Financial Statement Analysis of Square Pharmaceuticals Ltd free essay sample

? University of Dhaka Faculty of Business Studies Department of Finance Course Title: Financial Accounting and Reporting Course Code: F – 504 Submitted By: Sifat Monjur Shamrat Roll: 24040 Submitted To: Samia Sultana Tani Assistant Professor Department of Finance Faculty of Business Studies University of Dhaka Date of Submission: Sunday, August 18, 2013 August 18, 2013 To Samia Sultana Tani Assistant Professor Department of Finance Faculty of Business Studies University of Dhaka Sub: Financial ration analysis from financial statement of a company. Dear Madam, I am pleased to submit the Term paper that you have assigned. My assignment was on â€Å"Ratio Analysis from financial statement of a reputed company†. I hope and believe that you will be kind enough to consider any types of mistakes that occurred at the time of preparing this proposal. Thank you. Yours sincerely, Sifat Monjur Shamrat Roll : 24040 Executive Summary A few comments on the organization and content of the report may be helpful to reader. We will write a custom essay sample on Financial Statement Analysis of Square Pharmaceuticals Ltd or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page In doing so, we realize that some topics may be more important to some reader then to other. For that reason we some advanced material (e. g. questionnaires) appears in appendices. Our goal is to help the reader who must compare financial position of these two companies. First we focused on the essential element of this report. We have included here the introduction of this report, objectives of the report, findings, methodology, so that the reader can get ideas easily. The second part is very important from the sense of this report. Here we have given our recommendation of the report. We have tried out level best to give the commendation neutrally. It also contains the conclusion of this report. Contents: Topic Page Introduction 1 Objective of the Report 1 Limitation of the Study 1 Literature 2 Analysis 4 Summary and Conclusion 11 Introduction: Financial Statement includes the Balance Sheet, Income statement and other statement which determine the company’s performance. Financial ratio analysis is the calculation and comparison of ratios which are derived from information in company’s financial statements. Financial ratios are the analyst’s microscope. It allowed them to get a better view of the firm’s financial health than just looking at the raw financial statements. Objective of the Report This term paper is prepared under submitted as a major requirement of the Financial Accounting Course. Financial Accounting provides the facts needed to make informed economic as well as operational control. Limitation of the Study Limitation of the study is about: a) Based on only secondary source of data b) Time bound restrict me for further research on the topic c) There is not possible to analyze every ratio of the financial statement Literature: Financial Ratio: Financial ratios are useful indicators of a firm’s performance and financial situation. Financial ratios can be used to analyze trends and to compare the firm’s financials to those of other firms. Current Ratio Current ratio is the ratio of current assets of a business to its current liabilities. It is the most widely used test of liquidity of a business and measures the ability of a business to repay its debts over the period of next 12 months. Current ratio is calculated using the following formula: Current Ratio = Current Assets Current Liabilities Receivables Turnover Ratio An accounting measure used to quantify a firms effectiveness in extending credit as well as collecting debts. The receivables turnover ratio is an activity ratio, measuring how efficiently a firm uses its assets. Receivables turnover ratio = Net receivable sales/ Average accounts receivables Inventory Turnover A ratio showing how many times a companys inventory is sold and replaced over a period. The days in the period can then be divided by the inventory turnover formula to calculate the days it takes to sell the inventory on hand or inventory turnover days. Inventory Turnover = Cost of Goods Sold Average Inventory Asset Turnover : The amount of sales generated for every dollars worth of assets. It is calculated by dividing sales in dollars by assets in dollars. Asset Turnover Ratio = Net Sales Average Total Assets Return On Asset: An indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how efficient management is at using its assets to generate earnings. ROA = Annual Net Income Average Total Assets Return On Equity: The amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporations profitability by revealing how much profit a company generates with the money shareholders have invested. ROE = Annual Net Income Average Stockholders Equity Square Pharmaceuticals Ltd. Balance Sheet As on 31. 03. 2009 As on 31. 03. 2008 As on 31. 03. 2007 Non-Current assets 9,407,730,001 8,291,290,984 6,804,429,292 Property, Plant and Equipment-Carrying Value 4,899,679,832 4,088,432,171 3,531,003,509 Capital Work-in-Progress 591,114,649 481,239,419 Investment – Long Term (at Cost) 4,508,050,169 3,611,744,164 2,792,186,364 Current Assets 3,843,512,855 4,411,836,436 3,682,510,712 Inventories 2,098,755,231 2,026,736,322 1,544,191,798 Trade Debtors 477,562,002 360,245,646 322,864,637 Advances, Deposits and Prepayments 260,330,162 288,806,440 236,455,395 Investment in Marketable Securities (at Cost) 20,250,000 20,250,000 20,250,000 Short Term Loan 693,157,720 1,510,502,334 1,418,893,703 Cash and Cash Equivalents 293,457,740 205,295,694 139,855,179 TOTAL ASSETS 13,251,242,856 12,703,127,420 10,486,940,004 Shareholders’ Equity 9,949,397,634 8,417,040,705 7,333,257,612 Share Capital 1,207,224,000 894,240,000 596,160,000 Share Premium 2,035,465,000 2,035,465,000 2,035,465,000 General Reserve 105,878,200 105,878,200 105,878,200 Tax Holiday Reserve 1,101,935,237 1,101,935,237 1,101,935,237 Retained Earnings 5,498,895,197 4,279,522,268 3,493,819,175 Non-Current Liabilities 660,976,668 785,241,612 598,116,106 Long Term Loans – Secured 449,757,608 602,584,615 492,569,379 Deferred Tax Liability 211,219,060 182,656,997 105,546,727 Current Liabilities 2,640,868,554 3,500,845,103 2,555,566,286 Short Term Bank Loans 1,534,345,782 2,669,693,184 1,818,777,878 Long Term Loans – Current Portion 295,590,601 297,002,646 225,176,449 Trade Creditors 124,222,699 100,953,258 60,601,743 Liabilities for Expenses 69,573,702 32,290,235 24,565,248 Liabilities for Other Finance 617,135,770 400,905,780 426,444,968 TOTAL EQUITY AND LIABILITIES 13,251,242,856 12,703,127,420 10,486,940,004 Square Pharmaceutical Ltd Income Statement For the year ended 31-03-09 For the year ended 31-03-08 For the year ended 31-03-07 NET TURNOVER 9,820,796,568 8,257,843,739 7,500,811,349 Less: COST OF GOODS SOLD 5,672,565,973 4,856,061,933 4,268,447,662 GROSS PROFIT 4,148,230,595 3,401,781,806 3,232,363,687 Less: Operating Expenses 1,779,793,368 1,692,475,988 1,406,611,448 PROFIT FROM OPERATIONS 2,368,437,227 1,709,305,818 1,825,752,239 Other Income 665,520,915 604,628,504 220,144,368 Less: Financial Expenses 397,135,963 351,868,423 236,845,084 NET PROFIT BEFORE WPPF 2,636,822,179 1,962,065,899 1,809,051,523 Less: Allocation for WPPF 125,562,961 93,431,709 86,145,311 NET PROFIT BEFORE TAX 2,511,259,218 1,868,634,190 1,722,906,212 Less: Provision for Income Tax 592,644,226 409,660,827 347,984,083 Less: Provision for Deferred Income Tax 28,562,063 77,110,270 71,679,289 NET PROFIT AFTER TAX 1,890,052,929 1,381,863,093 1,303,242,840 Earnings Per Share (EPS) 156. 56 114. 47 145. 74 1. Current ratio: Current Assets (2008-2009): Cash and Cash Equivalence + Inventories + Trade Debtor + Advance, Deposits and Payment + Investment at Marketable Securities (at cost) + Short Term Loan = 293,457,740 +2,098,755,231 + 477,562,002 + 260,330,162 + 20,250,000 + 693,157,720 = 3,843,512,855 Current Assets (2007-2008): Cash and Cash Equivalence + Inventories + Trade Debtor + Advance, Deposits and Payment + Investment at Marketable Securities (at cost) + Short Term Loan = 205,295,694 + 2,026,736,322 + 360,245,646 + 288,806,440 + 20,250,000 + 1,510,502,334= 4,411,836,436 Current Assets (2006-2007): Cash and Cash Equivalence + Inventories + Trade Debtor + Advance, Deposits and Payment + Investment at Marketable Securities (at cost) + Short Term Loan = 139,855,179 + 1,544,191,798 + 322,864,637 + 236,455,395 + 20,250,000 + 1,418,893,703 = 3,682,510,712 Current Liability (2008-2009): Short Term Bank Loans + Long Term Loans – Current Portion + Trade Creditors + Liabilities for Expenses + Liabili ties for Other Finance = 1,534,345,782 + 295,590,601 + 124,222,699 + 69,573,702 + 617,135,770 = 2,640,868,554 Current Liability (2007-2008): Short Term Bank Loans + Long Term Loans – Current Portion + Trade Creditors + Liabilities for Expenses + Liabilities for Other Finance = 2,669,693,184 + 297,002,646 + 100,953,258 + 32,290,235 + 400,905,780 = 3,500,845,103 Current Liability (2006-2007): Short Term Bank Loans + Long Term Loans (Current Portion) + Trade Creditors + Liabilities for Expenses + Liabilities for Other Finance = 1,818,777,878 + 225,176,449 + 60,601,743 + 24,565,248 + 426,444,968 Table 1: Calculation of Current Ratio Year Current Assets (I) Current Liability (II) Current Ratio IV= I ? II 2009 3,843,512,855 2640868554 1. 46 2008 4,411,836436 3500845103 1. 26 2007 3682510712 2555566286 1. 44 Debt to Equity Ratio: Total Debt (2008-2009): Short Term Bank Loans + Long Term Loans – Current Portion + Trade Creditors + Liabilities for Expenses + Liabilities for Other Finance + Loan Term Loan (secured) + Deferred Tax Liability = 1,534,345,782 + 295,590,601 + 124,222,699 + 69,573,702 + 617,135,770 + 449,757,608 + 211,219,060 = 3301845222 Total Debt (2007-2008): Short Term Bank Loans + Long Term Loans – Current Portion + Trade Creditors + Liabilities for Expenses + Liabilities for Other Finance + Loan Term Loan (secured) + Deferred Tax Liability = 2,669,693,184 + 297,002,646 + 100,953,258 + 32,290,235 + 400,905,780 + 602,584,615 + 182,656,997 = 428,60,86715 Total Debt (2006-2007): Short Term Bank Loans + Long Term Loans – Current Portion + Trade Creditors + Liabilities for Expenses + Liabilities for Other Finance + Loan Term Loan (secured) + Deferred Tax Liability = 1,818,777,878 + 225,176,449 + 60,601,743 + 24,565,248 + 426,444,968 + 492,569,379 + 105,546,727 = 315,36,82392 Share holder’s Equity (2008-2009): Share Capital + Share Premium + General Reserve + Tax Holiday Reserve + Retain Earnings = 1,207,224,000 + 2,035,465,000 + 105,878,200 + 1,101,935,237 + 5,498,895,197 = 9,949,397,634 Shareholder’s Equity (2007-2008): Share Capital + Share Premium + General Reserve + Tax Holiday Reserve + Retain Earnings = 894,240,000 + 2,035,465,000 + 105,878,200 + 1,101,935,237 + 4,279,522,268 = 8,417,040,705 Shareholder’s Equity (2006-2007): Share Capital + Share Premium + General Reserve + Tax Holiday Reserve + Retain Earnings = 596,160,000 + 2,035,465,000 + 105,878,200 + 1,101,935,237 + 3,493,819,175 = 7,333,257,612 Table 2: Debt to Equity Ratio Year Debt (I) Equity (II) Debt to Equity Ratio III = I ? II 2009 3301845222 9949397634 0. 33 2008 4286086715 8417040705 0. 51 2007 3153682392 7333257612 0. 43 Receivable Turn Over: Annual Net Credit Sales: Assuming that all sales are on credit. 2008-2009: Gross Turnover – Value Added Tax = 11,366,597,928 – 1,545,801,360 = 9820796568 2007-2008: Gross Turnover – Value Added Tax = 9,565,715,902 – 1,307,872,163 = 8,257,843,739 2006-2007: Gross Turnover – Value Added Tax = 8,711,034,758 – 1,210,223,409 = 7,500,811,349 The practical data of the Square Pharmaceuticals Ltd. show the following results: Table 5: Receivable Turnover Ratio Year Net Sales (I) Receivable (II) Receivables Turnover Ratio III = I ? II 2009 9820796568 477562002 20. 56 2008 8257843739 360245646 22. 92 2007 7500811349 322864637 23. 23 Average Collection / Receivable Turnover in Days: This indicates the average number of days it takes a company to collect unpaid invoices. A ratio indicates that the company is having problems getting paid for service or products. The ratio is sometimes seasonally affected, rising during busy seasons, and falling during the off season. To account for this seasonality, the average accounts receivables (beginning + ending account receivables / 2) could be used instead. Average collection period can be determined by the following formula: Table 6: Average Collection Period Year Receivable Turnover (I) Average Collection Period II = 365 ? I 2009 20. 56 18 2008 22. 92 16 2007 23. 23 16 Inventory Turnover: Cost of Goods Sold: 2008-2009:Raw material consumed+ Packing Material Consumed+ Work in Process (opening) – Work in Process (ending) + Factory Overhead + Purchased of Finished Goods+ Finished Goods (Opening) – Finished Goods (ending) = 3,004,618,146 + 1,318,695,068 + 141,106,414 – 146,340,693+ 1,123,414,629 + 218,136,279+ 581,543,862 – 568,607,732 = 5,672,565,973 2007-2008: Raw material consumed+ Packing Material Consumed+ Work in Process (opening) – Work in Process (ending) + Factory Overhead + Purchased of Finished Goods+ Finished Goods (Opening) – Finished Goods (ending) = 2,770,478,855 + 1,144,141,207 + 119,969,662 – 141,106,414 + 874,353,806+ 211,761,614+ 458,007,065 – 581,543,862 = 4,856,061,933 2006-2007: Raw material consumed+ Packing Material Consumed+ Work in Process (opening) – Work in Process (ending) + Factory Overhead + Purchased of Finished Goods+ Finished Goods (Opening) – Finished Goods (ending) = 2,401,727,164 + 927, 381,432 + 108,390,739- 119,969,662 + 748,199,160 + 247,748,512 + 412,977,382 – 458,007,065) = 4,268,447,662 Inventory: 2008-2009: Raw Materials + Packing Materials + Work-in-Process + Finished Goods + Spares Accessories + Goods in Transit = 712,447,113 + 203,170,462 + 146,340,693 + 568,607,732 + 99,673,071 + 368,516,160 = 2,098,755,231 2007-2008: Raw Materials + Packing Materials + Work-in-Process + Finished Goods + Spares Accessories + Goods in Transit = 688,846,968 + 186,341,475 + 141,106,414 + 581,543,862 + 87,243,576 + 341,654,027 = 2,026,736,322 2006-2007: Raw Materials + Packing Materials + Work-in-Process + Finished Goods + Spares Accessories + Goods in Transit = 562,131,687 + 166,890,495 + 119,969,662 + 458,007,065 + 90,596,538 + 146,596,351 = 1,544,191,798 Table 7: Inventory Turnover Ratio Year Cost of Goods Sold (I) Inventory (II) Inventory Turnover ratio III = I ? II 2009 5672565973 2098755231 2. 70 2008 4856061933 2026736322 2. 40 2007 4268447662 1544191798 2. 76 Return On Equity (ROE): Net Profit After Tax: 2008-2009: Gross Profit – Operating Expense + Other Income – Fin ancial Expenses – Allocation for WPPF – Provision for income tax – Provision for deferred income tax = 4,148,230,595 – 1,779,793,368 + 665,520,915 – 397,135,963 – 125,562,961 – 592,644,226 – 28,562,063 = 1,890,052,929 2007-2008: Gross Profit – Operating Expense + Other Income – Financial Expenses – Allocation for WPPF – Provision for income tax – Provision for deferred income tax = 3,401,781,806 – 1,692,475,988 + 604,628,504 – 351,868,423 – 93,431,709 – 409,660,827 – 77,110,270 = 1,381,863,093 2006-2007: Gross Profit – Operating Expense + Other Income – Financial Expenses – Allocation for WPPF – Provision for income tax – Provision for deferred income tax = 3,232,363,687 – 1,406,611,448 + 220,144,368 – 236,845,084 – 86,145,311 – 347,984,083 – 71,679,289 = 1,303,242,840 Shareholder’s Equity: 2008-2009: Share Capital + Share Premium + General Reserve + Tax Holiday Reserve + Retain Earnings = 1,207,224,000 + 2,035,465,000 + 105,878,200 + 1,101,935,237 + 5,498,895,197 = 9,949,397,634 2007-2008: Share Capital + Share Premium + General Reserve + Tax Holiday Reserve + Retain Earnings = 894,240,000 + 2,035,465,000 + 105,878,200 + 1,101,935,237 + 4,279,522,268 = 8,417,040,705 2006-2007: Share Capital + Share Premium + General Reserve + Tax Holiday Reserve + Retain Earnings = 596,160,000 + 2,035,465,000 + 105,878,200 + 1,101,935,237 + 3,493,819,175 = 7,333,257,612 Table 12: Return On Equity Ratio Year Profit After Tax (I) Shareholder Equity (II) ROE III = I ? II 2009 1890052929 9949397634 0. 19 2008 1381863093 8417040705 0. 16 2007 1303242840 7333257612 0. 18 Summary and Conclusion Considering the entire financial ratio for the Square Pharmaceutical Ltd. we can say that at present the overall condition of the company is good. It had a mixed period from the year 2007 to 2009. It has decreasing tend in 2008 but then again went up in 2009. The company gross profit margin is stable at around 42% constant rate. Net profit margin was stable at 17% over 2007 – 2008 and showed an increasing trend in 2009 to reach 19%. But the company had a weak asset turnover ratio over this period. But we find that heir financial management is as stronger as required to attract large number of shareholders. At the end we can conclude that, the company has strong growth rate in recent years with a strong market reputation. But still the company should keep keen eyes in management operation to improve the financial condition.