) (1,210,223)
Net Turnover 4,065,851 4,721,552 5,332,046 6,089,905 7,500,811
Cost of Goods Sold (2,599,568) (2,814,959) (3,159,454) (3,525,403) (4,268,448)
Gross Profit 1,466,282 1,906,592 2,172,593 2,564,503 3,232,363
Operating Expenses (637,194) (786,054) (941,319) (984,298) (1,406,612)
Selling and Distribution Expenses (798,131) (1,000,133)
Administrative Expenses (186,167) (406,479)
Profit From Operations 829,088 1,120,538 1,231,274 1,580,204 1,825,752
Other Income 146,995 88,680 357,395 169,354 220,144
Financial Expenses (139,863) (236,845)
Net Profit Before WPPF 976,084 1,209,218 1,588,670 1,609,694 1,809,052
Allocation for WPPF (46,480) (57,582) (75,650) (76,652) (86,145)
Net Profit before tax 929,604 1,151,636 1,513,018 1,533,043 1,722,906
Provision for Income Tax (164,719) (181,593) (257,170) (333,310) (347,984)
Provision for Deferred Income Tax (33,867) (71,679)
Net Profit After Tax 764,885 970,044 1,255,848 1,165,865 1,303,243
(Transferred to the Statement of Changes in Equity)
Appropriation
Cash Dividend 187,500 210,000 252,000 76,091 372,600
Stock Dividend 617,245 728,220 72,000 64,800 99,360
Tax holiday reserve 189,712 193,058 65,905 28,042 154,257
Dividend Distribution Tax 21,000 25,200
Retained Earnings (229,572) (182,234) 840,743 996,932 677,026
764,885 970,044 1,255,848 1,165,865 1,303,243
50

Executive Summary: Financial Analysis of Square Pharmaceuticals

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FINANCIAL ANALYSIS OF SQUARE PHARMACEUTICALS

Origin of the Report

 Accounting Principles, Fifth Edition; Hermanson, Edwards and Maher; Irwin.

OVERVIEW OF PHARMACEUTICAL INDUSTRY

OVERVIEW OF SQUARE PHARMACEUTICALS

suppliers, and the customers; Fulfillment of responsibility to the Government through

(I) Financial Ratio Analysis

Use and Limitations of Financial Ratios

(II) Common Size Financial Statements

Current ratio = Current assets / Current liabilities

The current ratio of Square Pharmaceuticals is relatively in a stable position, which is

Quick ratio = (Current Asset - Inventory) / Current liabilities

Cash ratio = (Cash + short-term securities) / Current liabilities

2004-2005 402324333 1949949426 0.21

NWC to assets= Current assets-current liabilities / Total assets

Year NWC= Current Assets- NWC to assets=

Interval Measure = (Cash marketable securities + receivables) / (Operational costs/365)

6. ACCOUNTS PAYABLE TURNOVER RATIO

Accounts Payable Turnover Ratio = Total supplier

Accounts Payable Turnover Ratio

7. CASH DEBT COVERAGE

Cash Debt Coverage = (Cash flow from operations -

1. NET PROFIT MARGIN RATIO

Net Profit Margin Ratio =Net Income/ Sales

Net Profit Margin

2. OPERATING PROFIT MARGIN

Operating Profit Margin= (Net Income+ Interest) /Sales

Operating Profit Margin=

Operating Profit Margin Ratio

Return on Assets = (Net Income +Interest)/Average Total assets

Return on Equity = Net Income/Average Equity

Payout Ratio = Dividend per Share/ Earnings per Share

Plowback Ratio = 1- Payout Ratio

2006-2007 0.229 0.771

7. GROWTH IN EQUITY FROM PLOWBACK

Growth in Equity from Plowback = Plowback Ratio X Return on Equity

Growth in Equity from

Growth in Equity from Plowback

Total Asset turnover = Sales / Average total assets

2. AVERAGE COLLECTION PERIOD

Average Collection Period= Average receivables / (Sales/365)

2005-2006 278129393 16,684,671 16.67

Average Collection Period

3. Account Receivables Turnover

Account Receivables Turnover= Sales / Average receivables

Account Receivables Turnover

4. Day sales in Inventory

Day sales in Inventory= Average inventory / (Cost of goods sold/365)

Day sales in Inventory

Inventory Turnover= C.G.S/Average Inventory.

6. SALES TO NET WORKING CAPITAL

Sales to net working capital = Sales / Average net working capital

7. FIXED ASSET TURNOVER

Fixed Asset Turnover= Sales/ Net Fixed Assets

8. AVERAGE OBLIGATION PERIOD

Average Obligation Period = Accounts payable / Average daily purchases

9. CASH DIVIDEND COVERAGE

Cash Dividend Coverage = (Cash flow from operations) / Dividends

Cash Dividend Coverage

2. LONG TERM DEBT TO EQUITY RATIO

Long term Debt-equity ratio = (Long-term debt) / Equity

3. TOTAL DEBT RATIO