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Financial Statement Analysis

for the fiscal years 2018-2019 | 2019-2020

Course: FIN254 | Section: 04

Submitted to
Mr. Shahran Abu Sayeed
Lecturer
Department of Accounting and Finance
North South University

Submitted by
Sadman Shahryar | 1911177630

Anika Tabashum | 1912577030


Md. Monowar Murshed | 1611305030

i
Table of Contents

Executive Summary...............................................................................................................................iii
Introduction...........................................................................................................................................1
Calculation of Ratios for the fiscal year 2018-2019 | 2019-2020...........................................................2
Liquid Ratio........................................................................................................................................2
Activity Ratio......................................................................................................................................2
Debt Ratio..........................................................................................................................................3
Profitability Ratio...............................................................................................................................3
Market Ratio......................................................................................................................................4
Combined Analysis of the Ratios (Cross-sectional & Time-series).........................................................5
Recommendation and Conclusion.......................................................................................................20

ii
Executive Summary

For every business organization it is important to calculate and analyze their financial
statements to have an in-depth knowledge about company’s actual financial position. It helps
them measure company’s relative performance that is required by the stakeholders of the
company — shareholders, creditors, investors etc. Based on this analysis company makes
important decision in the future which can affect the company both positively and negatively.
To analyze company’s performance Ration Analysis is a popularly used method. In this
report, we will use this Ratio Analysis method to calculate and state the actual financial status
of the company and provide amenable recommendation. Here, we will analyze the financial
statements of two leading companies of the country — Beximco Pharmaceuticals Ltd. and
Square Pharmaceuticals Ltd. for the fiscal period of 2018-2019 and 2019-2020. Annual
reports were collected through the official website of the companies. Through this analysis
we will learn more about the calculating tools that are used in this method and also be able to
interpret company’s situation.

iii
Introduction

The basic two significant financial statements that are needed for Ratio Analysis are –
Statement of Financial position or the Balance Sheet and Income statement. Ratio analysis
involves methods of calculating and interpreting financial ratios to analyze and monitor the
firm’s performance. It includes – liquidity ratio, activity ratio, market ratio, profitability ratio
and some others which helps the management interpret the statements and get important
information about cash liquidity, profitability, turnovers etc.
Here, we will analyze the statements of the two major pharmaceuticals companies – Beximco
Ltd. and Square Ltd. and provide some recommendation after the analysis.

1
Calculation of Ratios for the fiscal year 2018-2019 | 2019-2020

Liquidity Ratio

It refers to the firm’s ability to repay its short-term liabilities that are due. Liquidity means
the firms overall financial situation to fulfill its short-term debts.

Category Ratio Formula Beximco Pharma Ltd. Square Pharma Ltd.

2019 2020 2019 2020


Current Current assets ÷
Ratio Current liabilities 1.04 1.15 12.92 14.52
Liquidity
(Current Assets –
Ratio
Quick Inventory) / 0.57 0.63 11.38 12.76
(in times)
Ratio Current Liabilities

Activity Ratio

It means how fast and effectively the company was able to manage it cash inflows and
outflows in terms of cash collection, payment to suppliers, managing stock inventories.

Category Ratio Formula Beximco Pharma Ltd. Square Pharma Ltd.

2019 2020 2019 2020


Inventory Cost of goods sold
Turnover ÷ Inventory 2.05 2.30 4.80 3.96
Ratio (times)
365 ÷ Inventory
Average age turnover 178.04 158.7 76 92.17
of Inventory (times)
Average Account
Collection Receivables / 53.35 47.11 13 12.09
Activity
Period Average sales per
Ratio
day
(days)
Average Accounts Payables
Payment / Average 30.51 40.78 11.75 9.02
Period purchases per day
(days)
Total Asset Sales ÷ Total
turnover assets 0.46 0.51 0.61 0.61
(days)

2
Debt Ratio

This indicates how much debt-financing firm uses to generate profits. Mostly managers are
concerned about long-term debts.

Category Ratio Formula Beximco Pharma Ltd. Square Pharma Ltd.

2019 2020 2019 2020


Total liabilities
Debt Ratio ÷ Total assets 39% 34.56% 5.91% 6.05%
Debt Ratio

Times 4.91 5.53 148,561.38 137551.8


Interest EBIT ÷ interest
Earned Ratio

Profitability Ratio

This helps to measure firm’s profitability with given sales.

Category Ratio Formula Beximco Pharma Ltd. Square Pharma Ltd.

2019 2020 2019 2020


Gross Profit Sales - Cost of
Margin goods sold / Sales 46.547 46.459 42.895 50.875

Operating Operating profits


profit ÷ sales 22% 22% 37% 32%
margin
Net profit Earnings available
margin for common 13% 14% 33% 28%
stockholders ÷
Sales
Earnings Earnings available
Per Share for common stock 7.48 8.67 14.98 15.82
Profitability holders
Ratio
Return on Earnings available
total for common 6% 7% 17% 17%
assets ROA stockholders ÷
Total assets
Return on Earnings available 6% 7% 18% 16%
Equity for common
(ROE) stockholders ÷
Common stock
equity

3
Market Ratio

Category Ratio Formula Beximco Pharma Ltd. Square Pharma Ltd.

2019 2020 2019 2020


Market price
Price per share / 3 1.5 3.05 1.83
Earnings Earnings per
ratio share
Market Ratio

Market/Book Market price .31 .16 .53 .32


ratio per share /
Book value per
share

4
Combined Analysis of the Ratios (Cross-sectional & Time-series)

Current Ratio

Current Ratio(in times)

31.6227766016838
12.92 14.52

3.16227766016838

1.04 1.15
2019 2020
Beximco 1.04 1.15
Square 12.92 14.52

Beximco Square

Analysis: In case of Beximco in 2019, they had $1.04 dollar of current asset against each
dollar of current liability. In 2020, Beximco were able to increase their current ratio as they
had $1.15 against a dollar of liability. It means that Beximco could efficiently repay its short-
term liabilities using its current resource. Although a higher ratio means greater liquidity, but
Beximco is in a good position.
Square on the other hand, had an excessive amount of current ratio. In 2019 they had 12.92
and 14.52 in 2020. Even though a higher ratio is good but the level at which Square is, it is
too much waste of its resources. It either means Square had too much inventories or tied up
money in the short-term assets and they cannot invest in other projects. It’s an opportunity
cost for them as they are holding necessary funds that could be invested into other sectors to
generate more cash inflows.
Both Beximco and Square have enough liquid resources to comfortably pay its short-term
loans but Square has too much money tied up in its liquidity. So, it would be better for them
to invest some of that money elsewhere to profit more.

5
Quick Ratio:

Quick ratio (in times)


percentage of ratios

316%

11.38 12.76
2019 2020
Beximco 0.57 0.63
Square 11.38 12.76

year

Beximco Square

Analysis: Quick ratio indicates the firm’s ability to pay its short-term debts excluding the inventory
— whether a company will be able to repay without having inventory sales. Inventory has the least
liquidating numbers as it takes time to sell products and get cash inflow.

For Square, even after excluding inventory from their current assets they have more than enough
liquid resources to pay off (11.38 & 12.76 respectively in year 2019 & 2020). The number is too big
that its not ideal for a company to have that much liquid resources in hand whereas they can invest
some and find profit. So, yes, Square in terms of Quick ratio is also in a better position.

But Beximco, after excluding inventories was only left with 0.57 and 0.63 current assets in
proportion of each dollar current liability in year 2019, 2020 respectively. It means Beximco does not
have enough liquid resources to pay off its current liabilities and hence, their financial position is not
solvent.

6
Inventory turnover ratio

Inventory Turnover
4.8 3.96
95% 2019 2020
Beximco 2.05 2.3
85%
Square 4.8 3.96
75%

65%

55%

45%
2.3
35% 2.05
25%

15%

5%

Beximco Square

Analysis: It indicates the amount of time a company has sold its entire stock inventory successfully.
It is ideal for companies to have more inventory turnover as much as possible because it will
generate more sales.

In both of the companies, they a have relatively lower number of inventory turnovers. In Square,
they have a turnover of 4.8 in 2019 and 3.96 in 2020. It means Square was able to sold its entire
inventory 4 times on average in a single year. But the ratio is even more less in Beximco. They sold
off its inventory only 2 times on average (2.05 in 2019 & 2.3 in 2020). So, both the companies should
increase its turnover and try to generate more sales.

7
Average age of inventory

Av. age of inventory (days)


190 178.04
170 158.7
150
130
110
92.17
90 76
70
50
30
10
2019 2020
Beximco 178.04 158.7
Square 76 92.17

Beximco Square

Analysis: Indicates how many days it took for a company to sell of its inventory. The less the better
as it will increase the inventory turnover and generate more sales. It helps managers to decide when
and how much to order new materials/ goods from the supplier It also helps manager to decide not
wasting resources by placing order early rather they can invest it somewhere else more profitable
during that timeframe.

Square took 76 and 92 (92.17) days respectively in years 2019 and 2020. It took more time in 2020 to
sell of their goods and materials. But they should try to decrease the number.

Whereas, Beximco are in much more stiff position as it took them 178 days approximately to sell its
inventories in 2019. The number is huge and means low inventory turnover and less sales. In 2020, it
improved a little to 158.7 or 159 days but still the period is too long. So, Beximco should put more
focus on lessening selling period and increase the turnover rate.

8
Average Collection Period

Av. collection period (days)


55 53.35
47.11
45

35

25

15 13 12.09

2019 2020
Beximco 53.35 47.11
Square 13 12.09

Beximco Square

Analysis: It shows the average time a company collects money from its customers. Means a
company should settle its credit sales as soon as possible and collect money from the customers and
reduce the number of days. Companies should develop strategies to encourage customers to pay
fast like - discounts.

Between the two companies, Square is in a better position as Square were able to collect its money
from customers in just 13 days in 2019 and 12.09 or 12 days in 2020. It means they have strategies
and encouraged customers to settle its credit sales to collect money and then they could invest it
elsewhere if they wish to.

On the contrary, Beximco took about 54 days (53.35) in 2019 and 47 days in 2020 to collect money
from its customers which is a bit lengthier. So, Beximco should take necessary steps to
decrease/reduce this number as much as possible and collect money at its earliest.

9
Average Payment period

Av. payment period


42.5 40.78

37.5
32.5 30.51
27.5
22.5
17.5
11.75
12.5 9.02
7.5
2.5
2019 2020
Beximco 30.51 40.78
Square 11.75 9.02

Beximco Square

Analysis: It means how many days a company take to pay money to its suppliers after purchase on
average.

Beximco settled with creditors by paying them money within 30 days in 2019 and 41 (40.78) days in
2020. But this practice is not healthy for Beximco. As we can see, it took Beximco 48-54 days to
collect money from its customers and if they pay to their creditor earlier than that like here then
there won’t be enough money for them to repay its creditors as they have not yet collected it from
the customers. As a result, they might suffer from solvency. So, Beximco should delay more in
payment to its suppliers.

Same goes for Square. Even though the numbers are lower than Beximco, but Square also takes
more to collect money from customers and repays suppliers early which is not ideal. In 2019, Square
made payments to their suppliers in 11.75 or 12 days and in 2020 only 9 days where as they
collected money from their customers respectively in 13 and 12 days (2019 & 2020). Square should
also delay more in paying suppliers and focus more on collecting as early as possible.

10
Total asset turnover

Total Asset turnover

3.16227766016838

0.61 0.61

0.46 0.51

0.316227766016838

2019 2020
Beximco 0.46 0.51
Square 0.61 0.61

Beximco Square

Analysis: It represnts how effectively and effieciently a firm have used its assets to generate sales.
The more the number it means the company have properly used its assets.

Square had a turnover of 0.61 which means for every dollar of sales Square used 0.61 of the assets in
both the years 2019 & 2020 which is on average good but Square should be more efficiently using
their assets to generate sales.

Beximco have a comparatively a lower turnover ratio than Square but there is a slight increase in
between the years. In 2019 they had a turnover of 0.46 and in 2020 it was 0.51. Despite increase,
the numbers are less. So, like Square, Beximco also should increase the asset turnover ratio by
ensuring proper and efficient use of assets to generate sales.

11
Debt Ratio

Debt ratio

48% 5.91%
43% 6.05%
38% 39.00%
34.56%
33%
28%
23%
18%
13%
8%
3%
2019 2020
Beximco 39.00% 34.56%
Square 5.91% 6.05%

Beximco Square

Analysis: Measurers proportion of assets that are financed by company’s creditors. The more the
riskier.

Beximco had a ratio of 39% in 2019 and it decreased to 34.56% in 2020.

Square had a much less ratio meaning they had less outside money that are used to finance the
assets. It was 5.91% in 2019 and 6.05% in 2020.

12
Times Interest Earned ratio

Times interets earned


148561.4
150000
137551.8
130000

110000

90000

70000

50000

30000

10000 4.91 5.53


2019 2020
Beximco 4.91 5.53
Square 148561.4 137551.8

Beximco Square

Analysis: It measures company’s ability to meet its interest payments. Higher value in this
means that the company will be comfortably able to repay its interest obligations.
Here, Beximco has a comparatively lower rate. They had 4.91 and 5.53 in the years 2019 &
2020.
But in Square, due to the immensely lower amount of interest expenses, the value is
148561.40 in 2019 and 137551.8 in 2020 which is much higher so Square is in a better
position to fulfill its interest obligations.

13
Gross Profit Margin Ratio

Gross profit margin


110
50.875
42.895
90

70

50 46.547 46.459

30

10

2019 2020
Beximco 46.547 46.459
Square 42.895 50.875

Beximco Square

Analysis: Gross profit margin is a profitability ratio that calculates the percentage of sales
that exceed the cost of goods sold. In other words, it measures how efficiently a company
uses its materials and labor to produce and sell products profitably. Gross profit margin is the
percent of revenues that remain after deducting the cost of goods sold.
Beximco’s gross profit margin is 47% in 2019 and 46% in 2020.On the other hand Square’s
gross profit margin is 43% in 2019 and 51% in year 2020. The gross profit method is an
important concept because it shows management and investors how efficiently the business
can produce and sell products. In other words, it shows how profitable a product is. Here it
shows that Beximco’s gross profit margin is decreased by 1% comparing with previous year.
On the other hand, Square efficiently increased it gross profit margin from previous year as
8% which is remarkable.

14
Operating profit margin

Op. profit margin


65%
37%
32%
55%

45%

35%

25% 22% 22%

15%

5%
2019 2020
Beximco 22% 22%
Square 37% 32%

Beximco Square

Analysis: Operating Profit Margin is a profitability or performance ratio that reflects the
percentage of profit a company produces from its operations, prior to subtracting taxes and
interest charges. It is calculated by dividing the operating profit by total revenue and
expressing as a percentage. The margin is also known as EBIT (Earnings before Interest and
Tax) Margin. Operating Profit Margin differs across industries and is often used as a metric
for benchmarking one company against similar companies within the same industry. It can
reveal the top performers within an industry and indicate the need for further research
regarding why a particular company is outperforming or falling behind its peers.
Here from the analysis, we got that Beximco’s operating profit margin is 22% in year 2019
and 22% in year 2020. On the other hand, Square’s operating profit margin is 37% in year
2019 and 32% in year 2020. If companies can make enough money from their operations to
support the business, the company is usually considered more stable. Beximco’s operating
profit margin is same in 2019 and 2020 but Square’s profit margin decrees in 5% from 2019
to 2020 though their overall operating profit margin still above Beximco’s profit margin
which shows a positive result in the industry.

15
Net Profit Margin

Profit margin
48% 33%
28%
43%
38%
33%
28%
23%
18% 14%
13%
13%
8%
3%
2019 2020
Beximco 13% 14%
Square 33% 28%

Beximco Square

Analysis: Net profit margin measures how much net income is generated as a percentage of
revenues received. Net profit margin helps investors assess if a company's management is
generating enough profit from its sales and whether operating costs and overhead costs are
being contained. Beximco’s net profit margin is 13% in 2019 and 14% in 2020. On the other
hand Square’s net profit margin is 33% in 2019 and 28% in 2020 which shows that Square
has a good advantage on it net profit margin ratio. Though their net profit margin decreased
by 5% in 2020 compared to previous year but on the other hand Beximco’s net profit margin
increase by 1% which very positive promising.

16
Earnings per Share

EPS
27.50%
15.82%
14.98%
22.50%

17.50%

12.50%
8.67%
7.48%
7.50%

2.50%

2019 2020
Beximco 7.48% 8.67%
Square 14.98% 15.82%

Beximco Square

Analysis: Earnings per share or EPS is an important financial measure, which indicates the
profitability of a company. It is calculated by dividing the company’s net income with its
total number of outstanding shares. It is a tool that market participants use frequently to
gauge the profitability of a company before buying its shares. The higher the earnings per
share of a company, the better is its profitability. Here Beximco’s EPS is 7.48 in 2019 and
8.68 in 2020. On the other hand, Square’s EPS is 14.98 in 2019 and 15.82 in 2020 which is
very impressive result comparing with Beximco’s EPS. Here each company has a positive
and increasing EPS in we compare 2020 with the previous year but Square’s EPS is just
incredible compare to Beximco’s EPS. So here Square’s profitability is higher than Beximco.

17
Return on assets (ROA)

ROA
28% 17%
17%
23%

18%

13%

7%
8% 6%

3%

2019 2020
Beximco 6% 7%
Square 17% 17%

Beximco Square

Analysis: Return on assets is a profitability ratio that provides how much profit a company is
able to generate from its assets. In other words, return on assets (ROA) measures how
efficient a company's management is in generating earnings from their economic resources or
assets on their balance sheet. ROA is shown as a percentage, and the higher the number, the
more efficient a company's management is at managing its balance sheet to generate profits.
Beximco’s return on assets is 6% in 2019 and 7% in 2020 which shows a 1% increase in
ROA. On the other hand, Square’s return on assets is very high which is 17% in both 2019
and 2020 with increasing or decreasing. We know that the higher the number of ROA, the
more efficient a company's management is at managing its balance sheet to generate profits.
So here Square is more efficient and can able to generate more profit.

18
Return on Equity (ROE)

ROE
28%
18%
16%
23%

18%

13%

7%
8% 6%

3%

2019 2020
Beximco 6% 7%
Square 18% 16%

Beximco Square

Analysis: The return on equity ratio or ROE is a profitability ratio that measures the ability of
a firm to generate profits from its shareholders investments in the company. In other words,
the return on equity ratio shows how much profit each dollar of common stockholders’ equity
generates. Return on equity measures how efficiently a firm can use the money from
shareholders to generate profits and grow the company. Unlike other return on investment
ratios, ROE is a profitability ratio from the investor’s point of view—not the company. In
other words, this ratio calculates how much money is made based on the investors’
investment in the company, not the company’s investment in assets or something else.
That being said, investors want to see a high return on equity ratio because this indicates that
the company is using its investors’ funds effectively. Higher ratios are almost always better
than lower ratios, but have to be compared to other companies’ ratios in the industry. Since
every industry has different levels of investors and income, ROE can’t be used to compare
companies outside of their industries very effectively.
Here Beximco’s return on equity ratio is 6% in 2019 and 7% in 2020. On the other hand,
Square’s return on equity ratio is 18% in 2019 and 16% in 2020. We can see that Beximco’s
return on equity ratio is very low in terms of comparing with Square that means Square
utilizes its investor’s fund very efficiently. Though Square’s return on equity ratio falls down
by 2% from year 2019 to year 2020 but the ratio they are maintain is still promising compare
to Beximco.

19
Recommendation and Conclusion

After analyzing and interpreting the financial statements of both Beximco Pharmaceuticals Ltd. and
Square Pharmaceuticals Ltd. we have concluded that people should invest more in Square Ltd. From
the interpretation we found that, Square Ltd. has a higher ROA and ROE. Besides that, Square’s EPS,
Profit margins etc. are also greater in comparison to that of Beximco. Turnover rates of Square Ltd.
are far better than that of Beximco’s by analysis and the Square has less debt money than Beximco
too.

So, keeping all the factors in mind, we conclude that investing in Square Pharmaceuticals Ltd.’s stock
will be a much better and profitable option.

However, there are some recommendations that the companies can follow to improve their financial
position in the future. Those are given below —

 In terms of liquidity ratio, Beximco does not have enough liquid resources excluding
inventory. They are insolvent. So, they should not invest more in inventory or other projects
rather they must keep more liquid resources like cash in hand to create a better position.

 Both Beximco and Square should control more carefully its inventory management. Through
analysis, we found that both the companies pay earlier to its creditors/suppliers and delay in
collecting money from customers. The average collection and Average payment period of
both the companies should be rectified. They should develop different strategies to reduce
the collection period and have to manage to increase the payment period.

 Beximco are much lower in the sale of goods. They should take effective measures to
increase the inventory turnover and average age of inventory. Square is in a much better
position than Beximco although they should also try and increase the rate.

 In Beximco, the ROA, ROE and profit margin ratios are way to low. So, if they can generate
more sales by taking up measures mentioned above and increase inventory turnover
resulting in greater sales, ensure efficient managing of its assets to increase the return
Beximco will have a possibility to increase its likelihood for investing in their stock. In
addition, they should also try to control the amount debt they have currently.

20

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