FIN440

Sec: 04

CORPORATE FINANCE

Summer 2016
Prepared for:
Syeda Marjia Hossain
North South University
North South University
 Corporate Finance
Fin 440.04

Financial Analysis
on
BEXIMCO Pharmaceuticals
&
SQUARE Pharmaceuticals

Submitted To
Syeda Marjia Hossain (MrJ)
Senior Lecturer, Department of Accounting & Finance
School of Business and Economics
North South University

Prepared by: Team Pentagon

Name ID
Mazharul Karim 1410166030
Omar Farhan Khan 1411689630
Fuad Bin Saif 1411722630
Habiba Islam 1411846630
28th July, 2016

Syeda Marjia Hossain

Senior Lecturer

Department of Accounting & Finance

North South University

Subject: Submission of group project on FIN440

Dear Madam,

It is our pleasure to submit our group project report on FIN440, a report on Financial Analysis of
two companies as a part of this course.

It has been a great pleasure and at the same time we consider ourselves grateful to have
completed this course under your supervision. We have prepared this report in accordance with
the instructions provided by you. Thanks to you, we have learned how to apply our knowledge of
firm valuation concepts that have learned from this course with practical situations. We have
analyzed the firm’s financial reports and have done valuation on them. It was quite interesting to
work on this topic as we have learned a lot of things after doing the whole report by applying our
knowledge in real life scenarios.

There might be some unintentional mistakes and shortcomings in the report. We tried our best to
make the report from our own work and experience. We sincerely hope you will enjoy reading
this report. We would be more than glad to receive your suggestions to improve this report and
feel honored to answer any queries regarding this report.

Thanking you,

Mazharul Karim ____________

Omar Farhan Khan ____________
Fuad Bin Saif ____________
Habiba Islam ____________
 Table of Contents

Serial Page
No.

1. Executive Summary

2. Company Background: BEXIMCO Pharmaceuticals

3. Company Background: Square Pharmaceuticals

4. Part:1, Financial Ratio analysis

5. Part:2, Cash Flow

a. Pro-forma Statement
b. EFN
c. CFFA

6. Part:3, Calculation of Weighted Average cost of Capital (WACC)

a. Cost of equity by CAPM
b. Cost of Debt
c. Calculating WACC
d. Assumptions

7. Part:4, Firms’ Valuation

a. Value by Variable Growth Formula
b. Comparison
1. Introduction

Financial statement analysis (or financial analysis) is the process of studying and
analyzing a company's financial statements to make better economic decisions. Here, we
have analyzed the financial statement of Square Pharmaceuticals and BEXIMCO
Pharmaceuticals, and tried to make a comparison between these two companies in order
to decide which one is in better position i.e. has greater value. Square Pharmaceuticals
and BEXIMCO Pharmaceuticals, both are very renowned companies in Pharmaceuticals
industry of Bangladesh, and dominating the local and foreign medicine market very
powerfully. However, in order to analyze the financial position of these two companies,
we have calculated different types of ratio, Weighted Average Cost of Capita and Free
cash flow of the future. Our main aim was to value the two firms’ financial models to
find their value and decide which one is a better option to invent in.
2. Company Background: BEXIMCO Pharmaceuticals

Beximco Pharmaceuticals Ltd. (Beximco Pharma) belongs to Beximco Group, the largest
private sector industrial conglomerate in Bangladesh. Beximco Pharmaceuticals Ltd
(BPL) is a leading manufacturer of pharmaceutical formulations and Active
Pharmaceutical Ingredients (APIs) in Bangladesh. The company is the largest exporter of
pharmaceuticals in the country and its state of-the-art manufacturing facilities are
certified by global regulatory bodies of Australia, Gulf nations, Brazil, among others. The
company is consistently building upon its portfolio and currently producing more than
400 products in different dosage forms covering broader therapeutic categories which
include antibiotics, antihypertensive, ant diabetics, antireretrovirals, anti-asthma inhalers
etc, among many others. The company was incorporated in 1976 and commenced
operations in 1980 with the manufacturing and marketing of products of Bayer AG,
Germany and Upjohn Inc., USA under licensing arrangements. In 1983, the company
started manufacturing its own formulations and it launched export operation in 1992. In
2005 Beximco Infusions Ltd, the company that produces intravenous fluids was
amalgamated with the parent company. In the same year it completed the state-of-the-art
oral solid dosage plant in compliance with the US FDA and UK MHRA standards, which
has been approved by major global regulatory bodies.
Today Beximco Pharma is the largest exporter of pharmaceuticals in the country and the
only company to win National Export Trophy (Gold), the highest national accolade for
export, for record three times. The company is the largest producer of Metered Dose
Inhalers (MDIs) in the country, and the first to produce CFC free inhalers. BPL is also the
first company to produce anti-retroviral drugs (ARVs) locally.

*Source: Beximco Pharmaceuticals website, http://www.beximcopharma.com

3. Company Background: Square Pharmaceuticals

SQUARE today symbolizes a name – a state of mind. But its journey to the development
and success has been no bed of roses. From the beginning in 1958, it has today burgeoned
into one of the top line multinationals in Bangladesh. Square Pharmaceuticals Ltd., the
leading company, is holding the solid 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 biggest pharmaceutical company in
Bangladesh and it has been continuously hold the 1st position among all national and
multinational companies since 1985. It was established in 1958, transformed into a public
limited company in 1991 and listed with stock exchanges in 1995. The turnover of
Square Pharma was Taka 30.28 Billion (US$ 385.22 million) with about 18.64% market
share having a growth rate of about 25.36% (April 2014– March 2015). SQUARE
Pharmaceuticals Limited has extended its range of services towards the highway of
global market. It pioneered exports of medicines from Bangladesh in 1987 and has been
exporting antibiotics and other pharmaceutical products. Present export market covers 36
countries. This extension in business and services has manifested the credibility of
Square Pharmaceuticals Limited. Mr. Samson H Chowdhury was born on 25 September,
1925. After completing education in India he returned to the then East Pakistan and
settled at Ataikula village in Pabna district where his father was working as a Medical
Officer in an outdoor dispensary. In 1952, he started a small pharmacy in Ataikula village
which is about 160 km off capital Dhaka in the north-west part of Bangladesh.
SQUARE today is a name not only known in the Pharmaceutical world, it is today a
synonym of quality- be it consumer product, toiletries, health products, textiles, agro vet
products, information technology and few more. All these were possible due to his
innovative ideas, tireless efforts, perseverance and dedication with self -confidence which
contributed to his successful achievements. Now the name “SQUARE “inspires and
resonates trust. Under his dynamic leadership, SQUARE is set to continue its progress
globally.

*Source: Square Pharmaceuticals Website, http://www.squarepharma.com.bd

4. Part:1, Ratio Analysis

Financial Ratio Analysis: There are 5 categories of financial ratios.

1) Liquidity ratios
2) Asset management ratios
3) Long term solvency ratios
4) Profitability ratios
5) Market value ratios

1) LIQUIDITY RATIOS:
Liquidity ratios attempt to measure a company's ability to pay off its short-term debt
obligations. This is done by comparing a company's most liquid assets (or, those that can
be easily converted to cash), its short-term liabilities.
There are 2 types of liquidity ratios we calculated which we have found relevant:
A) Current Ratio
Current ratio = current assets/ current liabilities
B) Quick Ratio
Quick ratio = (current asset – inventory)/current liabilities
Square:
Liquidity
Ratio: 2009 2010 2011 2012 2013 2014

Current 1.36 2.15 1.62 1.75 1.74 2.49

Ratio
(times)

Quick Ratio 2.81 4.31 3.23 3.50 3.47 4.97

(times)

Beximco:
Current Ratio 2.98 2.46 2.70 2.67 2.03 1.78
(times)

Quick Ratio 2.24 1.67 1.83 1.88 1.48 1.25

(times)

Time series of current ratio of square: the ratio was highest in 2014 and lowest in
2009. The trend shows that with time its liquidity became better
Time series of current ratio of Beximco: the ratio was the highest in 2009 where as it
was the lowest in 2014. It shows that with time Beximco’s liquidity has fallen which
means lower solvency.
Cross series of current ratio: in 2009 Beximco was far better off than square but with
time the scenario changed and square started to do better in terms of liquidity. And in
2014 square left Beximco far behind.
Time series of quick ratio of square: we see a similar situation as we did in current
ratio. It show square has really improved in terms of liquidity over time.
Time series of quick ratio of Beximco: Again Beximco shows same kind of result over
here too. Through this ratio we get a better idea of liquidity.
Cross series of quick ratio: quick ratio is just a better measurement of liquidity and our
analysis gives the same suggestion as in cross section of current ratio.

Asset-management Ratio:
Asset management (turnover) ratios compare the assets of a company to its sales revenue.
Asset management ratios indicate how successfully a company is utilizing its assets to
generate revenues. Analysis of asset management ratios tells how efficiently and
effectively a company is using its assets in the generation of revenues. They indicate the
ability of a company to translate its assets into the sales.
Square:
2009 2010 2011 2012 2013 2014

Total Asset 75.60 76.27 69.28 74.83 76.59 78.76

Turnover (%)

inventory 5.42 6.02 6.13 6.92 8.28 10.32

turnover

Beximco
2009 2010 2011 2012 2013 2014

Inventory Turnover 2.83 3.27 3.44 3.82 4.35 4.49

(times)

Total Asset 24.47 30.37 34.26 37.78 38.19 38.64

Turnover (%)

Time series of TATO square: analyzing it we can see that square has the highest in
2014. It had almost all the values same except for 2011. Just one year of variance really
doesn’t make any difference. So we can say square has a healthy turn over judging by its
own standards.
Time series of TATO Beximco: if we analyze Beximco we will see it varies from 24 to
39 which by itself is a big change. Positive news is that the values increase with time. It is
difficult to reach any conclusion just judging by its own data.
Cross sectional of TATO: here we can easily understand that there exists a big difference
between these two companies. Since higher the value the better so we can easily reach the
conclusion that square in better.
Inventory turnover
Time series of square: square’s value has increased almost to double during the five
year period. It is a very good indication for any company. In 2014 it had the highest value
where as in 2009 it had the lowest.
Time series of Beximco: although this value increased from 2009 to 2014 but it is
difficult to say if the growth rate is good enough unless we make a Cross sectional
analysis.
Cross sectional: square in 2009 had a value twice that of Beximco which means square
is better off in this sector. If we go through the series we can see square has really set
standard by having 100 percent growth where Beximco were not even close to this grith
rate up until 2014.
Long Term Solvency Ratios:
Long term solvency refers to an organization’s capacity to meet its long-term financial
commitments. A long term solvent company is one that owns more than it owes; that is, it
has a positive net worth and a manageable debt load.
Square:
2009 2010 2011 2012 2013 2014

Debt Ratio (%) 24.92 23.12 28.94 24.18 19.63 16.09

Debt/Equity 0.33 0.30 0.41 0.32 0.24 0.19

Beximco:
2009 2010 2011 2012 2013 2014

Debt Ratio (%) 45.28 25.26 25.64 25.14 28.01 27.86

Debt/Equity 0.83 0.34 0.34 0.34 0.39 0.39

Debt ratio:
Time series of square: starting from 2009 to 2014 its ratio decrease which means lesser of
its assets were financed by debt during the latest years.
Time series of Beximco: we see starting from 2009 to 2014 the value decreased. This
means the company wanted to reduce the assets being financed by debt. Again this value
itself doesn’t really tell us the whole story because it is really dependent on industry.
Cross sectional analysis: there is one anomaly in 2009 of Beximco but the rest shows a
steady decrease in the value of both companies. It indicates both of them wanted to
finance lesser of its assets by debt. And square turned out to be doing it better as they
substantially reduce their debt financing.
Debt-equity ratio:
Time series of square: again this value decreases with time for square just as it did with
debt ratio. It s hard to say if this decrease is good or bad because decrease means lesser
risk but it also indicated that company could leverage itself to earn more returns.
Time series of Beximco: Beximco’s value increases from 2009 to 2014. It means its
leveraging to do business. It can be risky.
Cross sectional analysis: the two companies are direct towards different direction. It is
completely management’s strategy how much debt the want to have compared to equity.
A higher or lower value doesn’t mean it is good or bad.
Profitability RATIOS: Profitability ratios are used to assess a business's ability to
generate earnings as compared to its expenses and other relevant costs incurred during a
specific period of time. For most of these ratios, having a higher value relative to a
competitor's ratio or the same ratio from a previous period is indicative that the company
is doing well.
Square:

2009 2010 2011 2012 2013 2014

Profit margin 16.63% 15.72% 16.85% 16.34% 15.62% 17.16%

(%)

Return on 14.55% 13.89% 13.02% 13.51% 14.25% 15.19%

Asset (%)

Beximco:
2009 2010 2011 2012 2013 2014

Profit Margin (%) 12.83 16.20 16.25 14.20 13.39 13.64

Return on Asset 3.14 4.92 5.57 5.37 5.11 5.27

(%)

Profit margin:
Square time series: square profit margin increased from 2009 to 2014 again it is a good
sign because the company started making more profit. Again a better view could have
been there if industry average was analyzed.
Beximco time series: as the time passed from the 2009 to 2014 Beximco started making
more profit. Again without industry average these values cannot give any other
indication.
Cross sectional: square obviously has higher profit margin compared to Beximco. In the
final year 2014 square has a significant high profit margin
ROA:
Square time series: This value remains almost constant over the period of time. At the
end it has the highest value meaning.
Beximco time series: its return on asset increases from 2009 to 2014 which means its
making more profit in comparison to previous years in terms of asset used.
Cross sectional: there clearly exists a large difference between the ROA values. Square
ha much higher value compared to Beximco. That means square makes more profit
compared to its asset used.
Market value ratio: These ratios are employed by current and potential investors to
determine whether a company's shares are over-priced or under-priced.
Square:
2009 2010 2011 2012 2013 2014

P/E ratio 18.747 25.882 25.351 21.671 25.155 26.023

Market book value 4 5 5 4 4 6

ratio (times)

Beximco:

2009 2010 2011 2012 2013

P/E Ratio 37.72 26.97 18.39 12.91 11.77

Market Book Value 2.16 1.77 1.38 0.93 0.84

Ratio (times)

P/E ratio:
Time series of square: its P/E ratio has increased constantly. Meaning that with passage
of time investors were willing to pay more for every taka they get.
Time series of Beximco: its P/E ratio has been decreasing trend. It means investors are
becoming less interested to invest money in this for every unit of return.
Cross sectional: although in 2009 investors were more interested in Beximco but after 6
years we can see that investors are more interested to invest in square in compared to
Beximco.
Market to book value ratio:
Time series of square: from 2009 to 2014 the MBVB has increased for square. This
means that the stock is overvalued which is a good sign as the stock are being traded at a
higher price.
Time series of Beximco: from 2009 to 2014 the value had decreased constantly. It means
that the share value is falling which is a negative sign for the company.
Cross sectional: square beats Beximco in this category since their MVBV is much higher
than Beximco. And square shows an increasing trend whereas Beximco has a decreasing
one. It means stock price is falling for Beximco whereas square has its stock price rising.
5. Part:2, Cash Flow

a. Pro-forma Statements

A pro forma financial statement is one based on certain assumptions and projections.

For example, a corporation might want to see the effects of three different financing
options. Therefore, it prepares projected balance sheets, income statements,
and statements of cash flows. These projected financial statements are referred to as
pro forma financial statements.
Pro forma is a Latin term, literally means “for the sake of form” or “as a matter of
form.” In the world of investing, pro forma refers to a method by which financial
results are calculated. This method of calculation places emphasis on present or
projected figures.
Financial statements that utilize the pro forma method of calculation are often
designed to draw focus to specific figures when an earnings announcement is issued
by a company and made available to the public, particularly potential investors. These
pro forma statements may also be designed to indicate a change proposed by a
company, such as an acquisition or a merger. Investors should be aware a company’s
pro forma financial statements may hold figures or calculations that are not in
compliance with generally accepted accounting principles (GAAP). In some
instances, pro forma figures are vastly different than those generated with GAAP.
Pro-forma statements help general managers in overall planning (employment and
inventory levels, for example) and problem solving. As forecasts are developed, a
manager can analyze the results to identify potential trouble spots and plan
accordingly. Finding problems and trying out solutions on paper, months in advance,
is much preferred to learning about the problem first hand in real time. Similarly, by
“seeing” into the future with pro-forma statements, a manager can anticipate
opportunities and prepare to exploit them long before the window of opportunity
begins to close. In addition to being a planning tool, pro-forma statements, in tandem
with actual results, can be used to evaluate performance and make midstream
corrections. Variance analysis, a comparison of the plan with actual performance,
helps a manager analyze firm performance during the budget period, gauge strengths
and weaknesses, and make interim adjustments to the plan.
Firstly to calculate pro-forma statement we have to calculate the sustainable growth
rate. At first we calculate the plowback ratio (b) and return on equity (ROE) and then
multiply both of them (ROE*b) and divided by 1-ROE*b. Then we get the
sustainable growth rate.
Now to prepare pro-forma income statement we take the sales, COGS, Operating &
other expense and taxable income of 2014 and multiply those with the sustainable
 growth rate from that we prepared the pro-forma balance sheet of 2015. By following
this method we prepared the next two years pro-forma income statement i.e. 2016 and
2017 respectively. We did not change the interest expense which remained same all
the years because we believed that it would not be affected by the sustainable growth
rate. Taxes were on EBIT. As EBIT changed taxes & Net Income were changed
accordingly as well.
To prepare the pro-forma balance sheet of 2015 we took the entire current assets
amount from the balance sheet of 2014 and then multiply with the sustainable growth
rate then we got the current assets figure of pro-forma balance sheet of 2015. Now in
long term asset section we did not take any account into consideration because both
the company was producing below 100% capacity assuming that 100% production
capacity is not possible to attain considering restraints in the external environment. So
we think the long term assets are not going to increase if sales increases. So those
items remained constant.
Now in the liabilities section we only took trade payables on account which believed
would change if sales increases, considering the fact to meet current demands short
term liabilities would be needed to finance them. We believe the rest of the items
remaining same because we think they are not related to sales directly. Finally in
owner’s equity only retained earnings will be changed. But from the company policy
we could not find any information that out of net income which proportion they gave
out as dividend and which proportion they retained.

b. EFN(External Fund Needed)

Identifying the funds which must be raised in order to support the forecasted sales
level is one of the key outputs of the forecasting process. This amount is known as the
External Financing Needed (EFN) or Additional Funds Needed (AFN).
Now we shall develop approaches which allow the EFN to be identified quickly
through the use of an equation.

Where,
 S0 = Current Sales,
 S1 = Forecasted Sales = S0(1 + g),
 g = the forecasted growth rate is Sales,
 A*0 = Assets (at time 0) which vary directly with Sales,
 L*0 = Liabilities (at time 0) which vary directly with Sales,
 PM = Profit Margin = (Net Income)/(Sales), and
 b = Retention Ratio = (Addition to Retained Earnings)/ (Net Income)
 We shall also use this approach to evaluate the case when the firm has excess
capacity in its fixed assets.
EFN is very important and we calculated EFN by deducting current year’s total
liability and owner’s equity from current year’s total asset. Now if the firm can
increase sales and assets at its sustainable growth rate per year without selling any
additional equity and without changing its debt ratio or payout ratio then the firm’s
debt to equity ratio will be constant.
We believe that the excess funds needed should be fulfilled by debt i.e. taking long
term loan because in perspective to our countries conditions interest rate of long term
corporate loan financing is less and flexible than short term corporate loan financing.

c. Calculation of Cash flow from Pro-forma Statements

The Cash Flow from Assets measures the cash flows generated by the firm's assets. It
is also known as the Cash Flow of the Firm. These cash flows will be further
categorized as Operating Cash Flow, Capital Spending, and Additions to Net
Working Capital.

1st Step: Calculating OCF: Operating Cash Flow measures the cash flows generated
by the firm's main operations, i.e. a firm’s ability to sell its products for more than its
cost of production. Operating Cash Flow can be determined as follows:

Operating Cash Flow = EBIT + Depreciation - Taxes

The calculation begins with EBIT (Earnings before Interest and Taxes) because
Interest Expense is not a cash flow that operations are dependent upon. Interest
Expense reflects how the firm chooses to finance its assets, not its ability to operate
them successfully. Depreciation Expense (from the Income Statement) is added back
because it is a non-cash expense which was subtracted out in the determination of
EBIT. Finally, the taxes which the firm actually paid in cash during the period are
subtracted.

2nd Step: Calculating Net Capital Spending: Capital Spending reflects the firm's net
investment in fixed assets during the period. It can be calculated as follows:

Net Capital Spending = Ending Net Fixed Assets - Beginning Net Fixed Assets +
Depreciation
 In this calculation, Depreciation Expense (from the Income Statement) must be added
back because the balance for Ending Net Fixed Assets on the Balance Sheet is
reduced by the Depreciation Expense which had incurred during the period.

3rd Step: Calculating change in Net working Capital: Additions to Net Working
Capital measure the firm's investment in Net Working Capital during the period. Net
Working Capital (NWC) is defined as Current Assets minus Current Liabilities.

Additions to NWC = Ending NWC - Beginning NWC.

Once the above items have been determined, the Cash Flow from the Firm's Assets
can be calculated as follows:

Cash Flow from Assets = Operating Cash Flow - Capital Spending - Additions to
NWC

A healthy firm would be expected to generate positive cash flow. However, if the
firm is young and/or is investing heavily to promote growth, then a negative cash
flow from the firm's assets is possible and worthy to be considerable in investing.

If CFFA of any firm is positive then it means that the company is doing good
business and it is maximizing its shareholders wealth just like BEXIMCO
Pharmaceuticals & Square Pharmaceuticals. In our case Square Pharmaceuticals
CFFA is larger in amount than that of BEXIMCO Pharmaceuticals CFFA. So we can
say, both the companies are doing well financially in terms of assets but Square
Pharmaceuticals is doing better than BEXIMCO Pharmaceuticals.

6. Part:3, Weighted Average Cost of Capital (WACC)

a. Cost of Equity using CAPM

To calculate WACC, firstly we need to calculate the cost of equity. To find the cost of
equity first we were looking for the Risk free rate which is basically same for both
companies. Then we calculated for the Beta for both BEXIMCO & Square
Pharmaceuticals. We calculated the beta by finding the slope of the return of the
respective companies and the market returns. After finding the market return we
found all the values & easily calculated cost of equity for both Square & BEXIMCO
Pharmaceuticals.
b. Cost of Debt
To find the cost of debt we have found that Bangladesh has no active bond market.
Therefore instead of considering the bond market’s value we considered the long term
loan’s interest rate as required rate of return for debt. To find the value, we have come
to know from reliable sources and have gotten information that the long term
corporate interest rate can be maximum 14% in latest years. So we have used 14% as
required rate of return of debt.

c. Calculation of WACC
To calculate WACC, we calculated the weight of equity for both companies & by
deducting the rate from 100% we found the weight of debt. Then we multiplied the
weight of equity with the required rate of return of equity & weight of debt with the
after tax required rate of return of debt. Then we added these two values to calculate
WACC.

We have found that the WACC value of these two companies is pretty close to each
other with a difference of about 0.37%. For BEXIMCO Pharmaceuticals the value is
6.87% & for Square Pharmaceuticals the value is 7.24%.

d. Assumptions
The weighted average cost of capital (WACC) is the cost of capital a company
expects to pay to all its stakeholders including equity and debt-holders. First we
calculate the marginal cost of capital for each source of capital such as equity and
debt, and then take the weighted average of these costs.
While calculating the WACC is a straight-forward calculation and even getting the
values of equity and debt is easy, but there are some practical problems in calculating
the cost of equity and cost of debt. Thus many a times we assume things without
strong reference data’s, let us see some of the assumptions.
As we used CAPM method for calculating the cost of equity is was based on
historical data and we presumed that the future return would be same as the historical
trend.
To calculate the cost of debt we used the risk free rate and added a risk premium to it
but the problem is that for calculating the risk free rate we can only compare them to
government bonds having the same duration as the duration if the debt but for
anything in between or longer we assume the rate. Not considering higher risk
premium as the debt increases as longer the debt to mature the higher the risk
premium.
 We assumed any new project included by these firms in the current fiscal year had the
same capital structure. For example if the company had a capital structure of 70:30
debts to equity ratio then the new projects would also be the same.
We also assumed there were no changes in risk for the inclusion of new projects or
expanding the current business.

7. Part:4, Firms Valuation

a. Value of the company using variable growth formula.

For computing the value of the company, at first we are discounted back three
(2015, 2016, 2017) years Free cash flow or cash flow from asset separately
through the WACC and with the formula of Present value=future value/
(1+WACC) ^t, t= number of year which is the power of (1+WACC), for both the
company at 2014. Then we are calculating the growth rate of from 2017 data, and
we assume from 2018 to infinity the growth rate is constant. And we calculate
2017 cash flow through CF17=CF16 (1+g). After that ,we use constant growth
formula which is CF17/(RS-g),RS=WACC, for discounting back the 2017 cash
flow to 2016 and then we are discounting back this cash flow with the WACC
and previously used PV=FV/(1+WACC)^t formula to compute at 2014 as
present value . We are calculating our growth rate through the sustainable growth
formula=ROE*b/ (1-ROE*b).

VALUE of the firms

Company Value in taka, Tk.
Square Pharmaceuticals 127,434,253,208.87
BEXIMCO Pharmaceuticals 61,873,333,635.51

Company valuation is a process and a set of procedures used to estimate the

economic value of an owner’s interest in a business. Valuation is used by
financial market participants to determine the price they are willing to pay or
receive to affect a sale of a business. Since, SQUARE’s value is much higher than
BEXIMCO so it’s right decision to buy SQUARE shares than BEXIMCO.
b. Comparison on whether undervalued or overvalued.

Current Price Estimated Price

264.10
Square 228.11
BEXIMCO 53.6 165.75

The current share price of both companies is lower than the estimated price. They
both are selling at a discount. Therefore, share price for both companies are
undervalued.
However, we would like to suggest investing in SQUARE is although not more
profitable but is a safe and wise decision since the financial condition of SQUARE is
in very good position from all perspective.