Army Institute of Business Administration

Course Title: Financial Management

Course Code: FIN8401

Term Paper on:

“Ration Analysis of Square Pharmaceuticals Ltd. And
Beximco Pharmaceuticals Ltd.”

Submitted By:
Group Name: MBA 10
Group Members:

Name ID No.
Md. Masud Ur Rahman 201019001
Md Nahid Hasan 201019002
Sakib Mohammed Malik 201019003
Muhammad Jasim Uddin 201019004

Submitted to:
Md. Ashraful
Lecturer
Army Institute of Business Administration, Sylhet

Submission Date:
02 June 2020
 CONTENT

DESCRIPTION PAGE
1.1 Objective 1
Introduction
1 1.2 Company Profile 1
(1)
1.3 Ratios are used in this Paper 1
2.1 Current Ratio 3
2.2 Acid Test Ratio 3
2 Liquidity Ratio
(2 – 5) 2.3 Days to Sell to Inventory 4
2.4 Cash Ratio 4
2.5 Inventory to Working Capital 5
3.1 Gross Profit Margin 7
3.2 Operating Profit Margin 7
3 Profitability Ratio 3.3 Net Profit Margin 8
(3 – 10) 3.4 Return on Equity 8
3.5 Return on Asset 9
3.6 Return on Capital Employed 10
4.1 Debt to Equity 12
4 Solvency Ratio 4.2 Debt to Total Asset 12
(11 – 14) 4.3 Interest Coverage 13
4.5 Cash Flow to Debt Ratio 13
5.1 Accounts Receivable Turnover 16
5.2 Collection Period 16
5 Activity Ratio 5.3 Accounts Payable Turnover 17
(15 – 19) 5.4 Payable Turnover in Days 18
5.5 Inventory Turnover 18
5.6 Total Asset Turnover 19
6 Market Valuation 6.1 Earnings Per Share 21
(20 – 22) 6.2 Dividend Payout Ratio 21
Recommendation 23
1. INTRODUCTION
Ratio analysis is an essential tool in finance. It is an analytical tool to understand insight view of
a company’s liquidity, profitability, solvency, activity, market valuation by studying its financial
statement. It helps to understand how the company is doing its business operation, how it is
managing its financial resources, how much it is taking return on its investment, where are the
company’s financial strengths and weaknesses. In this paper, we have selected two of the largest
pharma company who have been successfully operating its business for more than 40 years in
Bangladesh that are Square Pharmaceuticals Limited and Beximco Pharmaceuticals Limited.
1.1 Objective
The objective of this paper is:
A. To measure the financial performance of Square Pharmaceuticals Limited and Beximco
Pharmaceuticals Limited.
B. To determine operational and management efficiency of Square Pharmaceuticals Limited
and Beximco Pharmaceuticals Limited.
C. To evaluate profitability of Square Pharmaceuticals Limited and Beximco Pharmaceuticals
Limited in order to understand how they are generating revenue.
D. To compare financial performance between Square Pharmaceuticals Limited and Beximco
Pharmaceuticals Limited.
1.2 Company Profile
Square Pharmaceuticals Limited is the country’s largest pharma company covers almost 17% of
market share in pharmaceuticals industry. It has been holding the first place among all national
and multinational companies since 1985. It entered in the industry in 1958, recognized as a public
limited company in 1991 and listed with stock exchange in 1995. Currently, it exports its product
in 42 countries of the world.
Beximco Pharmaceuticals Limited is the third largest pharma company in Bangladesh that was
founded in 1980. It captures around 8.2% of market share in pharmaceuticals industry. It listed
with stock market in 1986. The company currently has a global footprint in more than 50 countries
of the world.
1.3 Ratios are used for this Paper
➢ Liquidity Ratio: Current Ratio, Acid-Test Ratio, Days to Sell Inventory, Cash Ratio,
Inventory to Working Capital.
➢ Profitability Ratio: Gross Profit Margin, Operating Profit Margin, Net Profit Margin,
Return on Equity, Return on Asset, Return on Capital Employed.
➢ Solvency Ratio: Debt to Equity, Debt to Total Asset, Interest Coverage, Cash Flow to Debt.
➢ Activity Ratio: Accounts Receivable Turnover, Collection Period, Accounts Payable
Turnover, Payable Turnover in Days, Inventory Turnover, Total Asset Turnover.
➢ Market Valuation: Earnings Per Share, Dividend Payout Ratio.

1
2. LIQUIDITY RATIO
2.1 Current Ratio
2.2 Acid test ratio
2.3 Days to sell inventory
2.4 Cash ratio
2.5 Inventory to working capital

2
 Ratio Analysis Comparison Between Square Pharmaceutical Limited and Beximco Pharmaceutical Limited
Liquidity Ratio

2.1 Current Ratio

It is a liquidity ratio that determines the company has enough resources to tackle its short-term
obligations. The standard ratio is 2:1 that means current ration should be double than current
liability.
Current Asset
Current Ratio = Current Liability

Company 2017 2018 2019

Square 6.35 4.91 12.93
Beximco 2.68 1.34 1.08

Trend Analysis of Current Ratio

15
12.93
10
6.35 4.91 Square
5
1.34 Beximco
2.68 1.08
0
2017 2018 2019

Interpretation: From the above table and graph, we can see that current ratio of Square shows
downward trend from 2017 to 2018, but increased dramatically in 2019. On the other hand, current
ratio of Beximco has fallen down consistently from 2017 to 2019. It means that Square
Pharmaceuticals Limited has more resources to meet its short-term obligations than Beximco
Pharmaceuticals Limited.

2.2 Acid Test Ratio

It determines how quickly the company can meet its short-term obligations by converting its short-
term assets into cash. The higher the value of acid test, the better a position of the company is in.
Current Asset − Inventory
Acid Test Ratio = Current Liability

Company 2017 2018 2019

Square 5.50 4.25 11.38
Beximco 1.66 0.76 0.61

Trend Analysis of Acid Test Ratio

15.00
11.38
10.00
Square
5.50 4.25
5.00 Beximco
0.76
1.66 0.61
0.00
2017 2018 2019

3
 Ratio Analysis Comparison Between Square Pharmaceutical Limited and Beximco Pharmaceutical Limited
Liquidity Ratio

Interpretation: From the above graph and table, the acid test ratio of Square shows downward trend
from 2017 to 2018, but increased significantly in 2019 that indicates it can easily convert its asset
into cash when it needs to pay. While, acid test ratio of Beximco is falling down continuously from
2017 to 2019 that indicates it can take too much time to convert its assets into cash due to lower
ratio. This ratio tells us that Square Pharmaceuticals Limited is in good position in comparison to
Beximco Pharmaceuticals Limited in terms of converting liquid/short-term assets into cash.

2.3 Days to Sell Inventory

It explains the number of days the company takes to sell its inventory within one year. The small
value of this ratio is preferable because it indicates the company is more effectively and efficiently
selling off its inventory.
Inventory
Days to Sell Inventory = Cost of Goods Sold Per Day days

Company 2017 2018 2019

Square 74 85 85
Beximco 152 184 179

Trend Analysis of Days to Sell

Inventory
200 152 184
179
150
100 Square
85
50 74 85 Beximco
0
2017 2018 2019

Interpretation: From the above graph and table, we can see that days to sell inventory of Square
increased from 2017 to 2018 and remained constant in 2019. On the other hand, days to sell
inventory of Beximco is fluctuating from 2017 to 2019. It means that Square Pharmaceuticals
Limited sells inventory faster than Beximco Pharmaceuticals Limited.

2.4 Cash Ratio

It is a liquidity ratio that explains the company’s capacity to meet its short-term liabilities with its
cash or cash equivalent. In general, the higher the value of this ratio, the more liquid resource the
company has.
Cash and Cash Equivalent
Cash Ratio = Current Liability

Company 2017 2018 2019

Square 4.48 3.02 9.09
Beximco 0.08 0.05 0.05

4
 Ratio Analysis Comparison Between Square Pharmaceutical Limited and Beximco Pharmaceutical Limited
Liquidity Ratio

Trend Analysis of Cash Ratio

10
9.09
8
6 4.48
3.02 Square
4
Beximco
2 0.05 0.05
0.08
0
2017 2018 2019

Interpretation: From the above graph and table, the cash ratio of Square is dropped from 2017 to
2018 but significantly increased in 2019 that indicates Square Pharmaceuticals Limited has enough
ability to meet its short-term liabilities with its cash. On the other hand, the cash ratio of Beximco
shows a downward trend from 2017 to 2018 and remained the same in 2019 that indicates it does
not have enough cash in hand to meet its short-term obligations. The higher value is better which
means Square Pharmaceuticals Limited is in better position in comparison with Beximco
Pharmaceuticals Limited.

2.5 Inventory to Working Capital

It defines what the portion of the company’s inventories is financed from its available cash. In
general, the lower the value of this ratio, the higher the liquidity of a company is.
Inventory
Inventory to Working Capital Ratio = Acccount Receivable + Inventory − Account Payable

Company 2017 2018 2019

Square 1.08 4.47 0.84
Beximco 0.68 0.72 0.71

Trend Analysis of Inventory to

Working Capital
6
4.47
4
Square
2 1.08 0.84 Beximco
0 0.68 0.72 0.71
2017 2018 2019

Interpretation: From the above graph and table, the inventory to working capital ratio of Square is
increased dramatically from 2017 to 2018 but rapidly decreased in 2019. While, the inventory to
working capital ratio of Beximco is slightly fluctuated from 2017 to 2019. The lower value of this
ratio is considered as good. So, in this case, Beximco Pharmaceuticals Limited is in good position
that Square Pharmaceuticals Limited.

5
3. PROFITABILITY RATIO
3.1 GROSS PROFIT MARGIN
3.2 OPERATING PROFIT MARGIN
3.3 NET PROFIT MARGIN
3.4 RETURN ON EQUITY
3.5 RETURN ON ASSET
3.6 RETURN ON CAPITAL EMPLOYED

6
 Ratio Analysis Comparison Between Square Pharmaceutical Limited and Beximco Pharmaceutical Limited
Profitability Ratio

3.1 Gross Profit Margin

It assesses a company’s financial health to determine the percentage of profit that comes from after
deducting cost of goods sold. The higher a company’s gross profit margin is, the more money it’s
generating in profit through the sale of its goods and services.
Gross Profit
Gross Profit Margin = x 100
Net Sales

Company 2017 2018 2019

Square 49% 48% 49%
Beximco 46% 47% 46%

Trend Analysis of Gross Profit Margin

50% 49%
48% 49%
48% 47%
46% Square
46% 46% Beximco
44%
2017 2018 2019

Interpretation: From the above table and graph, it is clear that gross profit margin of Square is
slightly fluctuated from 2017 to 2019. While, gross profit margin of Beximco is fluctuated from
2017 to 2019. Basically, higher value is preferable in this ratio that indicates company generates
profit from its selling goods. Based on that Beximco Pharmaceuticals Limited has higher value
than Square Pharmaceuticals Limited.

3.2 Operating Profit Margin

It allows to examine how much profit the company gains after paying its variable costs. The higher
the ratio, the more profit is available to fund on company’s non-operational costs.
Operating Profit
Operating Profit Margin = x 100
Net Sales

Company 2017 2018 2019

Square 28% 26% 29%
Beximco 22% 23% 23%

Trend Analysis of Operating Profit

Margin
40%
28% 23% 29%
20% 26% 23% Square
22%
Beximco
0%
2017 2018 2019

7
 Ratio Analysis Comparison Between Square Pharmaceutical Limited and Beximco Pharmaceutical Limited
Profitability Ratio

Interpretation: From the above table and graph, it is clear that operating profit margin of Square
decreased from 2017 to 2018 and increased on the same level in 2019 as like previous year. While,
operating profit margin of Beximco is increased from 2017 to 2018 and remained same in 2019.
Generally, higher value is preferable in this ratio that indicates company generates profit after
paying its variable cost. Based on that Square Pharmaceuticals Limited is generating more
operating profit than Beximco Pharmaceuticals Limited.

3.3 Net Profit Margin

It measures how much percentage of profit the company gains after paying all of its expenses. The
higher ratios are better but it only can be achieved by either cutting costs or increases sales.
Net Profit
Net Profit Margin = x 100
Net Sales

Company 2017 2018 2019

Square 27% 27% 27%
Beximco 14% 15% 14%

Trend Analysis of Net Profit Margin

30% 27% 27%
27%
20%
Square
14%
10% 14% 15%
Beximco
0%
2017 2018 2019

Interpretation: From the above table and graph, it is clear that net profit margin of Square increased
slightly from 2017 to 2018 and remained stable in 2019. While, net profit margin of Beximco is
fluctuated from 2017 to 2019. Generally, higher value is preferable in this ratio that indicates
company generates profit after paying all of its expenses. Here, Square Pharmaceuticals Limited
is generating more net profit in comparison to Beximco Pharmaceuticals Limited.

3.4 Return on Equity

It allows to calculate the returns a company is capable to generate profit from the equity that
common shareholders have invested on it. If the company is able to gain more profit from equity,
the higher its return on equity will be.
Net Profit
Return on Equity (ROE) = Shareholder′s Equity

Company 2017 2018 2019

Square 0.19 0.18 0.17
Beximco 0.09 0.09 0.10

8
 Ratio Analysis Comparison Between Square Pharmaceutical Limited and Beximco Pharmaceutical Limited
Profitability Ratio

Trend Analysis of Return on Equity

0.2 0.18
0.19 0.17
0.15
0.1 0.10 Square

0.05 0.09 0.09 Beximco

0
2017 2018 2019

Interpretation: From the above table and graph, we can see that return on equity of Square is
decreased continuously from 2017 to 2019. On the other hand, return on equity of Beximco
remained constant from 2017 to 2018 and increased in 2019. Generally, higher value is good in
this ratio that indicates company generates profit from its equity. Though, the ratio is decreased in
2019 for Square Pharmaceuticals Limited, but still it is higher than Beximco Pharmaceuticals
Limited.

3.5 Return on Asset

It determines how the company is using its resources to earn profit from its daily business
operation. The higher ROA ration indicates that a company is managing its resources more
effectively in the production of income.
Net Profit
Return on Asset (ROA) = Total Assets

Company 2017 2018 2019

Square 0.17 0.15 0.16
Beximco 0.07 0.06 0.06

Trend Analysis of Return on Asset

0.2
0.15 0.16
0.15 0.170
0.1 Square

0.05 0.06 Beximco

0.07 0.06
0
2017 2018 2019

Interpretation: From the above table and graph, we can see that return on asset of Square is
fluctuated from 2017 to 2019. On the other hand, return on asset of Beximco decreased from 2017
to 2018 and remained constant in 2019. Generally, higher value is good in this ratio that indicates
company is managing its resources efficiently. Based on that Square Pharmaceuticals Limited is
in good position in comparison with Beximco Pharmaceuticals Limited.

9
 Ratio Analysis Comparison Between Square Pharmaceutical Limited and Beximco Pharmaceutical Limited
Profitability Ratio

3.6 Return on Capital Employed

It measures how much profit is being generated from each dollar of that capital which was invested
on business operation. The higher ratio of ROCE explains the more profit is creating out of every
dollar of capital investment it uses in its operations.
Net Operating Profit
Return on Capital Employed = Capital Employed

Company 2017 2018 2019

Square 0.19 0.16 0.18
Beximco 0.11 0.12 0.13

Trend Analysis of Return on Capital

Employed
0.2
0.19 0.16 0.18
0.15
0.13
0.1 Square
0.11 0.12
0.05 Beximco
0
2017 2018 2019

Interpretation: From the above table and graph, we can see that return on asset of Square is
fluctuated from 2017 to 2019. On the other hand, return on asset of Beximco is increasing from
2017 to 2019. Basically, higher value is good in this ratio that indicates company is creating more
profits out of every dollar of capital investment. Square Pharmaceuticals Limited is creating more
profit from capital investment than Beximco Pharmaceuticals Limited.

10
4. SOLVENCY RATIO
4.1 Debt to equity
4.2 Debt to total asset
4.3 Interest coverage
4.4 Cash flow to debt ratio

11
 Ratio Analysis Comparison Between Square Pharmaceutical Limited and Beximco Pharmaceutical Limited
Solvency Ratio

4.1 Debt to Equity

It is a solvency ratio that determines how much of a company's investment comes from debt and
shareholder equity. In general, the lower value of this ratio indicated the company is secured more
financially. Since the significant part of its operations are being funded by investor’s equity.
Total Liability
Debt to Equity = Shareholder′s Equity

Company 2017 2018 2019

Square 0.11 0.14 0.07
Beximco 0.36 0.56 0.61

Trend Analysis of Debt to Equity

0.8
0.56
0.6 0.61
0.36 Square
0.4
0.2 0.11 0.14 Beximco
0 0.07
2017 2018 2019

Interpretation: From the above graph and table, the debt to equity ratio of Square increased slightly
from 2017 to 2018, but decreased significant portion in 2019. While, debt to equity ratio of
Beximco goes upward dramatically from 2017 to 2018 and increases slightly in 2019. Lower ratio
indicates that the company is secured more financially. In this case, Square Pharmaceuticals
Limited is in good position than Beximco Pharmaceuticals Limited.

4.2 Debt to Total Asset

This solvency ratio measures the percentage of a company's assets that are invested by creditors
rather than by inventors. The lower value of this ratio is preferable because a higher ratio will put
the company in a tough position in which the company may unable to repay its loan.
Total Liability
Debt to Total Asset = Total Asset

Company 2017 2018 2019

Square 10% 13% 7%
Beximco 26% 36% 38%

Trend Analysis of Debt to Total Asset

0.40 0.36
0.38
0.30 0.26
0.20 0.13 Square
0.10
0.10 Beximco
0.07
0.00
2017 2018 2019

12
 Ratio Analysis Comparison Between Square Pharmaceutical Limited and Beximco Pharmaceutical Limited
Solvency Ratio

Interpretation: From the above graph and table, the debt to total asset ratio of Square increased
slightly from 2017 to 2018, but decreased significant portion in 2019. While, debt to total asset
ratio of Beximco goes upward gradually from 2017 to 2018 and increases slightly in 2019. Lower
ratio is preferable to avoid debt. In this case, Square Pharmaceuticals Limited is in good position
than Beximco Pharmaceuticals Limited.

4.3 Interest Coverage

It is a solvency ratio that measures how many times a company can cover its current interest
payment with its available earnings. It is also called “Time Interest Earned”. Higher ratio is
obviously a good sign for the company, because it indicates that the company has the ability to
pay interest on its debt. But the value of this ratio should be greater than 1.5, otherwise its ability
to meet interest expenses may be questionable.
EBIT / Operating Profit
Interest Coverage = Interest Expenses

Company 2017 2018 2019

Square 0 0 53.70
Beximco 6.19 7.78 5.11

Trend Analysis of Interest Coverage

60
53.70
40
Square
20 Beximco
6.19 7.78
5.11
0
2017 2018 2019

Interpretation: From the above graph and table, Square Pharmaceuticals Limited did not have any
interest expense in 2017 and 2018, but the ratio is increased in 2019. While, interest coverage of
Beximco is fluctuated from 2017 to 2019. Higher ratio indicates that a good sign for company’s
ability to pay interest. In this case, Square Pharmaceuticals Limited is in good position than
Beximco Pharmaceuticals Limited.

4.4 Cash Flow to Debt Ratio

This solvency ratio mainly indicates how much money is available in the company to meet its debt
commitments. The higher value of this ratio indicates the company is capable to support and
sustain it short-term and long-term debt obligations.
Operating Cash Flow
Cash Flow to Debt Ratio = Total Liabilities

Company 2017 2018 2019

Square 1.81 1.43 2.96
Beximco 0.27 0.12 0.15

13
 Ratio Analysis Comparison Between Square Pharmaceutical Limited and Beximco Pharmaceutical Limited
Solvency Ratio

Trend Analysis of Cash Flow to Debt

4
3 2.96
2 1.81 1.43 Square
1 Beximco
0.27 0.12
0 0.15
2017 2018 2019

Interpretation: From the above graph and table, the cash flow to debt ratio of Square is decreased
slightly from 2017 to 2018, but increased rapidly in 2019. While, cash flow to debt ratio of
Beximco is fluctuating from 2017 to 2019. Higher ratio indicates that the company has the ability
to support and sustaining its short-term as well as long-term obligations. In this case, Square
Pharmaceuticals Limited has more capability than Beximco Pharmaceuticals Limited.

14
5. ACTIVITY RATIO
5.1 Accounts receivable turnover
5.2 Collection period
5.3 Accounts payable turnover
5.4 Payable turnover in days
5.5 Inventory turnover
5.6 Total asset turnover

15
 Ratio Analysis Comparison Between Square Pharmaceutical Limited and Beximco Pharmaceutical Limited
Activity Ratio

5.1 Accounts Receivable Turnover

This ratio measures a company's effectiveness in collecting its money owned by clients when the
company sells goods. A high receivable turnover indicates that the company is efficient and has a
high proportion of quality customers that pay their debts quickly. On the other hand, low turnover
shows that the company might have poor collection process, bad credit policies or customer which
are not creditworthy.
Net Sales
Accounts Receivable Turnover = Accounts Receivable / Trade Debtors

Company 2017 2018 2019

Square 13 19 25
Beximco 7 6 6

Trend Analysis of Accounts

Receivable Turnover
30
19 25
20
13 Square
10
6 Beximco
7 6
0
2017 2018 2019

Interpretation: From the above graph and table, the accounts receivable turnover of Square is
increased continuously from 2017 to 2019. It means that Square Pharmaceuticals Limited has
strong and efficient credit policy as well as quality from which it collects its money. While,
accounts receivable turnover of Beximco goes downward from 2017 to 2018 and remains the same
in 2019. It means that Beximco Pharmaceuticals Limited has poor collection process and
customers are not sincere to pay money. In this case, Square Pharmaceuticals Limited is in good
position in comparison with Beximco Pharmaceuticals Limited.

5.2 Collection Period

This ratio explains how much time the company takes to collect its money from its clients with in
a year. Generally, lower ratio is more favorable that indicates the company collects payment faster.
Days in the Year
Collection Period = Accounts Receivale Turnover days

Company 2017 2018 2019

Square 24 17 13
Beximco 51 57 57

16
 Ratio Analysis Comparison Between Square Pharmaceutical Limited and Beximco Pharmaceutical Limited
Activity Ratio

Trend Analysis of Collection

Period
60 57
51 57
40
24 17 Square
20
13 Beximco
0
2017 2018 2019

Interpretation: From the above graph and table, the collection period of Square is increased
gradually from 2017 to 2018 and remained constant in 2019. On the other hand, collection period
of Beximco is going downward from 2017 to 2019. It means that Square Pharmaceuticals Limited
collects its money from customers faster than Beximco Pharmaceuticals Limited.

5.3 Accounts Payable Turnover

This ratio allows the company to compare its credit purchases against its accounts payable amount
in order to measure how often it pays its suppliers. A higher ratio is a good sign of financial strength
that shows the company has an established track record of paying its bills on time. A lower ratio
is a warning sign that means the company has lack of cash to repay its creditors.
Annual Credit Purchase
Payable Turnover = Accounts Payable / Trade Creditors

Company 2017 2018 2019

Square 6 4 29
Beximco 17 10 12

Trend Analysis of Accounts Payable

Turnover
40
30 29
20 17 Square
10
10 6 12 Beximco
4
0
2017 2018 2019

Interpretation: From the above graph and table, the accounts payable turnover of Square is
decreased slightly from 2017 to 2018 but significantly increased in 2019. While, accounts payable
turnover of Beximco is decreased considerably from 2017 to 2018 and slightly increased in 2019.
Higher ratio is preferable which means Square Pharmaceuticals Limited has strong financial track
records to pay its bill on time to its creditors in comparison with Beximco Pharmaceuticals
Limited.

17
 Ratio Analysis Comparison Between Square Pharmaceutical Limited and Beximco Pharmaceutical Limited
Activity Ratio

5.4 Payable Turnover in Days

This ratio explains how much times the company needs to pay off its accounts payable. Generally,
lower ratio is more favorable that indicates the company has enough cash to meet its accounts
payable.
Days in the Year
Payable Turnover in Days = Payable Turnover days

Company 2017 2018 2019

Square 59 99 13
Beximco 22 37 31

Trend Analysis of Payable Turnover in

Days
150
100 99
59 Square
50
31 Beximco
0 22 37
13
2017 2018 2019

Interpretation: From the above graph and table, the payable turnover in days of Square increased
rapidly from 2017 to 2018 but dramatically decreased in 2019.On the other hand, payable turnover
in days of Beximco is increased steadily from 2017 to 2018 and slightly decreased in 2019. It
means that Square Pharmaceuticals Limited pays its bill quickly, on the contrary, Beximco
Pharmaceuticals Limited takes too much time to pay its bill to its creditors.

5.5 Inventory Turnover

This ratio shows the number of times the company's inventory is sold in a given time period. A
higher inventory ratio is considered as more positive outcome which means the company's
inventory is bought and sold quickly and efficiently.
Costs of Goods Sold
Inventory Turnover = Inventory

Company 2017 2018 2019

Square 5 4 4
Beximco 2 2 2

Trend Analysis of Inventory Turnover

6 5
4
4 4
Square
2 2
2 2 Beximco
0
2017 2018 2019

18
 Ratio Analysis Comparison Between Square Pharmaceutical Limited and Beximco Pharmaceutical Limited
Activity Ratio

Interpretation: From the above table and graph, it is clear that the trend of inventory turnover for
Square is slightly decreased from 2017 to 2018 and remained same in 2019. On the other hand,
the trend of inventory turnover for Beximco is remained stable for three consecutive years (2017,
2018 and 2019). In this case, Square Pharmaceuticals Limited has higher ratio than Beximco
Pharmaceuticals Limited which shows that Square’s efficiency in turning its inventory into sales,
while Beximco has lower ratio that shows it has poor liquidity.

5.6 Total Asset Turnover

This efficiency ratio is measure with net sales that evaluates how well a company is using its assets
to make profits. The higher ratio is the more preferable outcome for most businesses. Because it
tells the company that it is using its resources in the most productive way to produce income.
Net Sales
Total Asset Turnover = Total Asset

Company 2017 2018 2019

Square 1 1 1
Beximco 0.46 0.41 0.44

Trend Analysis of Total Asset

Turnover
1.5
1 1
1 1
Square
0.5 0.44
0.46 0.41 Beximco
0
2017 2018 2019

Interpretation: From the above graph and table, the asset turnover of Square remained the same in
as

three consecutive years (2017, 2018 and 2019). While, asset turnover of Beximco is fluctuating
from 2017 to 2019 between 0.41 to 0.56. In this case, Square Pharmaceuticals Limited has been
more effective in using the investment in assets to generate revenue in comparison with Beximco
Pharmaceuticals Limited.

19
6. MARKET VALUATION
6.1. Earnings per share
6.2. Dividend payout ratio

20
 Ratio Analysis Comparison Between Square Pharmaceutical Limited and Beximco Pharmaceutical Limited
Market Valuation

6.1 Earnings Per Share

Earnings Per Share is a figure explaining a public company’s profit per outstanding share of stock
that indicates how much money a company earns for each share of its stock. Higher number of this
ratio is preferable which means investors will pay more for a company with higher profits.
Net Sales
Earnings Per Share = Number of Outstanding Share

Company 2017 2018 2019

Square 11.36 11.15 13.39
Beximco 5.49 6.24 6.31

Trend Analysis of Earnings Per Share

15
11.36 11.15 13.39
10
Square
6.31
5 6.24 Beximco
5.49
0
2017 2018 2019

Interpretation: From the above graph and table, earnings per share of Square decreased slightly
as

from 2017 to 2018, but increased moderately in 2019. While, earnings per share of Beximco is
increasing continuously from 2017 to 2019. In this case, investors will prefer more to invest their
money on stocks of Square Pharmaceuticals rather than stocks of Beximco Pharmaceuticals
Limited.

6.2 Dividend Payout Ratio

It is the ratio of the total amount of dividends paid out to shareholders against the net profit of the
company. It is the percentage amount that indicates how much company is returning to
shareholders, how much it is keeping on hand to reinvest, pay debts, or add to cash reserves. There
is no standard number for this ratio. But if the company does not pay any dividend, shareholders
will not invest on it, because they always want to get return from their investment.
Dividend Paid
Dividend Payout Ratio =
Net Profit

Company 2017 2018 2019

Square 32% 29% 25%
Beximco 9% 20% 17%

21
 Ratio Analysis Comparison Between Square Pharmaceutical Limited and Beximco Pharmaceutical Limited
Market Valuation

Trend Analysis of Dividend Payout

Ratio
40% 32%
30% 29%
25% Square
20%
20% 17%
10% Beximco
9%
0%
2017 2018 2019

Interpretation: From the above graph and table, dividend payout ratio of Square decreased
as

continuously from 2017 to 2019. While, dividend payout ratio of Beximco increased significantly
from 2017 to 2018, but decreased slightly in 2019. Though, Square’s dividend payout ratio shows
downward trend, but it is higher than Beximco.

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 RECOMMENDATION
After calculating ratios of Square Pharmaceuticals Limited and Beximco Pharmaceuticals Limited,
we have found some differences in each ratio. Square Pharmaceuticals Limited has been doing
much better in terms of liquidity, profitability, solvency, activity and market valuation ratios in
compare with Beximco Pharmaceuticals Limited. On the other hand, Beximco Square
Pharmaceuticals Limited has been facing some problems in some ratios. Followings are our
recommendation that needs to be properly monitored to financially perform well in business:
Recommendation 1: We have seen that liquidity ratios of Beximco Pharmaceuticals Limited are
not in standard level. Because, if it pays all of its debts with its short-term assets or liquid assets,
it will have limited portion of cash in hand. As a giant pharma company, it must focus on increasing
current ratios by paying off creditors, using long-term financing rather than short-term projects.
Recommendation 2: Beximco Pharmaceuticals Limited holds its finished goods which are yet to
be sold for more than six months which will badly impact on their liquidity. Excessive inventory
will cause extra space needed for storage. It will also increase the cost of the company. So,
Beximco has to focus on better inventory management in order to know which products/goods
need to go out first that will give more efficiency on its production.
Recommendation 3: In debt ratio, we have seen that Beximco Pharmaceuticals Limited has taken
more debt against its equity and assets. We found that Beximco had taken almost 73% of total
current liabilities as short-term borrowing. This is the main reason that increased debt ratio. There
is not a certain tool that can reduce the company’s debt quickly. Generally, the company will take
loan from the bank, and pay it with interest. In order to reduce debt ratio, Beximco can emphasis
more on long-term borrowing instead of short-term borrowing, paying off creditors quickly. It has
to reduce debt as much as possible. Because, debt payment must be made even the sales decline.
It will also have less flexibility to obtain future financing since its may be harder to raise additional
money.
Recommendation 4: We have identified some problems in collection periods of Beximco
Pharmaceuticals Limited. It takes too much time collect its money from its customers. That is why,
the amount which are yet to be collected are not mentioned in its cash flow statement. So, it must
use some effective measure to improve its collection process such as focusing on quality
customers, changing credit policies, hiring employees for collecting pending invoices.

Based on ratio analysis, as an investor or shareholder, we will invest our money on shares of Square
Pharmaceuticals Limited rather than Beximco Pharmaceuticals Limited in order to receive higher
return from the stock. Because, Square Pharmaceuticals Limited is performing better in almost
every sectors in compare with Beximco Pharmaceuticals Limited.

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