Letter of Transmittal

January 15, 2013

Mr. Mohammad Abdul Momen, Professor
Institute of Business Administration
University of Dhaka
Dhaka 1000, Bangladesh
Dear Mr. Momen
In compliance with the requirements of the Financial Accounting 2 course, we, the
members of Group 7, are pleased to submit the following report on the financial analysis
Square pharmaceuticals in this industry.
After consulting a number of accounting text books along with the one recommended
by you in this course, we were able to use the three major tools of analyzing financial data:
horizontal, vertical, and ratio analysis. The annual financial reports of Square
Pharmaceuticals Ltd. were available on the internet.
We further researched by surfing online where we were able to gather a lot of
information on Bangladeshs overall economy as well as in the industry of pharmaceuticals.
We thank you for this opportunity to write a report based on a detailed financial
analysis of an industry and a specific company from the perspective of a banker. Clearly, the
experience of putting such a report together will add to our understanding of finance and help
on our journey as business persons.
Sincerely (members of Group 7),
Shaila Nusrat Aurin #04
Tashfia Rawnak Anika #09
Tarique Mahmud Pasha #25
Shadman Sakib Anik #35
Aanisha Mahmood #59

Page | 1

Financial Analysis on Square

Pharmaceuticals
From the Perspective of a Banker

Presented to
Mohammad Abdul Momen, Professor
Institute of Business Administration
University of Dhaka

by
Financial Accounting 2, Group 7
Shaila Nusrat Aurin #04
Tashfia Rawnak Anika #09
Tarique Mahmud Pasha #25
Shadman Sakib Anik #35
Aanisha Mahmood #59

Dhaka, Bangladesh
Page | 2

15th January, 2013.

Contents
1. A Financial Analysis on Square Pharmaceuticals Ltd.
2. Economic Analysis
2.1 Current economy of the world and Bangladesh
2.2 Bangladeshs economy and the impact of an unstable political condition
3. Pharmaceutical Industry Analysis.
3.1 The global pharmaceutical
industry
3.2 Bangladeshs pharmaceutical industry
3.3 Square Pharmaceuticals Ltd. company profile
.
4. Historical Analysis.
4.1 Horizontal analysis ..
..............
4.2 Vertical
analysis...
4.3 Ratio
analysis.......
4.31 Liquidity
ratios.......
4.32 Equity
ratios.
4.33 Profitability
tests........................................
5. Prospect Analysis...
5.1 Expected activities of competitors..
5.2 Government plans............................
5.2 Plant expansion and promotional outlays by Square Pharmaceuticals
Ltd
6. A Summary on the Financial Analysis of Square Pharmaceuticals Ltd
7. Bibliography..
8. Appendix.

Page | 3

Executive Summary
Square Pharmaceuticals Ltd. (SPL) does not have favorable liquidating ability. This
means, it is rather incapable of meeting short-term financial obligations like short-term loans.
However, SPL has been cutting down intensively on short-term loans and relying heavily on
long-term ones with Trade Creditors. Consequently, it has been earning increased sales and
been able to finance much of its property, plant and equipment expansion. It has also been
retaining most of its earnings over the years due to the expansion project. Hence, meaning,
although it is quite incapable of meeting short-term financial obligations, its long-term
capabilities do not look bleak at all. These conclusions emerged as the result of the financial
analysis authorized by Professor Mohammad Abdul Momen.
The report starts with the Economic Analysis in section 2.0 where the global economy at
present and the national economy are revisited to establish a trend and analyze its future
direction. The Economic Analysis is followed by the Pharmaceuticals Industry Analysis
(section 3.0) where the global condition of pharmaceuticals and then the position of the local
pharmaceutical position are explained with graphical illustrations and tables. When it comes
to the local pharmaceutical industrys current position, Square Pharmaceuticals Ltd. has been
able to earn the leadership position being the first of its kind in this region. SPLs journey, and
their current mission, vision and objective are explained in section 3.3.
After gaining a general understanding of the worlds economy and the position of
pharmaceutical industry in that economy, a historical analysis based on the three financial
tools: 1) vertical analysis 2) horizontal analysis and 3) ratio analysis, was done.
Finally, the Prospect Analysis in the last section gives future prediction of where SPL
might be headed. As the findings indicated, due to vigorous plant expansion projects by SPL,
backed up not only by favorable governmental initiatives but also by international health
Page | 4

organizations like the World Health Organization (WHO), SPLs future seems to be headed
towards a bright financial state with high profit margins.

A Financial Analysis on Square Pharmaceuticals

Ltd.
This study was designed to answer two questions: 1) should a creditor such as a bank,
lend money to Square Pharmaceuticals Ltd? 2) Is Square Pharmaceuticals Ltd. a sustainable
firm, that is, will it be able to meet its financial obligations in the future?
These questions are posed regularly in the corporate world, as financing activities depend
heavily on banks and other creditors. In such a scenario, the creditors are bound to analyze
the firms financial status as well as its future prospects in order to have full confidence on
the firms capability to meet financial obligations.
SPL, being a Public Limited Company, publishes its annual and quarterly reports in the
official website. By gathering the past 5 years annual reports, the historical analysis was
carried out. The tools used were: 1) horizontal analysis 2) vertical analysis and 3) ratio
analysis. The data on the Income Statements and the Balance Sheets facilitated the financial
analysis. The full worksheets where the calculations were carried out, are presented in the
appendix section.
However, the financial analysis was not bound within the data available in the annual
reports. In order to gain further insight into SPLs credit-meeting abilities at present and in
the future, economic, industrial and prospect analysis were carried out along with the
historical one. The information about the current economy and the industry were gathered
from the internet where various articles and research findings were available. Information
about future government plans on the industry of pharmaceuticals, competitors plans and
SPLs upcoming plans helped complete the prospect analysis.
Some of the major limitations binding the historical analysis were as follows:
1) Estimates: Financial statements contain numerous estimates. To the extent that these
estimates are inaccurate, the financial ratio and percentages are inaccurate.
Page | 5

2) Cost: Due to inflation or deflation, comparisons of unadjusted financial data from

SPLs past five years annual reports may be inaccurate. For example, a growth of
36% in revenue is misleading if inflation rates were high.
3) Atypical data: Many firms frequently establish a fiscal year-end that coincides with
the low point in operating activity or in inventory levels. Hence, certain items in the
financial statements might not be a good representation of the year long performance.
.

2.0 Economic Analysis

2.1Current economy of the world and Bangladesh

2.2 Bangladeshs economy and the impact of an
unstable political condition

Page | 6

3.0 Pharmaceutical Industry Analysis

In order to gain further insight into the financial analysis of Square Pharmaceuticals Ltd,
a look inside the industry of pharmaceuticals as a whole, is necessary. In this section, first the
global industry of pharmaceuticals is considered before narrowing down to the local
pharmaceutical industry of Bangladesh. After a brief background of the industry followed by
Square Pharmaceutical Ltds company profile, the next section will illustrate the historical
analysis of Square Pharmaceuticals Ltd.

3.1 The global pharmaceutical industry

The pharmaceutical industry of the world is subjected to a variety of laws and regulations.
Only licensed companies can sell their medicines in the open market. Patents, testing, safety
and efficacy, as well as marketing the drugs all are exposed to lengthy legal procedures
where, the government is involved. Because of the medicine being a life saving, or life
enhancing element, the pharmaceutical industry invest good sums of their money in research
and development. However, according to the World Health Organization (WHO), 1/3 rd of all
sales revenue goes to marketing the products which is more than twice as much spent on
research and development. Global pharmaceutical companies, which is dominated by 10 large
drug companies (6 in America and 4 in Europe)catering to 1/3 rd of the worlds pharmacy
demands, argue that the investment in marketing the products is to cover the cost incurred in
the development stage of the medicine.

The global pharmaceutical market is worth US$300 billion a year. This number is
expected to rise to US$400 billion in the next three years. This increase is mostly due to the
huge amounts of money spent on research and development by pharmaceutical companies.
Industry-wide research and investment reached a record high of $6.3 billion back in 2009.
Page | 7

According to Bain & Company (a consulting firm), the cost of discovering, developing and
launching a drug extends to a five year period leading to a cost of nearly $1.7 billion.
As the numbers in Table 1 suggest, United States has the largest market of pharmaceuticals
where $33,290 mills of medicines are consumed. On the contrary, the annual per capita drug
consumption in Bangladesh is the lowest in the world.

Table 1 Global Pharmaceuticals top markets 2009-2011. Source: IMS World Review 2012 Analyst

2011
Country

$ (Mill)

2009
Growth

Rank

Rank

$ (Mill)

Growt

United

322,290

(%)
3

301,095

h (%)
6

States
Japan
China
Germany
France
Brazil
Italy
Spain
Canada
United

2
3
4
5
6
7
8
9
10

111,642
66,805
44,916
41,197
28,465
28,357
22,679
22,294
21,564

16
22
7
6
23
7
2
3
6

2
3
4
5
10
6
7
9
8

89,865
45,261
41,287
40,452
17,629
27,085
22,722
19,143
19,83

17
24
-2
-5
8
-1
1
0

Kingdom

3.2 Bangladeshs pharmaceutical industry

The pharmaceutical industry of Bangladesh has become highly developed over the years
and is contributing significantly to the countrys economy. Much of its development pertains
to the 1982 National Drug Policy which targeted to remove medicine with detrimental side
effects from the market and establish the supply of essential drugs at an affordable price.
Along with quality control, this law provides legislative powers to control the local industry
and ensure legal practices are maintained.
A year before the policy was put to action, two thirds of the pharmaceuticals was
produced by 8 foreign companies who served 80 % of the local market. Now, after almost 31
years, 97% of the countrys demand in met by local pharmaceutical companies. The sales of
the pharmaceutical industry increased from 4,000 crore in 2007 to around 9,000 crore in
2011. The major contributing factors for this growth are: 1) development of health care
infrastructure 2) increase of health awareness 3) increased rural market penetration of the

Page | 8

manufacturers 4) buying capacity of people. Furthermore, the latest addition of human

vaccines which were previously imported, are now able to meet 100% of the local demand.
The Bangladesh pharmaceutical industry exports to 83 countries. This industry earned Tk.
400 crore through export in 2010 which rose to Tk. 500 crore in 2012. Moreover, highly
regulated markets like the USA, Europe and Australia are accepting pharmaceuticals from
Bangladesh more and more. Experts believe, the pharmaceutical industry of Bangladesh has
the potential to become a major economic contributor like the Ready Made Garment (RMG)
sector of the country.
Among the 22 major pharmaceutical companies of Bangladesh, Square Pharmaceuticals
Ltd. holds the top place. Square Pharmaceuticals Ltds local sales figure reached Tk.10.7
billion in 2012from only 1290 crore in 2010. A graph illustrating the total sales of top
pharmaceutical companies other than Square is given below.

5
4.5
4
3.5
3

Incepta
Beximco

2.5

ACME

Opsonin

1.5
1
0.5
0
Total Sales (in billion taka)

Figure 1 Total sales of top pharmaceutical companies, for the year end 2009.

3.3 Square Pharmaceuticals Ltd. company profile

As mentioned previously in section 3.2, Square Pharmaceuticals Ltd. holds the leadership
position in Bangladesh pharmaceuticals industry. Square Pharmaceuticals started in 1985
under the Square group by the founder Samson H Chowdhury. This company has 700
product approvals for the export market and 900 for the local market.

Page | 9

By maintaining the Good Manufacturing Practices (GMP) of the WHO, Square

Pharmaceuticals now exports to highly regulated markets in Europe, Australia and USA. In
addition, it exports to ASEAN, SAARC and RoW region.

A table showing the highlights of Square Pharmaceuticals Ltd. since its inception in 1985,
is presented below. In 1991, Square Pharmaceuticals converted to a Public Limited Company
and gave an Initial Public Offering (IPO) of shares. It was then registered in the Dhaka and
Chittagong Stock Exchange in 1995.

Table 2 Highlights of Square Pharmaceuticals Ltd. since inception.

Year of Establishment (Initially as a Partnership)

: 195

Incorporated as a Private Limited Company

8
: 196

4
Technical Collaboration Agreement with Janssen Pharmaceuticals of Belgium : 197
(A subsidiary of Johnson & Johnson International Ltd.)
Technical Collaboration Agreement with F.Hoffman-La Roche & Co. Ltd.

4
: 198

Converted into Public Limited Company

2
: 199

Initially Public Offering (IPO) of shares of SQUARE Pharmaceuticals Ltd.

1
: 199

Stock Exchange Listing (Dhaka & Chittagong)

4
: 199

5
Agreement with M/s. Bovis Tanvec Ltd. of UK for implementation of Dhaka : 199
Plant
Awarded ISO-9001 Certificate

6
: 199

SQUARE Pharmaceuticals Ltd., Dhaka Unit gets the UK MHRA approval

8
: 200

Awarded TGA Certificate

7
: 201
2

Page | 10

Table 3 Corporate brief on Square Pharmaceuticals. Source: http://www.squarepharma.com.bd/corporate-brief.php

Business Lines

: Manufacturing and Marketing of Pharmaceutical Finished Products,

Basic Chemicals, AgroVet Products and Pesticide Products

Authorized

: US$

Capital
Paid-up Capital

(Tk. 5,000 Million)

: (Tk. 3707.69 million)

Number

73.5

of : 5,290

Employees
Subsidiary

: Square

Company
Associate

Square Formulations Ltd.

: Square

Company

Million

Squar

Cephalosporins

Ltd.

Textiles

Ltd.

Knit

Square

Fabrics
Fashions

Ltd.
Ltd.

Square Hospitals Ltd.

Table 4 Square Pharmaceuticals Ltd's Mission, Vision, and OBjective.

Mission is to produce and provide quality

Mission

& innovative healthcare relief for people,

maintain stringently ethical standard in
business operation also ensuring benefit to
the shareholders, stakeholders and the society

Vission

at large.
View business as a means to the material
and social wellbeing of the investors,
employees and the society at large, leading to
accretion of wealth through financial and
Page | 11

moral gains as a part of the process of the

human civilization.
Objectives are to conduct transparent

Objective

business

operation

based

on

market

mechanism within the legal & social

framework with aims to attain the mission
reflected by our vision.

4.0 Historical Analysis

The historical analysis on Square Pharmaceuticals Ltd. is done by using the various tools
used in financial analysis. Such analysis helps to uncover the underlying details in the
companys financial statements. The following sections contain the findings from the
horizontal, vertical and ratio analysis. All the analysis is done from the perspective of a
banker. The detailed analysis of each items of the financial statement, is presented in the
Appendix section.

4.1 Horizontal analysis

The horizontal analysis is done by computing percentage increases from one year to
another. This analysis was done on the Balance Sheet and the Income Statements from the
annual reports provided by Square Pharmaceuticals Ltd.

Income Statements (2007- 2011)

Some observations from the horizontal analysis of the income statements from 2007-2011,
are as follows:
1) Gross profit increased steadily in the past 5 years. From 2007-2008, the increase was
22%, whereas from 2010-2011, it was as high as 102%.
2) The high revenues were met with high selling and distribution expense. The largest
increase in the selling and distribution expense was from the years 2011-2012 (99%
increase).
3) Financial expenses decreased from the years 2007-2011, but increased 23% in the
years 2010-2011.
4) Administrative increased up to 49% in 2011 from a decrease of 2% in 2009.
Page | 12

Balance Sheets (2007-2011)

Examination of the comparative Balance Sheets for the years 2007-2011, revealed the
following information:
1) Total current assets increased from 5% in 2008 to 69% in2011.
2) Long-term loans decreased by 25% in the years 2007-2008, but increased right next
year by 71%. It again decreased by 16 % in the year 2011.
3) The increase in total assets was financed heavily by trade creditors. A staggering
increase in finance from 23% in the fiscal year 2007-2008 to 267% in the fiscal year
2010-2011, had taken place.

4.2 Vertical analysis

Vertical analysis is helpful in analyzing intracompany data. This analysis is done by
taking a certain item as 100% and then getting an idea of the relationship of every other item
to the former one.

Income Statements (2007-2011)

Through examination of the Income Statements by the help of vertical analysis, the
following percentages are noticeable:
1)

Balance Sheets (2007-2011)

A few of the observations made from the horizontal analysis are as follows:
1)

The company property, plant and equipment accounted for most of the totals assets
in the past 5 years, with the highest being 41% in 2011.

2)

The expansion of property, plant and equipment was financed mostly by the
retained earnings which amounted to 34% of the total liability and stockholders
equity in 2007 and 52% in 2011.

4.3 Ratio analysis

Creditors such as bankers, look for numbers that suggest a firm will be able to pay its
debts when it comes due. Since this report is done from the perspective of a Banker, the ratio
analysis through the market tests is not included. The main three types of ratios concerning a
Banker are the liquidity ratios, equity or long-term solvency ratios and profitability ratios.
The capability of a firm to meet short-term debts is reflected in the liquidity ratios. The
Page | 13

following sections contain liquidity ratios: 1) the current ratio 2) Acid-test ratio 3) Accounts
receivable turnover 4) Number of days sales in accounts receivable 5) Inventory turnover 5)
Number of days sales in inventory; equity ratios: 1) equity ratio 2) stockholders equity to
debt ratio; and, profitability ratios: 1) Profit margin 2) Asset turnover 3) Return on assets.

4.31 Liquidity ratios

The liquidity ratios indicate a companys short-term debt-paying ability. Thus, as this
report is written from the perspective of a banker, the ratios show the Square Pharmaceuticals
capacity to meet maturing current liabilities.

Current ratio
The current ratio of this firm, although favorable 5 years ago has started to decrease at a
high rate. Although, increased by 0.09, in the year 2011, the firm has Tk. 1.59 for every Tk. 1
of liability. This indicates, the firm might find itself in bankruptcy in a few years.
However, a look in the horizontal analysis of the balance sheet reveals that Square
Pharmaceuticals Ltd. had cut down its short-term bank loans over the years meaning the
firm does not have to pay debts of short term loans. In addition, much of its increase in assets
in assets (refer to Table 5), was in long-term investments. Long-term investment in 2008 was
34 % of total assets the highest in the past five years and 19% in 2010 lowest in the past
five years. The assets were financed mostly by retained earnings and share premiums, which
have increased in the past five years.

Table 5 Increase in total assets for the past 5 years.

Increase in
total assets

2007-2008
5%

2008-2009
20%

2009-2010
53%

2010-2011
69%

Table 6 Current ratio for the past 5 years.

Current
ratio

2007
8.77

2008
1.44

2009
2.05

2010
1.5

2011
1.59

Acid-test ratio
The firms acid-test ratio has been on the decline. This is a very unhealthy indication for a
firm. This means that Square Pharmaceuticals Ltd. will not be able to meet its short-term
debts. However, as noted earlier, the firm had cut down on its short-term bank loans and
Page | 14

financed most of its plant expansion and other investments through retained earnings and
share premiums. The lowest of the acid-test ratio was in 2012.

Table 7 Acit-test ratio for the past 5 years.

Acid-test
ratio

2007
4.15

2008
0.55

2009
0.9

2010
0.85

2011
0.82

Accounts receivable turnover

As table 8 indicates, Square Pharmaceuticals Ltds account receivable turnover has been
decreasing over the past five years. In 2008, accounts receivable turned over slightly more
than 26.85 and 27 times in 2009.

Table 8 Accounts recievable turnover of Square Pharmaceuticals Ltd. for the past 5 years.

Accounts
receivable
turnover

2007
26.85

2008
27.13

2009
26.9

2010
24.3

2011
3.51

Number of days sales in accounts receivable

A more in depth understanding of accounts receivable turnover can be gained by looking
at the number of days sales in accounts receivable. The numbers in Table 9 shows that from
2008-2010; the collection period for this firms accounts receivable remained the same. A
sharp increase occurred in 2012. The average liquidity of Square Pharmaceuticals Ltd. and
the quality has been quite impressive until 2011.
Table 9 Number of days' sales in accounts recievables for the past 5 years.

Number
of days
sales in
accounts
receivable

2007

2008

2009

2010

2011

14

14

14

15

104

Inventory turnover
The following schedule shows that the inventory turnover increased from 2.98 times in
2008 to 3.05 in 2010. The inventory turnover of Square Pharmaceutical is quite low which
Page | 15

means inventory turnovers or the costs of goods sold per average inventory have been low. In
general terms, the higher the inventory turnover and the lower the number of days sales in
inventory, the better. From Table 10, it can be seen that the number of days sales of in
inventory for Square Pharmaceuticals Ltd. has not been very impressive. On average,
inventories spend 118 days before getting sold.
Pharmaceuticals such as medicines expiration date are a crucial factor to consider. If
ingredients for the medicine lie in the store for too long, they might be expired and can cause
detrimental effects on human beings who consume it for medicinal purposes.
However, Square Pharmaceuticals Ltds manufacturing plants and other procedures are
carefully overseen by the Government officials. The WHO also takes keen interest on Square
Pharmaceuticals Ltds production and manufacturing process as this company is believed to
provide medicine in the least developed regions of the world, like Africa.

Table 10 Inventory turnover of Square Pharmaceuticals Ltd. for the past 5 years.

Inventory

2007
2.98

2008
2.75

2009
3.05

2010
3.24

2011
3.51

2010
113

2011
104

turnover
Table 11 Number of days' sales in inventory of Square Pharmaceuticles Ltd.

Number
of days
sales in
inventory

2007
122

2008
133

2009
120

4.32 Equity ratios (or long-term solvency ratios)

Solvency is the ability of a business to have enough assets to cover its liabilities.
Solvency is often confused with liquidity but it is not the same thing. Solvency ratio measures
the ability of the company to service over a long period of time. Solvency is a necessary
condition for a business to operate. If a company is unable to meet its obligation, it is said to
be insolvent and must undergo bankruptcy in order to either liquidate or bankruptcy
restructure. It provides a measurement of how lively a company will be to continue meeting
its debt obligations. Long-term creditors and stockholders are particularly interested in a
companys ability to pay interest as it comes due to repay the face value of debt at maturity.
Equity ratio
Page | 16

This ratio measures what portion of a companys assets which are contributed by owners.
The equity ratio is a financial ratio indicating the relative proportion of equity used to
finance a company's assets. The two components are often taken from the firm's balance
sheet or statement of financial position (so-called book value), but the ratio may also be
calculated using market values for both, if the company's equities are publicly traded.
The Equity Ratio is a good indicator of the level of leverage used by a company. The
Equity ratio measures the proportion of the total assets that are financed by stockholders and
not creditors. A low equity ratio will produce good results for stockholders as long as the
company earns a rate of return on assets that is greater than the interest rate paid to creditors.
Equity ratio is calculated by dividing Stockholders Equity by total assets. From the
following table we can clearly see that the equity ratio of SPL is in a stable figure ranging
0.66-0.76.

Table 12 Equity ratio for the past 5 years.

Equity ratio

2007
0.66

2008
0.75

2009
0.076

2010
0.71

2011
0.76

Debt-to-equity ratio
The debt-to-equity ratio (D/E) is a financial ratio indicating the relative proportion
of shareholders' equity and debt used to finance a company's assets. Closely related
to leveraging, the ratio is also known as Risk, Gearing or Leverage. The two components are
often taken from the firm's balance sheet or statement of financial position (so-called book
value), but the ratio may also be calculated using market values for both, if the company's
debt and equity are publicly traded, or using a combination of book value for debt and market
value for equity financially. It can be seen that the debt-to-equity ratio of Square
Pharmaceuticals Ltd. is decreasing every year which shows that the company is using
leveraging at a high scale.
Table 13 Debt-to-equity ratio for the past 5 years.

Year
Debt-toequity ratio

2007
0.51

2008
0.33

2009
0.3

2010
0.41

2011
0.32

4.43 Profitability tests

Profi tability Ratios:
Page | 17

Profitability is one measurement of how successful a company is. The more profitable the
company, the more money the company is making. Profitability refers to a companys ability
to generate an adequate return on invested capital. Return is judged by assessing earnings
relative to the level and sources of financing. Profitability is also relevant to solvency.
Profitability ratios measure the income or operating success of a company for a given period
of time. Income or lack of it, affects the companys ability to obtain debt and equity
financing. It also affects the companys liquidity position and the companys ability to grow.
As a consequence, both creditors and investors are interested in evaluating earning power or
profitability. Analysts frequently use profitability as the ultimate test of managements
operating effectiveness.
Profi t margin
Profit margin is a measure of the percentage of each Taka of sales that results in net
income. It is computed by dividing net income by net sales. The profit margin must be
positive and some authors consider the standard figure of PM is 5%-10%.From the following
table its clear that the Profit margin of SPL is decreasing each year.
Although SPL is increasing its business every year, for increasing Operating Expenses,
Allocation for WPPF, Provision for Income Tax & Provision for Deferred Income Tax net
income is not increasing that much.
Table 14 Profit margin for the past five years.

Year
Profit
margin

2007
0.24

2008
0.19

2009
0.18

2010
0.195

2011
0.19

Asset turnover
Table 15 Asset turnover for the past 5 Asset turnover measures how efficiently a company
uses its assets to generate sales. It is determined by dividing net sales by average assets. The
resulting number shows the Taka of sales produced by each Taka invested in assets. Some
authors consider the standard figure of asset turnover is 2 Times.
SPLs Net sales & Total Assets are increasing at the same time. It makes the Asset
Turnover ratio at a stable rate.

Table 16 Asset turnover for the past 5 years.

Year
Asset
turnover

2007
0.82

2008
0.75

2009
0.8

2010
0.78

2011
0.79

Page | 18

Return on assets
An overall measure of profitability is return on asset. We compute this ratio by dividing
net income by average assets. The return on asset must be positive and some authors consider
the standard figure of return on assets is 10%-12%.
Although SPL is increasing its business every year, for increasing Operating Expenses,
Allocation for WPPF, Provision for Income Tax & Provision for Deferred Income Tax net
income is not increasing that much. As a result Return on assets is not also increasing. But
for the last three years its a stable rate.

Table 17 Return on assets for the past five years.

Year
Return on
assets

2007
0.19

2008
0.27

2009
0.15

2010
0.15

2011
0.15

Page | 19

5.0 Prospect Analysis

Bangladesh pharmaceutical market is practicing high quality and

pertaining to international demands. According to the Business Monitor
Internationals report, Bangladesh is on the very of occupying the 14 th
position within the 17 regional markets surveyed by BMIs
Pharmaceutical and Healthcare Business Environment ratings for the
Asia region.
The industry is expected to do contract manufacturing and
compulsory licencing with the worlds least developed nations of the
Asia Pacific and Africa region. Square Pharmaceuticals Ltd. is already
exporting to highly regulated countries like USA and Australia.
In fact, it is not just the industry of Bangladesh that is expanding.
According to the IMS Health, the value of global pharmaceutical market
is expected to grow by 5-7% in 2011 to US$880 billion, compared with
a 4-5% pace in 2010. The graph below illustrates these figures by
geographical area.

Figure 2 Values of global pharmaceutical market.

Page | 20

5.1 Expected activities of competitors

Although Beximco Pharmaceuticals Ltd.s market is growing at a fast pace, Incepta
Pharmaceuticals Ltd. hold the second position this industry after Square. A graph below
shows that Inceptas growth has been fluctuating for the past few years. The growth of the
pharmaceuticals market in Bangladesh has also been unstable, nevertheless, the growth
noticeable.

Figure 3 Incepta pharmaceuticals growth rate compared to the market growth rate.

Beximco Pharmaceuticals Ltds growth in net sales has been noticeable. This firm has
plans of investing in expansion and providing higher quality medicines to meet international
demand. Square Pharmaceuticals Ltd. must be aware of Beximcos huge potential in both the
local and international market.

Page | 21

12,000.00
10,000.00
8,000.00
6,000.00
4,000.00
2,000.00
0.00

Net Sales

5.2 Government plans

The Ministry of Health of Bangladesh has made a set of goals to improve the healthcare
system of Bangladesh. Under the name The Millenium Development Goals, this projects
main objectives are to:
1) Improve health indicators
2) Reduce family fertility
3) Reduce under 5 mortality
Figure 4 Beximco pharmaceuticals net sales for the past 5 years.

4) Provide

vaccines to children and mothers

5) Reduce vitamin A deficiency.
In addition to the broad objectives set by the government, a high-tech insulin
manufacturing plant has started operation to meet the countrys growing demand on
pharmacies. The pharmaceutical industry of Bangladesh is trying to export to 120 countries
from its current 83.
The government has taken the initiative to establish an Active Pharma Ingredient (API)
park in Gazipur, Munshiganj by 2013. This will hopefully reduce the 80% dependence of raw
materials through imports.

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5.3 Plant expansion and promotional outlays by Square

Pharmaceuticals Ltd
Square Pharmaceuticals Ltd. has spent considerable amounts of money on plant
expansion. The vertical analysis of the balance sheets suggest, this investment was mostly
financed by retained earnings.

120%
100%
80%

2008-2009

60%

2009-2010

40%

2010-2011
2011-2012

20%
0%
Property, plant and equipment

Figure 5 Percentage increase in investing acttivitie by Square Pharmaceuticals Ltd.

Due to the increasing investment on plant expansion, property and equipment, Square
Pharmaceutical has had a steady growth in the last 5 years. The graph presented below,
clearly shows a trend that is on the rise.

Total Comprehensive Income for the Year

3,500,000,000.00
3,000,000,000.00
2,500,000,000.00
2,000,000,000.00

Total Comprehensive Income for the Year

1,500,000,000.00
1,000,000,000.00
500,000,000.00
2007-08

2008-09

2009-10

2010-11

2011-12

Figure 6 Total comprehensive income for the year of Square Pharmaceuticals Ltd.

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6.0 A Summary on the Financial Analysis of

Square Pharmaceuticals Ltd.

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Bibliography

Books
1. Roger H. Hermanson, James Don Edwards and Michael W. Maher, Accounting
Principles, 5th ed. (Boston: ITWIN, pp.823-852,
2. Jerry J. Weygandt, Donald E. Kieso, Paul D. Kimmel, Accounting Principles, 9th ed.
Pp. 766-793

Websites
1. http://www.scribd.com/doc/62362884/Financial-Profile-Analysis-of-SquarePharmaceuticals-Limited-Bangladesh
2. http://www.abpi.org.uk/industry-info/knowledge-hub/global-industry/Pages/industrymarket-.aspx#fig5
3. http://en.wikipedia.org/wiki/Pharmaceutical_industry
4. http://www.who.int/trade/glossary/story073/en/index.html
5. http://bddrugs.com/pharmceuticals.php?page=2
6. http://www.bps-bd.org/bangladehiindust-2.html
7. http://ipsnews2.wpengine.com/1996/09/bangladesh-economy-pharmaceuticalcompanies-want-controls-lifted/
8. http://www.thedailystar.net/newDesign/news-details.php?nid=239204
9. http://www.bangladesh.gov.bd/index.php?
option=com_content&task=category&id=67&Itemid=27
10. http://en.wikipedia.org/wiki/Pharmaceutical_industry_in_Bangladesh
11.

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Appendix A

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