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North South University

Group Project

Topic: Ratio analysis of Pharmaceuticals Company in Bangladesh

Submitted to:
Dilara Afroz khan (DAK)
Course: Principles of Managerial Finance
Code: FIN 254
Section: 14
Submitting Date: 28th December, 2017

Submitted By:-

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LETTER OF TRANSMITTAL

28/12/2017

To,

Ms. DilaraAfroz Khan (DAK)

Senior Lecturer & Director,

Department of accounting and finance

North South University

Subject: Submission of report on Ratio Analysis of 5pharmaceutical companies.

Dear Mam,

With due respect, we would like to submit a group report regarding to the six pharmaceutical
companies of Bangladesh- Beximco, Square, Pharma Aids, Ibn sina, ACI and GSK based on
their financial reports of 2015-16.This report concentrates on the financial ratios of the two
companies, and also detailed analysis about how the companies performed throughout these
given year. Within the given time, we have tried our level best to make the report informative,
and as precise as possible. We apologize if there are any mistakes in calculating any ratio or if we
have misinterpreted any analysis.

Thanking You.

Sincerely Yours,

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Introduction and project objective
Bangladeshi pharmaceutical industry is one of the most urbanized technology sectors.
Manufacturers produce insulin, hormones and cancer drugs. This sector provides 97% of the total
medicinal prerequisite of the local market. The industry also exports medicines to global
markets, including Europe. Pharmaceutical companies are increasing their business with the aim
to make bigger the sell abroad market.

There are six types of medicine manufacturing companies in Bangladesh.

The whole project is about analyzing the performance of these renowned Pharmaceutical
companies over the year 2015-2016, in terms of,

 Liquidity
 Leverage
 Efficiency and
 Profitability

Background Information of BeximcoPharma

Beximco Pharmaceuticals Ltd (Beximco Pharma) is a leading manufacturer and exporter of medicines in
Bangladesh. Incorporated in the late 70s, Beximco Pharma began as a distributor, importing products
from global MNCs like Bayer, Germany and Upjohn, USA and selling them in the local market, which
were later manufactured and distributed under licensing arrangement. Since then, the journey continued,
and today, Beximco Pharma is one of the largest exporters of medicines in Bangladesh, winning National
Export Trophy (Gold) a record five times.

The Reason behind the selection of Beximco Pharma:

As the company was started about 1980.it has been one the oldest and one of the most promising
brands so far. For around years it has been the leading company and has huge transactions every
year. So it was a pleasure choosing the company and also working on such big entity. Moreover,
the data collection of the company is easy as well and so this company has been chosen

Background information Square:


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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 today burgeoned into one of the top line
conglomerates in Bangladesh. 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.

The Reason behind the choose of Square Pharmacy

As we can see the company was the oldest company. The company is one of the finest pharmacy
companies in Bangladesh. This company is very well known company. Square pharmacy is very
much promising brand of Bangladesh. That’s why I prefer this company and it was such a
pleasure to work on this company.

Company background of Pharma Aid:

Pharma Aids Limited is of international standard. Their ampoules will qualify all tests as per
BP/USP. Pharma Aids Limited was established in 1981 at Chandra, Kaliakoir, Gazipur, and went
into commercial operation on July 1, 1984, with a mission to produce the highest quality of
Neutral Glass Ampoules. The machines are of European origin. This factory was the first of its
kind in Bangladesh. Pharma Aids Limited produce different sizes of ampoules, such as, 1ml,
2ml, 3ml, 5ml, 10ml, 20ml and 25ml, both Clear and Amber color. They produce both Open
Mouth and Close Mouth ampoules. Their ampoules are Silk Screen Printed with break-ring at the
neck, and up to 3 color show-ring at the stem. They have the facility to produce opti-cut
ampoules too. The quality of ampoules produced by Pharma.

The reasoning behind the selection:


The company is very much old and started their journey science 1981.thought the long time and
the experience they gathered that’s why I choose that company because there is value of
wisdom .and the company is one of the largest and one of the biggest company in Bangladesh
and have a very bright future .This company is very much promising to the people of Bangladesh
and there are no compromise with any ingredient that make the medicine. The company is so
much competitive in that industry that it is the top 20 performer in last 10 year. That’s why I
prefer that company.

Company Background of IBN SINA

IBN SINA Pharmaceutical Industry Ltd. is a leading pharmaceutical company in Bangladesh.


The company was incorporated in Bangladesh in 22nd December, 1984. The name has a strong
historical significance as IbnSina was a remarkable philosopher of the Islamic golden age. By
1989, the company was converted into a Public Limited Company. The manufacturing facilities
are located in Gazipur and divided into two units: contemporary medicine and natural medicine.
The distribution department has branches in 16 depots which are centrally controlled from the

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Dhaka depot. The shares of the company are listed with both Dhaka and Chittagong Stock
Exchange Limited.

Reason for selection


Since its inception, IBN SINA has been constantly growing. It is one of the more well known
companies in Bangladesh’s pharmaceutical market. The company managed to earn a gold award
in the “Food & Allied and Pharmaceutical Companies” category at the ICSB National Award
2013 for its corporate governance. It is renowned for having ethical business practices as well as
maintaining standard financial reporting which makes analysis and evaluation of the company,
convenient.

Background of ACI Limited

ACI's mission is to achieve business excellence through quality by understanding, accepting,


meeting and exceeding customer expectations. ACI follows International Standards on Quality
Management System to ensure consistent quality of products and services to achieve customer
satisfaction. ACI also meets all national regulatory requirements relating to its current businesses
and ensures that current Good Manufacturing Practices as recommended by World Health
Organization is followed properly. ACI has been accepted as a Founding Member of the
Community of Global Growth Companies by the World Economic Forum which is the most
prestigious business networking organization. ACI was established as the subsidiary of Imperial
Chemical Industries in the then East Pakistan in 1968. After independence the company has been
incorporated in Bangladesh on the 24th of January 1973 as ICI Bangladesh Manufacturers
Limited and also as Public Limited Company. This Company also obtained listing with Dhaka
Stock Exchange on 28 December, 1976 and its first trading of shares took place on 9 March,
1994. Later on 5 May, 1992, ICI plc divested 70% of its shareholding to local management.
Subsequently the company was registered in the name of Advanced Chemical Industries Limited.
Listing with Chittagong Stock Exchange was made on 22 October 1995.

Reason behind selecting ACI Limited

ACI is one of the largest Bangladeshi conglomerates. The company operates through three
reportable segments: Pharmaceuticals, Consumer Brands and Agribusiness. Aim to achieve
business excellence by understanding, accepting, meeting and exceeding customer expectations.
Develop a pool of human resources of the company to their full potential through regular training
and participation in seeking continuous improvement of the Quality Management System. ACI is
committed to conduct all its operations in a manner that is protective of the environment, health
and safety of employees, customers and the community. ACI has been accepted as founding
member of the community of global growth companies by the world economic forum which is
the most prestigious business networking organization in the world.

Reason behind choosing GSK:

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GSK - one of the world's leading research-based pharmaceutical and healthcare companies - is
committed to improving the quality of human life by enabling people to do more, feel better and
live longer. GlaxoSmithKline (GSK) is a leading multinational healthcare company operating in
Bangladesh for years. GSK aims at offering high quality medicines and vaccines to enhance the
quality of human life around the world. This study on “Inventory Management and the Financial
Performance of the Pharmaceutical Segment of GlaxoSmithKline Bangladesh Limited” was
aimed to identify the impact of pharma segment’s inventory management on the financial
performance of GSK.

Ratio analysis

Ratio Beximco Square Pharma Ibnsina Aci Gsk


Current ratio 2.86 6.34 1.89 0.77 1.5 1.67
Quick ratio 1.93 4.97 1.75 0.46 1 1.38
Gross profit 45.75% 48% 35.33% 40.35 43% 38.99%
margin
Operating 22.73% 34% 24.05% 8% 10% 12.52%
profit margin
Net profit 18.68% 24% 21.65% 5.8% 17% 10.3%
margin
Return on 3.19% 22% 11.30% 11.71% 18% 12%
asset
Return on 4.30% 24% 17.722% 23.32% 32% 24.93%
equity
Inventory 1.38 5.67 9.23 11.33 3.21 4.88
turnover
Average 86.78 12 220.5 0.84 9 55.87
collection
period
Debt ratio 0.26 0.085 0.36 0.49 0.433 0.51
Total asset 0.23 0.91 0.73 0.20 1 1.2
turnover

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Ratio analysis
In this portion, the performance of beximco, square, pharma aids, ibnsina, ACI, GSK
ratio will be analyzed in terms of Liquidity, Financial Risk, Activity, Profitability and
Market ratio.

Current Ratio
The current ratio is a liquidity ratio that measures a company's ability to pay short-term
and long-term obligations. To gauge this ability, the current ratio considers
the current total assets of a company (both liquid and illiquid) relative to that
company's current total liabilities.

current ratio
7

6.34
3

2
2.86
1 1.89
1.5 1.67
0.77
0
bexi mco s quare pha rma i bn s i na ACI GSK

All of the company is able to pay its liabilities because its current ratio is pretty good. A
higher current ratio indicates a greater degree of liquidity. If we compare with the
standard value, we can see the square pharmaceutical has advanced current ratio than the
others consequently Ibnsina and ACI have lower current ratio.

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Quick Ratio
The quick ratio is a measure of how well a company can meet its short-term financial
liabilities also known as the acid-test ratio.

Quick rati o
4.97
5

4.5

3.5

2.5
1.93
1.75
2
1.4
1.5 1
1 0.46
0.5

0
bexi mco s qua re pha rma i bns i na ACI GSK

We can see that square is comparatively ahead then others and Ibnsina quick ratio is
lower than the standard value.

Debt Ratio
The debt ratio is defined as the ratio of total – long-term and short-term – debt to total
assets, expressed as a decimal or percentage. It can be interpreted as the proportion of a
company's assets that are financed by debt. Beximco,Pharma aids, ibnsina limited and
ACI have more debt than the others.

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Debt Ratio
0.6

0.5

0.4
Debt Ratio
0.3

0.2

0.1

0
Beximco Squre Pharma Aids Ibn sina ACI GSK

Inventory Turnover

inventory turnover

1.38
4.88
5.67
beximco
square
3.21
pharma
ibn sina
ACI
GSK

9.23

11.33

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Inventory Turnover Ratio measures company's efficiency in turning its inventory into
sales. Its reason is to calculate the liquidity of the inventory. Generally, a low inventory
turnover ratio will signal dreadful sales or surplus inventory, which can be interpreted as
poor liquidity, overstocking and even, obsolescence. A high inventory turnover ratio, on
the other hand, will indicate good sales or buy in small amounts. It also implies better
liquidity, but can also signal inadequate inventory at times. Since here it is unpredictable.
It is considered to be in a stable situation due to good planning and effective inventory
management. Ibnsinahas more efficient inventory turnover. On the other hand others are
far behind the standard value.

Average collection period

Average collection period

bexi mco s qua re pha rma a i ds i bn s i na ACI GSK

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Recently companies are holding out their inventories in surprisingly longer than
necessary. This proves either their effective management leads to longer storage plans or
faster sale. Either way as long as it is effective for them, they can manage to hold their
inventory for their planned holding period. But if this exceeds they will have to cut their
inventory.

In all-purpose, a lower average collection period is more constructive than a higher


average collection period. A low average collection period indicates that the organization
is collecting payment faster. However, this may be an indication that its credit terms are
too strict, and customers may seek suppliers or service providers with more lenient
payment terms. Square pharma collects money very short time which is good sign for the
company.IbnSinaalso below the standard average. But the others are very poor of
collecting money. .

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Total Asset Turnover
This ratio measures how efficiently a firm uses its assets to generate sales, so a higher
ratio is always more favorable. Higher turnover ratios mean the company is using its
assets more efficiently. Lower ratios mean that the company isn't using its assets
efficiently and most likely have management or production problems. This gives
investors and creditors an idea of how a company is managed and uses its assets to
produce products and sales to get a true sense of how well a company's assets are being
used, it must be compared to other companies in its industry.

Total asset turnover


2.5

1.5

1 ibn sina; 2.01

GSk; 1.2
0.5 square; 0.91 ACI; 1
pharma aids; 0.73

beximco; 0.23
0
beximco square pharma aids ibn sina ACI GSk

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Gross Profit Margin

Gross profit margin


gsk; 15.51% beximco; 18.20%

ACI; 17.10%

square; 19.09%

ibn; 16.05%
pharma; 14.05%

Gross margin ratio is a profitability ratio that measures how profitable a company can sell
its inventory. It only makes sense that higher ratios are more favorable. Higher ratios
mean the company is selling their inventory at a higher profit percentage. Since this ratio
measures the profits from selling inventory, it also measures the percentage of sales that
can be used to help fund other parts of the business. Bximco limited company gross profit
is higher than the others

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Operating Profit Margin

Operating profi t margin


bexi mco s qua re pha rma a i ds IBN ACI gs k

11.25%
20.42%

8.98%

7.19%

30.55%
21.61%

The operating margin ratio, also known as the operating profit margin, is a profitability
ratio that measures what percentage of total revenues is made up by operating income. In
other words, the operating margin ratio demonstrates how much revenues are left over
after all the variable or operating costs have been paid. Conversely, this ratio shows what
proportion of revenues is available to cover non-operating costs like interest expense.
This ratio is important to both creditors and investors because it helps show how strong
and profitable a company's operations are a higher operating margin is more favorable
compared with a lower ratio because this shows that the company is making enough
money from its on-going operations to pay for its variable costs as well as its fixed costs.

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Net Profit Margin

Net profit margin

bexi mco s quare pha rma ai ds i bn si na ACI gs k

The net profit margin is a profitability ratio that measures the amount of net income
earned with each dollar of sales generated by comparing the net income and net sales of a
company. In other words, it shows what percentage of sales is left over after all expenses
are paid by the business. Investors use this ratio to measure how effectively a company
can convert sales into net income and want to make sure profits are high enough to
distribute dividends while creditors want to make sure the company has enough profits to
pay back its loans. In other words, outside users want to know that the company is
running efficiently. An extremely low profit margin formula would indicate the expenses
are too high and the management needs to budget and cut expenses. That is why
companies strive to achieve higher ratios. They can do this by either generating more
revenues why keeping expenses constant or keep revenues constant and lower expenses

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Return on Asset

Return on asset
beximco square pharma aids ibn sina ACI gsk

3.98%
14.96%

27.43%

24.94%

14.09%

14.60%

The return on assets ratio is a profitability ratio that measures the net income produced by
total assets during a period by comparing net income to the average total assets. In other
words, ROA measures how efficiently a company can manage its assets to produce
profits during a period. Since company assets' sole purpose is to generate revenues and
produce profits, this ratio helps both management and investors see how well the
company can convert its investments in assets into profits. In short, this ratio measures
how profitable a company's assets are. It only makes sense that a higher ratio is more
favorable to investors because it shows that the company is more effectively managing its
assets to produce greater amounts of net income. A positive ROA ratio usually indicates
an upward profit trend as well.

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Return on Equity

Retun on equity
35

30

25

20

32
15
24 23.32 24.93
10
17.72

5
4.3
0
bexi mco s quare pha rma ai ds i bn s i na ACI gs k
ROE

The return on equity ratio or ROE is a profitability ratio that measures the ability of a
firm to generate profits from its shareholders investments in the company. In other words,
ROE shows how much profit each dollar of common stockholders' equity generates. So a
return on 1 means that every dollar of common stockholders' equity generates 1 dollar of
net income. ROE is an indicator of how effective management is at using equity
financing to fund operations and grow the company. Considering this ratio to be an
investor’s ratio, they want to see a high return on equity ratio because this indicates that
the company is using its investors' funds effectively. Higher ratios mean they have to be
compared to other companies' ratios in the industry. Since every industry has different
levels of investors and income, ROE can't be used to compare companies outside of their
industries very effectively. Many investors also choose to calculate the return on equity at
the beginning of a period and the end of a period to see the change in return. This helps
track a company's progress and ability to maintain a positive earnings trend.

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Common-size Income Statement

Beximco pharmaceuticals limited


For the Year Ended December June 30, 2016

Sales revenue 100%

Less: Cost of goods sold 54.25%

Gross Profit 45.74%

Administrative expenses 3.40%

Selling & distribution expenses 19.60%

Other operating expenses 12.34%

Total operating expense 23.01%

Operating profit 22.73%

Less: Interest expense 5.10%

Other non-operating expense 4.54%

Share of profits from associates .16%

Contribution to WPPF .93%

Net profit before taxes 18.68%

Less: Income tax 4.62%

Net profit after tax 14.07%

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Analysis: According to the common-size income statement, beximco is performing conforming
to the industry average except the net profit margin, relative to other profitability ratios. The net
profit margin is below the industry average in 2016.

The expense as a percentage of sales is respectively high. And again, Cost of Goods Sold is
much higher which makes the gross profit margin lesser. Interest expense is however, below the
average which indicates low debt level. To improve the net profit margin, the company must
reduce the Cost of goods sold and operating expense as well.

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Common-size Income Statement

Square Pharmaceuticals Ltd.


For the Year Ended Mar 31, 2016

Sales revenue 100%

Less: Cost of goods sold 44.97%

Gross Profit 41.48%

Administrative. Expenses 2.6%

Selling & distribution. Expenses 12.6%

Total operating expense 15.2%

Operating profit 26.3%

Financial charges 0.03%

Other op. Income 4.18%

Workers’ P.P. fund & welfare fund 1.45%

Net profit before taxes 29.0%

Less: Income tax 6.88%

Net profit after tax 21.9%

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Analysis: According to the common-size income statement,

Squre currently performing lower then industry average . All profitability ratio like Gross
profit margin, Operating profit margin and net profit margin are below the industry line .

In 2014 the expenses as a percentage of sales were high and cost of goods sold also
higher then 2015. Beacon should improve their operating expenses meeting industry
average. To improve their profitability company should increase sales revenue and reduce
cost of goods sold and operating expenses

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Common-size Income Statement

Pharma Aids limited

For the Year Ended December 31, 2016

Sales revenue 100%

Less: Cost of goods sold 74.2%

Gross Profit 28.3%

Administrative. Expenses 1.9%

Selling & distribution. Expenses 5.6%

Other operating expenses 2.23%

Total operating expense 9.73%

Operating profit 22.3%

Less: Interest expense 3.19%

Other non-operating expense .28%

Share of profits from associates .88%

Contribution to WPPF .25%

Net profit before taxes 17.2%

Less: Income tax 3.78%

Net profit after tax 57.61%

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Analysis: According to the common-size income statement, pharma aids limited is
performing conforming to the industry average except the net profit margin,

The expense as a percentage of sales is respectively high. And again, Cost of Goods Sold
is much higher which makes the gross profit margin lesser. To improve the net profit
margin, the company must reduce the Cost of goods sold and operating expense as well .

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Common-size Income Statement

The IBN SINA Pharmaceutical Industry Ltd.

For the Year Ended June 30, 2016

Sales revenue 100%

Less: Cost of goods sold 59.64%

Gross Profit 40.35%

Administrative. Expenses 2.28%

Selling & distribution. Expenses 30.1%

Total operating expense 32.4%

Operating profit 8.0%

Financial charges 0.24%

Other op. Income 0.85%

Workers’ P.P. fund & welfare fund 0.41%

Net profit before taxes 8.20%

Less: Income tax 2.39%

Net profit after tax 5.81%

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Analysis : The Ibnsina is performing not bad .All the profitability ratio like (gross profit
margin, operating profit margin and net profit margin ) are medium the industry line .In
2016 the expenses as a percentage of sales were high .

The company improves some of their management of some operating expenses meeting
industry average. Moreover their cost of sold decreasing percentage of sale increasing
and farther reduces the gross profit margin. There see that interest expenses is increasing
than ever before. But at the same time firm must concentrate diminishing the cost of
goods sold and they have a high distribution cost.

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Common Size Income Statement

ACI Pharmaceuticals Ltd.


For the year ended 31 December 2016

Sales revenue 100%

Less: Cost of goods sold 56.34

Gross Profit 34.08

Administrative. Expenses 0.81

Selling & distribution. Expenses 10.37

Total operating expense 12.50

Operating profit 0.22

Financial charges 0.57

Other op. Income 22.13

Workers’ P.P. fund & welfare fund 0.55

Net profit before taxes 21.59

Less: Income tax 4.42

Net profit after tax 17.2

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Analyzing the Income Statement

The common figure for an income statement is total top-line sales. This is actually the
same analysis as calculating a company's margins. For instance, a net profit margin is
simply net income divided by sales, which also happens to be a common-size analysis.
The same goes for calculating gross and operating margins. The common-size method is
appealing for ACI Limited Company because they tend to focus on Pharmaceuticals,
Consumer Brands and Agribusiness and what these represent as a percent of total sales.

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Common Size Income Statement

GlaxoSmithKline Bangladesh Limited


For the year ended 31 December 2016
Sales revenue 100%

Less: Cost of goods sold 61.01%

Gross Profit 38.99%

Operating Expenses

Selling Expense (20.77%)

DistributionExpenses (0.38%)

Administrative. Expenses (5.64%)

Other Income 0.32%

Total operating expense (26.47%)

Operating profit 12.52%

Financial charges 0.93%

Net profit before taxes 13.46%

Less: Income tax (3.20%)

Net profit after tax 10.26%

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ANALYSIS:

GlaxoSmithKline Bangladesh Limited is performing worst in liquidity section as we can


see that the ratios are falling from the previous year. In activity sector the company is
doing great as we can see that inventory turnover has increased from previous year, avg.
collection period has decreased whereas avg. payment period has increased, this show
that the firm consists more cash balance in the year 2016. Debt ratio has also increased in
2016. The profitability ratios are not that good for them. All the profitability ratios are
decreasing from the previous year. The position of the market ratios are quite healthy. The
thing is the firm not doing well for the short run but for long run it is. Hence firm should
take relative actions to cope up with the long run situations.

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Conclusion and Recommendation:

According to ratio analysis and common size income statement we can easily give some
recommendation to five pharmaceuticals company. Squaredoing well in the operating
expense but if they want to improve their net profit margin, they have to look out their
cost of goods sold which is very high. According to analysis beacon and ibnsinaare doing
very bad in maintain cost of goods sold . Because of high cost of goods sold they can’t
improve their net profit margin. On the other hand pharma aids and beximcodoing great
job in the cost of goods sold sector. Pharma aids and square paying huge amount of
interest expense which is not good for company and its indicate that they are on the very
high debt and their operating and selling expense is very high comparatively others. For
improving net profit margin beacon,ibnsina should decrease their cost of goods sold.
Ibnsina and pharma aid should decrease their operating expense and interest expense.

Learn from this project: On the ratio analysis chapter we learn how to calculate ratio
and how to interpret the ratio figure. Throughout the project we learn many things for
example how to calculate ratio on excel and how to analysis ratio on the graphical
representation.

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