Performance evaluation and ratio analysis of ...

1 0 Performance evaluation and ratio analysis of Pharmaceutical Company in Bangladesh Faruk Hossan Md Ahsan Habib Supervisor: Jos Ferraz Nunes Examiner: Bengt Kjell n Master s thesis in international Business 15 ECTS Department of Economic and Informatics University West Spring term 2010 1 ABSTRACT The thesis applies Performance evaluation of pharmaceutical company in Bangladesh. It means evaluate how well the company performs. The main aim is achieved through ratio analysis of two pharmaceutical (Beximco and Square pharmaceutical) companies in Bangladesh. The main data collection from the annual financial reports on Beximco and square pharmaceutical companies in 2007 to financial ratio are evaluated such liquidity ratios, asset management ratios, profitability ratios, market value ratios, debt management ratios and finally measure the best Performance between two companies.

2 The mathematical calculation was establish for ratio analysis between two companies from is most important factors for Performance evaluation . The graphical analysis and comparisons are applies between two companies for measurement of all types of financial ratio analysis . Liquidity ratio is conveying the ability to repay short-term creditors and it total cash. It determines perform of short term creditor of both pharmaceutical companies under the three categories such as current ratio , quick ratio and cash ratio . Asset management ratio is measurement how to effectively a company to use and controls its assets. Its also quantify into seven categories for both pharmaceutical companies such as account receivable turnover, average collection period, inventory turnover, account payable turnover ,account payable turnover in days ,fixed asset turnover ,total asset turnover. Profitability ratio is evaluate how well a company is performing by analyzing and how profit was earned relative to sales, total assets and net worth for both pharmaceutical companies.

3 Debt coverage ratio is performing that the property insufficient to collect their mortgage for both companies and market value is perform the stockholder to analysis their future market value of the stock market. Overall analyses are measurement the best one between Beximco and Square pharmaceutical companies. Keyword: Financial analysis , ratio analysis , Beximco company financial analysis , Square company financial analysis . 2 ACKNOWLADGEMENT Firstly, we would like to express our gratitude to all faculty and relevant staff of Economics and IT and Library of University West. We would deeply thank my supervisor Jos Ferraz Nunes, who kindly supervises and gives me the excellent suggestion, guidance, and encouragement all the times during my thesis writing.

4 We cannot complete this thesis without his consistent advice. We also like to thank our families, who have always been supporting and understanding during this work. 3 Table on contents Abstract 1 Acknowledgement 2 1.

5 Introduction Background 5 Purpose and thesis questions 6 Limitation of study 7 Thesis outline 7-8 2. literature review 9-14 3. Methodology Data collection 15 Data analysis 15-17 Formula for ratio analysis 18-19 4.

6 Results and analysis Liquidity ratio Current ratio 20-21 Quick ratio or acid test 22 Cash ratio 23 Asset management ratio 1. Accounts receivable turnover 24-25 Average collection period 26 Inventory turnover ratio 27 Accounts Payable turnover 28 Accounts Payable turnover in days 29-30 Fixed asset turnover ratio 31 Total asset turnover ratio 32 Profitability ratio Net Profit Margin

7 33 Gross Profit Margin ratio 34 Return on asset ratio 35-36 Return on Equity 37 Operating profit margin ratio 38-39 Debt coverage ratio Debt ratio 40 Time interest earned ratio 41-42 Book value per share ratio 43 Market value ratios Earnings per Share (EPS) ratio 44-45 Market/Book ratio 46 4 5.

8 Conclusion 47-48 6. Discussion 49-51 7. Further research 52 8. Reference 53-54 9. Appendix Appendix-A 56-57 Appendix-B 58 Appendix-C 59-60 Appendix-D 61 Appendix-E 62 Appendix-F 63 5

9 1. INTRODUCTION This chapter gives an introduction to this thesis. A general background of the subject is followed by the thesis purpose and question, limitation of the study, thesis out line. The questions are followed by the purpose of this thesis. Background Performance evaluation of a company is usually related to how well a company can use it assets, share holder equity and liability, revenue and expenses. Financial ratio analysis is one of the best tools of Performance evaluation of any company. In order to determine the financial position of the pharmaceutical company and to make a judgment of how well the pharmaceutical company efficiency, its operation and management and how well the company has been able to utilize its assets and earn profit. We used ratio analysis for easily measurement of liquidity position, asset management condition, profitability and market value and debt coverage situation of the pharmaceutical company for Performance evaluation .

10 It analysis the company use of its assets and control of its expenses. It determines the greater the coverage of liquid assets to short-term liabilities and it also compute ability to pay pharmaceutical company monthly mortgage payments from the cash generate. It measures pharmaceutical company overall efficiency and Performance . It determines of share market condition of pharmaceutical company. It also used to analysis the pharmaceutical company past financial Performance and to establish the future trend of financial position. We are choosing two pharmaceutical companies in Bangladesh. At first we discuss square pharmaceutical company. It is the most famous company in Bangladesh. It was established in 1958 but their converted into public limited company in is the first position among all national ,multination, private and public of pharmaceutical company of Bangladesh.