Financial Statement Analysis of Square Pharmaceuticals Company Limited

Financial Statement Analysis
Of
Square Pharmaceuticals Company Limited

Prepared for:
Prof. Nausheen Rahman
Professor, Department of Finance
University of Dhaka
Prepared by:
Group 4
Member’s Name ID No. Remarks
Suborna Ghosh 21-06
Saiful Islam 21-39
Mithila Akter 21-60
Md. Nurul Alam 21-75
Vaskar Halder 21-87
Md. Istiaq Hasan 21-99
Suraya Akter 21-132
Hadia Jahin 21-189
Smrity Akter 21-210
Taj-E-Nur 21-225
Date of Submission- January 09, 2017
REPORT ON
FINANCIAL STATEMENT ANALYSIS OF
SQUARE PHARMACEUTICALS COMPANY LIMITED

ii
Letter of Transmittal
January 09, 2016
Prof. Nausheen Rahman
Professor
Department of Finance
University of Dhaka
Subject: Submission of the report on ‘Financial Statement Analysis of Square
Pharmaceuticals Company Limited’.
Dear Madam,
It is an honor and immense pleasure for us to present our Report on ‘Financial Statement
Analysis of Square Pharmaceuticals Company Limited’. This report was assigned to our
group as a partial requirement of the course named ‘F-206: Financial Management’ of B.B.A
program under the department of Finance of the Faculty of Business Studies, University of
Dhaka.
This study has given the opportunity to gain knowledge about the implications of financial
theories and techniques by a company for management purpose. The knowledge we have
gathered through this study will help us in our real life and future carrier, indeed.
We would like to convey our special thanks and gratitude to you for patronizing our effort &
for giving us proper guidance and valuable advice throughout the semester. We have tried our
best to cover all the relevant fields. We earnestly request you to call us if you think any
further work should be done on the topic that you have chosen for us.
Sincerely,
Saiful Islam
On behalf of the group 4

iii
Table of Contents
Table of Contents……….………………....................................................................................... iii
Executive Summary…………………………………………….……………………....................iv
Acknowledgement…………..……………………………………………………………………..v
Chapter Topic Page
1 Introduction 1-3
2 Company overview 4-14
3 Corporate Governance& Square Pharmaceuticals Limited 15-22
4 Agency Problem & Square Pharmaceuticals Limited 23-27
5 Dividend Policy & Square Pharmaceuticals Limited 28-38
6 Time Value of Money & Square Pharmaceuticals Limited 39-48
7 Cost of Capital of Square Pharmaceuticals Limited 49-52
8 Ratio Analysis of Square Pharmaceuticals Limited 53-66
Conclusion 67
Bibliography 68

iv
Executive Summary
We were assigned to study and prepare a report on the implications and practices of concepts
and techniques of financial management by a well-established company of Bangladesh. For
this purpose, we the group number 4, have worked with Square Pharmaceuticals Company
Limited which is one of the largest pharmaceutical product producers and medication
suppliers. To make the report as a successful one, all the necessary financial tools have been
theoretically presented at first and then, mathematically applied with the given information of
the company. Thinking about any single confusing to be arising in interpreting the outcome,
the report clearly shows all the interpretations with necessary charts, graphs. In the
introductory part, we briefly described the history, establishment, mission and vision of
Square Pharmaceuticals Limited in precise words.
Then, we have provided the financial report based on which we run our analysis. In the
following chapter, we talked about corporate governance of Square Pharmaceuticals Limited
which is really good. We also discussed on the agency problem of Square Pharmaceuticals
Limited, dividend payment policy of Square Pharmaceuticals Limited, application of time
value of money by Square Pharmaceuticals Limited, cost of capital of Square
Pharmaceuticals Limited, and various kinds of ratios such as liquidity ratio, profitability ratio
etc.
Finally, we concluded by describing the overall financial performance of Square
Pharmaceuticals Limited for the year 2014-2015.

v
Acknowledgement
At first we would like to thank the mightiest and our parents. Without their blessing, we
could not be successful in completing the study. We would like to thank our honorable course
teacher of Department of Finance, Prof. Nausheen Rahman for providing us such an
opportunity to prepare the Report on “Financial Statement Analysis of Square
Pharmaceuticals Company Limited”. Without her helpful guidance, the completion of this
report was unthinkable. During our preparation of the report work, we have come to very
supportive touch of different individuals & friends and professionals who lent their ideas,
time & caring guidance to amplify the report’s contents. We want to convey our heartiest
gratitude to them for their valuable responses.

2
Introduction
Financial performance is a subjective measure of how well a firm can use assets from its
primary mode of business and generate revenues. This term is also used as a general measure
of a firm overall financial health over a given period of time and can be used to compare
similar firms across the same industry or to compare industries or sectors in aggregation.
Financial performance is evaluated through financial performance analysis. In this report we
analyzed the financial performance of Square Pharmaceuticals Company Limited through
using ratio analysis, time value of money, cost of capital, capital budgeting tools.
Square Pharma is one of the leading company in Bangladesh. We have selected it so that we
can show the overall financial position and performance of the company for the last two
years. For the lacking of very recent data we have worked with the data of 2014 and 2015.
The main purpose is to show the applications of financial tools that we have learned in our
BBA course- Financial Management.
1.1 Origin of the Report
The report prepared for the requirement of course F-206, Financial Management under the
academic supervision of the course instructor, Nausheen Rahman, Professor, Department of
Finance. Financial Statement Analysis of Square Pharmaceuticals Company Limited’ is our
topic for this report.
1.2 Objective of the Study
The main objective of this report is to show how financial tools are used to take financing
decision.
 The primary objective of the report is the completion of our course F-206.
 To gather knowledge about the implications of concepts of financial management in
real life situation.
1.3 Scope of the Study
The present study is an attempt to show various financial analysis on Square Pharma
Limited’s annual report on 2015.

3
These are the scopes included in the report:
 Showing the agency problems
 Showing various tools of capital budgeting
 Showing the possible sources from where a company can collect funds for investment
 Showing the calculation methods of Present Value and Future Value
 Showing how a company’s financing decision is affected by various financial ratios
1.3 Methodology
We have collected information mainly from Square Pharma Limited’s website and some
other secondary websites. We thoroughly went through the annual reports of year 2014-2015.
We also read the text thoroughly form the course text book selected by our honorable course
instructor and tried to find out compliance of learned concepts with the company’s practice
and prepared this report in accordance with the collected data.
1.4 Limitation
In spite of our hard work the study has some limitations. Actually this study is based on
secondary data that are available from annual reports of Square Pharmaceuticals Limited. All
the necessary data are not available in the annual report. Such as credit sales are not available
in the annual report and that is why the better ratios of turnover are not possible to determine.
While preparing this report we have faced these problems:
 Lack of time
 Lack of usable information
 Lack of experience
Though this report has some limitations, we, the group members, tried our best to prepare a
standard report. We have faced several challenges to prepare this report, but we have
succeeded to overcome it.

5
Square Pharmaceuticals Limited started its business in 1957 with private
initiative. It was incorporated on November 10, 1964 under the companies
Act. 1913 and it was converted into a Public Limited Company in 1991 and
offered its shares to the public with the approval of the Bangladesh Securities and Exchange
Commission. It occupies a vast market in pharmaceutical arena by producing and supplying
different types of drugs in national and international markets. This company started its
exporting activities since 1987. Now-a-days it is strengthening its exporting activities on the
way to becoming a performance global competitor by supplying quality pharmaceuticals at
competitive price. The contribution of Square Pharmaceuticals Ltd. to the national exchequer
is remarkable. It pays a large amount of taxes, vat, customs and excise duty every year. Over
and above, it employs a vast number of unemployed people of the country.
Since, this study is following the Square Pharmaceuticals Limited. So, the vision, mission,
objectives, corporate focus of the company is required to present to understand the
importance and justification of the study. In this regard, those are given below:
2.1 Vision
The company’s vision is to view business as a means to the material and social well-being of
the investors, employees and the society at large, leading to accretion of wealth through
financial and moral gains as a part of the process of the human civilization.
2.2 Mission
Their Mission is to produce and provide quality & innovative healthcare relief for people,
maintain stringently ethical standard in business operation also ensuring benefit to the
shareholders, stakeholders and the society at large.
2.3 Objective
The objectives of Square Pharmaceuticals Company Limited are to conduct transparent
business operation based on market mechanism within the legal & social frame work with
aims to attain the mission reflected by the company’s vision.

6
Financial Reports of
Square Pharmaceuticals Company Limited

7
Square Pharmaceuticals Limited
Consolidated Statement of Financial Position
As at 31 March 2015
31-03-2015 31-03-2014
Taka Taka
ASSETS:
Non-Current Assets: 25,458,986,164 23,546,701,250
Property, Plant and Equipment-Carrying Value 18,009,200,507 13,933,689,469
Deferred Tax Assets 75,167,249 -
Capital Work-in-Progress 207,629,864 3,256,802,171
Investment - Long Term (at Cost) 251,599,097 147,694,430
Investment - Associates Undertaking 6,036,139,963 5,364,154,708
Investment in Marketable Securities (Fair Value) 879,249,484 844,360,472
Current Assets: 9,732,170,099 7,499,373,281
Inventories 3,310,086,668 2,737,085,779
Trade Debtors 894,543,303 766,634,978
Advances, Deposits and Prepayments 750,169,066 671,749,541
Short Term Loan 885,185,428 1,161,185,776
Cash and Cash Equivalents 3,892,185,634 2,162,717,207
TOTAL ASSETS 35,191,156,263 31,046,074,531
SHAREHOLDERS' EQUITY AND LIABILITIES:
Shareholders' Equity: 31,093,302,284 26,739,581,929
Share Capital 5,542,991,520 4,819,992,630
Share Premium 2,035,465,000 2,035,465,000
General Reserve 105,878,200 105,878,200
Tax Holiday Reserve - 406,231,702
Gain on Marketable Securities (Unrealized) 265,332,813 449,255,557
Retained Earnings 23,143,634,751 18,922,758,840
Non-Controlling Interest (1,669,864) 9,369,803

8
Non-Current Liabilities: 1,550,505,777 1,902,585,673
Long Term Loans - Secured 659,147,818 1,183,627,923
Deferred Tax Liability 891,357,959 718,957,750
Current Liabilities: 2,549,018,066 2,394,537,126
Short Term Bank Loans - 131,104,817
Long Term Loans-Current Portion 257,154,669 461,433,822
Trade Creditors 254,773,030 217,855,755
Liabilities for Expenses 43,002,246 20,518,598
Liabilities for Other Finance 1,994,088,121 1,563,624,134
TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 35,191,156,263 31,046,074,531

9
Consolidated Statement of Comprehensive Income
For the Year Ended 31 March 2015
2014-2015 2013-2014
Taka Taka
GROSS TURNOVER 30,833,571,248 26,945,687,557
Less: Value Added Tax 4,148,998,132 3,677,274,340
NET TURNOVER 26,684,573,116 23,268,413,217
COST OF GOODS SOLD (14,942,870,155) (12,960,738,683)
GROSS PROFIT 11,741,702,961 10,307,674,534
OPERATING EXPENSES: (4,692,091,383) (4,340,021,264)
Selling & Distribution Expenses (3,757,838,863) (3,431,938,716)
Administrative Expenses (775,638,213) (730,951,152)
Financial Expenses (158,614,307) (177,131,396)
PROFIT FROM OPERATIONS 7,049,611,578 5,967,653,270
Other Income 293,730,506 245,133,874
PROFIT BEFORE WPPF 7,343,342,084 6,212,787,144
Allocation for WPPF (379,795,062) (300,438,842)
PROFIT BEFORE TAX 6,963,547,022 5,912,348,302
Income Tax Expenses - Current (1,679,877,193) (1,518,801,391)
Income Tax Expenses - Deferred (172,400,209) (142,966,048)
Deferred Tax Assets 75,167,249 -
PROFIT AFTER TAX FOR THE YEAR 5,186,436,869 4,250,580,863
Profit/(Loss) From Associates Undertaking 795,199,468 695,624,299
PROFIT FOR THE YEAR 5,981,636,337 4,946,205,162
Other Comprehensive Income:
Gain/(Loss) on Marketable Securities (Unrealized) (183,922,744) 135,723,333
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 5,797,713,593 5,081,928,495
Profit Attributable to:
Owners of the Company 5,983,806,201 4,944,554,910

10
5,981,636,337 4,946,205,162
Total Comprehensive Income Attributable to:
Owners of the Company 5,799,883,457 5,080,278,243
5,797,713,593 5,081,928,495
Earnings Per Share (EPS) 10.80 8.92
Number of Shares used to compute EPS 554,299,152 554,299,152

11
Consolidated Statement of Changes in Equity
Share Share General Tax Holiday Gain on Marketable Retained Non-Controlling
Particulars Capital Premium Reserve Reserve Securities (Unrealized) Earnings Interest
Total
Taka
Taka Taka Taka Taka Taka Taka Taka
At 31 March 2014 4,819,992,630 2,035,465,000 105,878,200 406,231,702 449,255,557 18,922,758,840 9,369,803 26,748,951,732
Transfer for Merger of Square Cephalosporins Ltd. - - - - - (165,313) (8,969,803) (9,135,116)
Issuance of Share Capital - - - - - - 100,000 100,000
Transfer to Retained Earnings - - - (406,231,702) - 406,231,702 - -
Total Comprehensive Income (2014-2015) - - - - (183,922,744) 5,983,806,201 (2,169,864) 5,797,713,593
Cash Dividend (2013-2014) - - - - - (1,445,997,789) - (1,445,997,789)
Stock Dividend (2013-2014) 722,998,890 - - - - (722,998,890) - -
At 31 March 2015 5,542,991,520 2,035,465,000 105,878,200 - 265,332,813 23,143,634,751 (1,669,864) 31,091,632,420

12
Consolidated Statement of Changes in Equity
Share Share General Tax Holiday Gain on Marketable Retained Non-Controlling
Total
Particulars Capital Premium Reserve Reserve Securities (Unrealized) Earnings Interest
Taka
Taka Taka Taka Taka Taka Taka Taka
At 31 March 2013 3,707,686,640 2,035,465,000 105,878,200 406,231,702 313,532,224 16,017,431,580 7,719,551 22,593,944,897
Total Comprehensive Income (2013-2014) - - - - 135,723,333 4,944,554,910 1,650,252 5,081,928,495
Cash Dividend (2012-2013) - - - - - (926,921,660) - (926,921,660)
Stock Dividend (2012-2013) 1,112,305,990 - - - - (1,112,305,990) - -
At 31 March 2014 4,819,992,630 2,035,465,000 105,878,200 406,231,702 449,255,557 18,922,758,840 9,369,803 26,748,951,732

13
Consolidated Statement of Cash Flows
2014-2015 2013-2014
Cash Flows From Operating Activities:
Taka Taka
RECEIPTS:
Collection from Sales 30,648,924,570 27,027,953,588
Others 73,472,592 45,699,479
Total Receipts 30,722,397,162 27,073,653,067
PAYMENTS:
Purchase of Raw and Packing Materials 11,025,935,136 9,484,660,368
Manufacturing and Operating Expenses 7,028,539,183 5,622,808,076
Value Added Tax 4,148,998,132 3,677,274,340
Bank Interest 158,614,307 177,131,396
Income Tax 1,532,252,791 1,439,747,461
Workers Profit Participation Fund 353,093,924 255,891,487
Others 1,685,328 -
Total Payments 24,249,118,801 20,657,513,128
Net cash provided by operating activities 6,473,278,361 6,416,139,939
Cash Flows From Investing Activities:
Purchase of Fixed Assets (2,680,026,455) (2,234,360,509)
Disposal of Fixed Assets 36,389,291 90,969,701
Investment in Orascom Telecom Bangladesh Ltd. 20,000,000 10,000,000
Investment in Square Fashions Ltd. - 150,000,000
Investment in Lanka Bangla Finance Ltd. (123,904,667) -
Issuance of Share Capital 100,000 -
Investment in Marketable Securities (218,811,753) (21,651,371)
Loan to Sister Concerns 276,000,348 (52,427,862)
Capital Work-in-Progress (71,299,346) (1,363,637,040)
Gain on Sale of Marketable Securities 6,863,121 6,598,771
Interest Received 158,179,691 151,443,710

14
Dividend Received 158,561,700 128,006,027
Net cash used in investing activities (2,437,948,070) (3,135,058,573)
Cash Flows From Financing Activities:
Long Term Loan Received - 575,554,227
Long Term Loan Repaid (728,759,258) (577,241,001)
Short Term Bank Loan Decrease (131,104,817) (1,170,943,561)
Dividend Paid (1,445,997,789) (926,921,660)
Net cash used in financing activities (2,305,861,864) (2,099,551,995)
Increase in Cash and Cash Equivalents 1,729,468,427 1,181,529,371
Cash and Cash Equivalents at the Opening 2,162,717,207 981,187,836
Cash and Cash Equivalents at the Closing 3,892,185,634 2,162,717,207

15
Chapter -3
Corporate Governance & Square Pharma Limited

16
Corporate Governance
Corporate Governance involves decision making processes for any corporate body as a going
concern for the benefit of all concerned, present and future. These decisions may be
categorized as policy & strategic, operational and executing, performance & evaluation and
sharing of the accretion assets between present & future cohorts. The involvement of the
entrepreneur in all these areas invokes decision making governance on a continuous basis, the
degree of involvement being variable with the extent of delegation of authority top down and
reporting for accountability bottom up of the Management echelon. These aspects of
governance are shared by the Board of Directors, Executive Management, operational
participants and workers and others in fulfillment of the common goals that converge in
increasing the benefits of all stakeholders. To this end entire corporate governance efforts are
blended with "good governance practices" as ethically and morally acceptable standards
under a given socio politico environmental phenomenon of our society in which we work,
live and exist.
The organisms through which the corporate governance functions are carried out are:
Board of Directors:
(a) Constitution:
The Board of Directors, the top Management echelon, consisting of the founding
entrepreneurs/ successors and an Independent Director, provides the policy and strategic
support and direction for the entire range of the corporate activities. The Board of Directors
consist of eight (8) members including the Independent Directors with varied education and
experience which provides a balancing character in decision making process. The Board is
re-constituted every year at each Annual General Meeting when one-third of the members
retire and seek re-election. A director is liable to be removed if the conditions of the Articles
of Association and the provisions of the Companies Act 1994 are not fulfilled.

17
(b) Role & Responsibilities:
The main role of the Board of Directors, which is the highest level of authority, is to provide
general superintendence, oversee the operations and control the affairs of the company
through appropriate delegation and accountability processes via the lines of command.
However, the Board of Directors hold the ultimate responsibility & accountability with due
diligence for conducting the activities of the company as per provisions of law in the interest
of the shareholders, the stakeholders, the state and the society. The Board of Directors, in
fulfillment of its responsibility holds periodic meetings, at least once a quarter and provide
appropriate decisions/directions to the Executive Management. Such meetings usually
consider operational performance, financial results, review of budgets, capital expenditure
proposals for BMRE or new projects/divisions/product lines, procurement of funds by issue
of shares or borrowing, procurement of raw materials, plant & machinery, pricing of
products/discounts, recruitment, training and promotion of officers, approval of audited
accounts and distribution of dividends and other interest of the stakeholders including the
employees and workers. The Board of Directors take special care in designing and
articulating productivity and compensation plans of employees and workers and rewarding
them appropriately on the basis of quality and quantity of performance as an incentive. Board
also remains responsible for removal of operational hazards to life and health of workers,
friendly environmental work condition and social relationship as demanded of good citizen in
a country
(c) Relationship with Shareholders & Public:
The shareholders as owners are required to be provided with material information on the
company's operation quarterly, half-yearly and annually, the latter at the AGM. They are also
provided routine services by the Company Secretary in matters of transfer of shares,
replacement in case of loss or damage of shares, payment of dividends etc. The Board is
however responsible to the public for publication of any price sensitive information as per
BSEC regulation. A qualified Chartered Secretary is in charge for all these responsibilities as
Company Secretary.
(d) Relationship with Government:
In its role on accountability to the government, the Board of Directors ensure payment of all
dues to government in the form of import duty, custom duty and port charges, VAT,
Corporate Taxes and other levies as and when they become due on the basis of actual

18
operations and make sure to avoid corruption. This has enabled the company to enhance its
contribution to the National Exchequer on a progressive rate year after year.
(e) Relationship with Financers/Bankers:
The Board oversees the financial transactions and ensures to meet company's commitments to
the lenders without default. This has resulted in securing lower interest rates from them.
(f) Relationship with Suppliers:
As the company has to import plant and machinery and almost all the raw materials from
abroad, it maintains cordial and mutually beneficial interest with its international as well as
local suppliers. This has enabled the company to avoid any legal disputes in
international/local courts and enhanced the company's image as a good customer.
(g) Corporate Social Responsibilities (CSR):
The Board of Directors is also awoken of the Corporate Social Responsibilities (CSR)
especially in the areas of gender equality, race-religion-regional equality, non-employment of
child labour, human rights, environmental pollution, social-marketing, social activities
(promotion of sports & culture, health care and population control programs, elimination of
corruption programs, participation in charitable activities etc. in non-partisan manner) right to
form and participate in Union under ILO convention, employment of disabled etc.

19
Square Pharma’s Corporate Governance
The Company, in its efforts for Corporate Good Governance Practices, uses a series of top
ranking professional service providers including Legal experts, Bankers, Insurers and
Technical experts who continuously assist the Board of Directors and the Executive
Management in properly discharging their duties to all the shareholders, stakeholders, the
Government and the public as highlighted below:
(a) Independent Director
In compliance of the BSEC Regulations on Good Governance, the Board of Directors as
empowered by the Regulations, appointed Mr. M Sekander Ali, one of the Senior
Development/Investment Bankers of the country, former Managing Director of Bangladesh
Shilpa Bank/Bangladesh Shilpa Rin Sangstha/Investment Corporation of Bangladesh and
Senior Adviser, the Bangladesh Securities and Exchange Commission and Mrs. Nihad Kabir,
Barrister-at-Law, an Advocate of Supreme Court of Bangladesh and the Senior Partner of
Syed Ishtiaq Ahmed & Associates, a firm of legal consultants and practitioners in Bangladesh
as the non-shareholder Independent Directors. It is expected that his expertise would help
contribute to the further disclosure and protect the interest of all investors in general and
smaller investors in particular.
(b) Legal Advisors
In order to avail the best legal services for Good Corporate Governance, the company has
empaneled the following top ranking legal professionals:
 Mr. Rafiqul-ul Huq, Bar-at-Law
 Mr. Rokonuddin Mahmud, Bar-at-Law
 Ms. Nazia Kabir, Bar-at-Law
The expertise of the above named professionals has had long term fundamental support to the
company's Good Governance efforts.

20
(c) Bankers
The degree of efficient business operation largely depends on the quality of efficiency of
banking services received by the company. Efficient banking service brings down cost of
operations. On the other hand, cost of financial services and interest on the lending by the
banks are also required to be the minimum. With this end of view, the company has
established long term business relationship with the banks namely Janata Bank Ltd., Citibank
N. A, Standard Chartered Bank, Prime Bank Ltd. HSBC Ltd., Eastern Bank Ltd.,
Commercial Bank of Ceylon Ltd., Mercantile Bank Ltd., Bank Alfalah Ltd., Shahjalal Islami
Bank Ltd., Trust Bank Ltd., Bank Asia Ltd. and BRAC Bank Ltd. who provide most efficient
service at minimum cost/interest that benefit the shareholders.
The company has neither ever defaulted in any commitment with its Bankers nor did get
entangled in legal dispute at any court premises.
(d) Insurer:
Insurance services cover certain operational risks which are required by law/business
practices to be covered by legitimate insurance service providers for protection of the interest
of the company, nay, the investors. To this end, the company has to select insurer with the
most efficient, reputed and financially sound history so that claims, if any, are settled
promptly and the premium rates are market competitive. The company, based on these
considerations, is maintaining insurance business relationships with the highly reputed and
publicly listed insurance companies namely Pragati Insurance Ltd. and Pioneer Insurance Co.
Ltd.
The company has not yet faced any dispute over any claims and the company enjoys special
premium rates which protects the interest of the investors.

21
(e) Auditors:
The role of the auditors in certification of the financial statement is the most significant
aspect of Corporate Governance and protection of interest of investors. As evident from the
Annual Reports, the company rigidly follows the code of International Accounting Standards
(IAS) and International Standard of Auditing (ISA) with legally required disclosures of
Accounts and Financial Statements. This has been possible due to the high level capability
and integrity of M/s. Das Chowdhury Dutta & Co., Chartered Accountants whose
unchallenging performance has played a very trustworthy role in the protection of interest of
the investors.
(f) Corporate Socialization
In order to play a model role for Good Governance characteristics in the corporate sector, the
company has become members of country's leading chamber - Metropolitan Chamber of
Commerce & Industries (MCCI), Bangladesh Association of Publicly Listed Companies
(BAPLC), Central Depository Bangladesh Limited (CDBL), Dhaka Stock Exchange Ltd.
(DSE) and Chittagong Stock Exchange Ltd. (CSE). These memberships have provided scope
to the company for improvement of Corporate Governance Practices for the benefit of the
shareholders /stakeholders.
(g) Research and New Products Development
As a part of Corporate Social Responsibility for Good Governance the company maintains a
team of scientific pharmaceutical experts who continuously conduct research & development
programs for improving quality of products, reduction of cost, adaptation of products that are
free of intellectual property rights and innovative products. These efforts have enabled the
company to add new products to its product lines every year to the benefit of the common
men of the country and the shareholders. The success in this field has secured the leading
position for the company in the pharmaceutical sector.

22
(h) Beyond the Border
Corporate social responsibility, an element of Good Corporate Governance, extend to the
society to the government and beyond the borders of the country for social good as well as
for contribution of Foreign Exchange Resources to the National Exchequer. To this end, the
company is making entry into foreign markets and making efforts in registering its products
in USA/EU countries for which is has already set up a modern state-of-art production facility
at Kaliakoir, Gazipur. The company has already secured permission for marketing its
products in UK/EU countries. Segment Report The company's chief operating decision
makers review the profit and loss of the company on an aggregate basis and manage the
operations of the company as a single operating segment. Accordingly, the company operates
in one segment, which is the business of developing, manufacturing and marketing of drugs
for health care for all live species. Risk Perception Company management perceives
investment risks within the national and international economic situation in relation to legal
requirements involving intellectual property rights, scientific invention, WTO regulations and
monetary & fiscal investment policies and has prepared its production & marketing strategy
to meet the challenges from these risks.

23
Chapter -4
Agency Problem & Square Pharma Limited

24
Agency Relationship & Agency Problem
Agency Relationship
An agency relationship exists when one or more individuals, called principals, hire another
person, the agents, to perform a service and delegate decision making authority to that agent.
All agency relationships are fiduciary relationships. This means the relationship involves a
certain level of trust and confidence. The agent is obligated to act in the best interests of the
principal because the agent's actions will create legal obligations for the principal.
Agency Problem
A situation in which agents of an organization (e.g. the management) use their authority for
their own benefit rather than that of the principals (e.g. the shareholders) is known as agency
problem. The agency problem also refers to simple disagreement between agents and
principals.
In finance, there are two primary agency relationships:
 Managers and stockholders
 Managers and creditors
1. Stockholders versus Managers
 If the manager owns less than 100% of the firm's common stock, a potential agency
problem between mangers and stockholders exists.
 Managers may make decisions that conflict with the best interests of the shareholders.
For example, managers may grow their firms to escape a takeover attempt to increase
their own job security. However, a takeover may be in the shareholders' best interest.

25
2. Stockholders versus Creditors
 Creditors decide to loan money to a corporation based on the riskiness of the
company, its capital structure and its potential capital structure. All of these factors
will affect the company's potential cash flow, which is a creditors' main concern.
 Stockholders, however, have control of such decisions through the managers.
 Since stockholders will make decisions based on their best interests, a potential
agency problem exists between the stockholders and creditors. For example,
managers could borrow money to repurchase shares to lower the corporation's share
base and increase shareholder return. Stockholders will benefit; however, creditors
will be concerned given the increase in debt that would affect future cash flows.
Motivating Managers to Act in Shareholders' Best Interests
There are four primary mechanisms for motivating managers to act in stockholders' best
interests:
 Managerial compensation
 Direct intervention by stockholders
 Threat of firing
 Threat of takeovers
1. Managerial Compensation
Managerial compensation should be constructed not only to retain competent managers, but
to align managers' interests with those of stockholders as much as possible.
 This is typically done with an annual salary plus performance bonuses and company
shares.
 Company shares are typically distributed to managers either as:
 Performance shares, where managers will receive a certain number shares based on
the company's performance
 Executive stock options, which allow the manager to purchase shares at a future date
and price. With the use of stock options, managers are aligned closer to the interest of
the stockholders as they themselves will be stockholders.

26
2. Direct Intervention by Stockholders
Today, the majority of a company's stock is owned by large institutional investors, such as
mutual funds and pensions. As such, these large institutional stockholders can exert influence
on mangers and, as a result, the firm's operations.
3. Threat of Firing
If stockholders are unhappy with current management, they can encourage the existing board
of directors to change the existing management, or stockholders may re-elect a new board of
directors that will accomplish the task.
4. Threat of Takeovers
If a stock price deteriorates because of management's inability to run the company
effectively, competitors or stockholders may take a controlling interest in the company and
bring in their own managers.

27
Justification of Agency Problems of Square Pharmaceuticals Ltd
Agency problem can cause a great harm to any organization. To prevent agency problem,
every business organization should practice good corporate governance. To establish good
corporate governance, Square Pharmaceuticals Ltd has always attached great importance to
corporate governance, in the sense of responsible and transparent management and control
aimed at sustainable value creation. The goals of corporate governance of Square
Pharmaceuticals Ltd have been:
 To enhance long-term interest of their shareholders, provide good management, adopt
prudent risk management, techniques, and comply with the required standards of
capital adequacy, thereby safeguarding the interest of our other stakeholders such as
depositors, creditors, clients, and employees.
 To identify and recognize the Board of Directors and Management of the Bank as the
principal instruments through which good Corporate Governance principles are
articulated and implemented. To also identify and recognize accountability,
transparency, and equality of treatments for all stakeholders, as central tenants of
good Corporate Governance.
In Square Pharmaceuticals Ltd, corporate governance means increasing the stakeholders’
value by being efficient, professional to the organization, transparent and accountable to the
shareholders, and responsible to the society and environment. The Board of Directors plays a
key role in corporate governance.

28
Chapter -5
Dividend Policy & Square Pharma Limited

29
Dividend Policy
Dividend
Dividend refers to a reward, cash or otherwise, that a company gives to its shareholders.
Dividends can be issued in various forms, such as cash payment, stocks or any other form. A
company's dividend is decided by its board of directors and it requires the shareholders'
approval. However, it is not obligatory for a company to pay dividend. Dividend is usually a
part of the profit that the company shares with its shareholders.
Types of Dividend Policies
Every company which is listed and is making profits has to take the decision regarding the
distribution of profits to its shareholders as they are the ones who have invested their money
into the company. This distribution of profits by the company to its shareholders is called
dividend in finance parlance, every company has different objectives and methods and
dividend is no different and that is the reason why different companies follow different
dividend policies, let’s look at various types of dividend policies –
(a) Regular Dividend Policy:
Under this type of dividend policy, a company has the policy of paying dividends to its
shareholders every year. When the company makes abnormal profits then the company will
not pay that extra profits to its shareholders completely rather it will distribute lower profit in
the form of the dividend to the shareholders and keep the excess profits with it and suppose a
company makes loss then also it will pay dividend to its shareholders under regular dividend
policy. This type of dividend policy is suitable for those companies which have constant cash
flows and have stable earnings. Investors like retired person and conservative investors who
prefer safe investment and constant income will invest in constant dividend paying
companies.

30
(b) Stable or Constant Dividend Policy:
Under this policy the dividend payout ratio is kept stable, so for example if a company
decides to fix the payout ratio as 10 percent then the company will keep paying dividends at
10 percent rate to its shareholders. Now if the profit of the company is 10 million dollars then
the company will pay 10 percent of 10 million that is 1 million as dividends to its
shareholders, however if the profits reduce to 1 million then dividend will also reduce by one
tenth. Hence in a way dividend will fluctuate with profits of the company under this policy
and investors cannot be sure about the exact amount of dividend which they will receive
leading to the lack of confidence among shareholders of the company.
(c) Irregular Dividend Policy:
Under this type of policy there is no obligatory to give dividends to shareholders of the
company and top management gives it according to its own free will, so suppose company
has some abnormal profits then management may decide to pass it fully to its shareholders by
giving interim dividend or management may decide to use it for future business expansion.
Companies which have irregular earnings, lack of liquidity and are afraid of committing itself
for paying regular dividends adopt irregular dividend policy.
(d) No Dividend Policy:
Under this policy, company pays no dividend to its shareholders, the reason for following this
type of policy is that company retains the profit and invest in the growth of the business.
Companies which have ample growth opportunities follow this type of policy and
shareholders who are looking for growth invest in these types of companies because there is
plenty of scope of capital appreciation in these stocks and if the company is successful then
capital appreciation will outdo regular dividend income as far as shareholders are concerned.

31
Understanding the Language of Dividend
(a) Declaration Date:
The declaration date is the date on which the next dividend payment is announced by the
directors of a company. This statement includes the dividend's size, ex-dividend date and
payment date. It is also referred to as the "announcement date".
(b) Record Date:
The record date is the cut-off date established by a company in order to determine which
shareholders are eligible to receive a dividend or distribution. The determination of a record
date is required to ascertain who the company's shareholders are as of that date, since the
shareholders of an actively traded stock are continually changing. The shareholders of record
as of the record date will be entitled to receive the dividend or distribution declared by the
company which is also known as the date of record.
(c) Ex-Dividend Date:
Ex-dividend is a classification of trading shares when a declared dividend belongs to the
seller rather than the buyer. A stock will be given ex-dividend status if a person has been
confirmed by the company to receive the dividend payment.
A stock trades ex-dividend on or after the ex-dividend date (ex-date). At this point, the person
who owns the security on the ex-dividend date will be awarded the payment, regardless of
who currently holds the stock. After the ex-date has been declared, the stock will usually drop
in price by the amount of the expected dividend.
(d) Payment Date:
A payment date is the date on which a declared stock dividend is scheduled to be paid. The
date the shareholder receives the dividend.

32
Dividend Payment Procedures
(a) Cash:
Cash dividends are those paid out in currency, usually via electronic funds transfer or a
printed paper check. Such dividends are a form of investment income and are usually taxable
to the recipient in the year they are paid. This is the most common method of sharing
corporate profits with the shareholders of the company. For each share owned, a declared
amount of money is distributed. Thus, if a person owns 100 shares and the cash dividend is
50 cents per share, the holder of the stock will be paid 50 dollars. Dividends paid are not
classified as an expense, but rather a deduction of retained earnings. Dividends paid does not
show up on a Income Statement but does appear on the Balance Sheet.
(b) Stock:
Stock or scrip dividends are those paid out in the form of additional stock shares of the
issuing corporation or another corporation, such as its subsidiary corporation. They are
usually issued in proportion to shares owned. For example, for every 100 shares of stock
owned, a 5% stock dividend will yield 5 extra shares. If the payment involves the issue of
new shares, it is similar to a stock split: it increases the total number of shares while lowering
the price of each share without changing the market capitalization, or total value, of the
shares held.
(c) Property:
Property dividends or dividends in specie (Latin for "in kind") are those paid out in the form
of assets from the issuing corporation or another corporation, such as a subsidiary
corporation. They are relatively rare and most frequently are securities of other companies
owned by the issuer. However, they can take other forms, such as products and services.
Interim Dividends
Interim dividends are dividend payments made before a company's annual general meeting
and final financial statements. This declared dividend usually accompanies the company's
interim financial statements.

33
(e) Other:
Other dividends can be used in structured finance. Financial assets with a known market
value can be distributed as dividends; warrants are sometimes distributed in this way. For
large companies with subsidiaries, dividends can take the form of shares in a subsidiary
company. A common technique for "spinning off" a company from its parent is to distribute
shares in the new company to the old company's shareholders. The new shares can then be
traded independently.

34
Compliance with Dividend Policy by Square Pharma Limited
Prospect of Square Pharma’s Dividend Policy
Square Pharmaceuticals Limited (SPL) is leading the Pharmaceuticals sector from the very
beginning. Stockholders are expected to have a smart dividend from the company in the
upcoming year which can be anticipated from the following scenarios:
Firstly, DPL grow as pharmaceutical industry matured and yet today it is one of the fastest
growing sectors of the country with a growth rate close to 15%. The positives that
differentiate is the market leader; it controls approximately 20% of the market share.
Secondly, the company is about to enter the European market by next year. This will increase
the company’s value in the foreign market and enlarge foreign trade which will eventually
give the company a much strong financial strength.
Thirdly, it has a large and diversified portfolio of investment and businesses that gives it very
sustainable earnings. Strong brand image, a large distribution network, large product
portfolio and creative marketing make us optimistic about the future potential of the
company. Therefore, we recommend to buy the stocks of this company to ensure a higher rate
of return.
Finally, the pharmaceuticals market is an Oligopoly in nature despite the presence of more
than 250 companies. The top 15 players control around 73% of the market share. The sector
is reaching maturity as indicated by the stable sales growth for last few years. However, new
opportunities of export are opening up and 3 year CAGR of revenue was 15%. Attainment of
the UK MHRA certification for its manufacturing plant and opening of many new markets
within next year, as stated by company officials, convinced both the analysts of booming
growth for coming years.

35
Cash Dividend Declared by Square Pharma
Square Pharmaceuticals Limited has been declaring dividend without any interruption and in
an increasing order since 2012. It has declared 45 per cent dividend for its shareholders for
the year ended March 31, 2014 at its 48th
annual general meeting (AGM). Off the total
dividend, 30 per cent will be in the form of cash and the rest 15 per cent will be in stock
(bonus share). The amount of cash dividend is BDT 1,209,543 and the amount of stock
dividend is 604,772.
The company approved cash dividend at the rate of 30 per cent and stock dividend (bonus
share) at the rate of 12.5 per cent to its shareholders for the year ended March 31, 2015 at its
49th annual general meeting (AGM). Off the total dividend, BDT 1,957,180 in the form of
cash and the BDT 815,492 in stock (bonus share).
Year Net Income
Cash Dividend
Payout Ratio
Total Cash Dividend
(Taka)
2015-16 9,226,615 40% 3,690,646
2014-15 6,523,933 30% 1,957,180
2013-14 4,031,811 30% 1,209,543
2012-13 3,419,785 25% 854,946
2011-12 2,897,711 25% 724,428
Stock Dividend Declared by Square Pharma
Unlike the cash dividend, Square Pharmaceuticals Limited has been declaring stock dividend
in a decreasing rate from year to year since 2012. In the financial year of 2011-12, they have
declared 40% stock dividend of the net income. In 2015-16, they declared a stock dividend of
only 10%. This indicates that with time passing the company became less dependent on
owner’s equity for investment and started to pay cash dividend to shareholders possibly for
not retaining idle cash. As a result, the amount of stock dividend in 2015-16 is least over the
last 5 years.

36
Year Net Income
Stock Dividend
Payout Ratio
Total Stock
Dividend
(Taka)
2015-16 9,226,615 10% 922,662
2014-15 6,523,933 12.50% 815,492
2013-14 4,031,811 15% 604,772
2012-13 3,419,785 30% 1,025,936
2011-12 2,897,711 40% 1,159,084
Summary of Last Five Years Dividend Payment
i.
Ex-Dividend
Date
Declaration
Date
Record
Date
Payable
Date
Dividend Type Amount
11/15/2016 10/17/2016 11/14/2016 01/12/2017
Stock
Distribution
100:110.00
08/16/2015 07/21/2015 08/13/2015 10/06/2015
Stock
Distribution
100:112.50
08/16/2015 07/21/2015 08/13/2015 10/15/2015 Cash Dividends 2.7273
08/27/2014 07/20/2014 08/26/2014 10/01/2014
Stock
Distribution
1:1.15
08/27/2014 07/20/2014 08/26/2014 11/24/2014 Cash Dividends 2.108
08/27/2013 07/22/2013 08/26/2013 —
Stock
Distribution
100:130.00
08/27/2012 07/24/2012 08/26/2012 —
Stock
Distribution
100:140.00
08/27/2012 08/06/2012 08/26/2012 11/24/2012 Cash Dividends 1.2162

37
3,690,646
1,957,180
1,209,543
854,946
724,428
922,662
815,492
604,772
1,025,936
1,159,084
2015-1 6 2014-15 2013-14 2012-1 3 2011-12
DIVIDEND PAYOUT
Total Cash Dividend (Taka) Total Stock Dividend (Taka)
ii.
Year
Total Cash Dividend
(Taka)
Total Stock Dividend
(Taka)
Total Dividend
(Taka)
2015-16 3,690,646 922,662 4,613,308
2014-15 1,957,180 815,492 2,772,672
2013-14 1,209,543 604,772 1,814,315
2012-13 854,946 1,025,936 1,880,882
2011-12 724,428 1,159,084 1,883,512
Dividend Payout
Square Pharmaceuticals Ltd. Pays dividends through cash and stock. From the chart below
we can see that total amount dividend was the highest in 2015-16. The dividend is mostly
cash dividend and it is about 3.6 million. The amount of dividend was the lowest in 2012-13
comparing to last five years from 2011-2015.
Chart: Dividend Payout
Source: Square Pharma’s annual report of the year 2012-2016

38
40%
30%
30%
25%
25%
10%
12.50%
15%
30%
40%
2015-16 2014-15 2013-14 2012-13 2011-12
CASH & STOCK DIVIDEND PAYOUT RATIO
Cash Dividend Payout Ratio Stock Dividend Payout Ratio
Dividend Payout Ratio
Chart: Dividend Payout Ratio
Analysis: The dividend payout ratio of Square Pharma is 65%, 55%, 45%, 43% and 50% of
the last five years of 2012, 2013, 2014, 2015 and 2016 respectively.
Interpretations: Dividend payout ratio indicates the percentage of company’s earnings paid
out in cash to its stockholders. And also indicates the percentage of current earnings retained
by it for reinvestment purposes.
Dividend payout ratio was lower in the year of 2014-15 due to imbalance increase in
dividend per share and earning per share. In 2011-12 it was the highest (65%). In the recent
years the payout ratio was not good comparing to last four years.

39
Chapter -6
Time Value of Money & Square Pharma Limited

40
Time Value of Money
Firms or investors while making financial decisions, is concerned with determining how
value will be affected by the expected outcomes associated with alternative choices. All else
equal, a fund received sooner is worth more than receiving it at a letter date, because, the
sooner a fund is received, the more quickly it can be reinvested to earn a positive return.
Time Value of Money is the concept that the value of a money received in future is less than
the value of a money received today.
Time value of money principle also applies when comparing the worth of money to be
received in future and the worth of money to be received in further future. We can also say
that the value of a given sum of money to be received on a particular future date is less than
same sum of money today.
Future Value:
Money in hand today is worth more than a money to be received in the future because, if one
had money now, he could invest it, earn interest and end up with more than that money in the
future. The amount to which a cash flow or series of cash flows will grow over a given period
of time when compounded at a given rate of return.
The process of finding the value of a cash flow sometime in the future is called
compounding.
The future value at the end of one year equals present value multiplied by 1.0 plus interest
rate to be received on a later date.

41
Present Value:
The present value of a cash flow due in years in the future is the amount that, if it were on
hand today, would grow to equal the future amount at a particular rate of return. The process
of finding present value of money is called discounting. Discounting is simply the reverse of
compounding.
Implication of Time Value of Money by Square Pharma Limited
Square Pharmaceuticals Ltd takes long term loans from various banks and financial
institutions. It amortizes these loans using the time value of money concept. Square also takes
leases and amortizes lease payments applying time value of money concept.
Loan Amortization:
Various long term loans taken by Square Pharmaceuticals Ltd are given below:
Number
Banks/Financial
Institutions
Amount of
Loan
Number of
Installments
Date of
Commenceme
nt
01 Standard Chartered Bank 220,000,000 14 (Quarterly) May, 2008
02 Commercial Bank of Ceylon 44,288,000 48 (monthly) April, 2008
03 Trust Bank Limited 150,000,000 57 (monthly) October, 2007
04 DEG Germany 1,029,000,000 8 (Half Yearly) August, 2010
Standard Chartered Bank:
Square Pharmaceuticals Ltd took a loan of Tk. 220,000,000 from Standard Chartered Bank in
May, 2008. The rate of interest to be applied was 12.50%. The loan is required to be repaid in
equal quarterly installments. The installment payments start from May, 2008. Installment
amount in each quarter is 34,045,156.

42
Calculation
Standard Chartered Bank
Loan amount 220,000,000
Interest rate 12.50%
No of instalments (quarterly) 14
Instalment amount ($34,045,156.23)
Loan Amortization Schedule
Beginning
Balance
Instalment Interest
Principal
Payment
Ending Balance
220,000,000 34,045,156.23 27500000 6,545,156.23 213,454,843.77
213454843.8 34,045,156.23 26681855.5 7,363,300.76 206,091,543.01
206,091,543.01 34,045,156.23 25761442.9 8,283,713.35 197,807,829.66
197,807,829.66 34,045,156.23 24725978.7 9,319,177.52 188,488,652.13
188,488,652.13 34,045,156.23 23561081.5 10,484,074.71 178,004,577.42
178,004,577.42 34,045,156.23 22250572.2 11,794,584.05 166,209,993.37
166,209,993.37 34,045,156.23 20776249.2 13,268,907.06 152,941,086.31
152,941,086.31 34,045,156.23 19117635.8 14,927,520.44 138,013,565.87
138,013,565.87 34,045,156.23 17251695.7 16,793,460.50 121,220,105.37
121,220,105.37 34,045,156.23 15152513.2 18,892,643.06 102,327,462.31
102,327,462.31 34,045,156.23 12790932.8 21,254,223.44 81,073,238.87
81,073,238.87 34,045,156.23 10134154.9 23,911,001.37 57,162,237.50
57,162,237.50 34,045,156.23 7145279.69 26,899,876.54 30,262,360.96
30,262,360.96 34,045,156.23 3782795.12 30,262,360.96 0.00

43
Commercial Bank of Ceylon Limited
Commercial Bank of Ceylon provided a loan of Tk. 44,288,000 to Square Pharmaceuticals
Limited. It is secured on specific imported machinery. Rate of interest to be applied is
11.75%. The loan is required to be repaid in 48 equal monthly installments. The amount of
installment payment is calculated Tk. 5,229,106.55.
Calculation
Commercial Bank of Ceylon
Amortization Schedule
Beginning
Balance
Instalment Interest
Principal
Payment
Ending Balance
44,288,000 5,229,106.55 5203840 25,266.55 44,262,733.45
44,262,733.45 5,229,106.55 5200871.18 28,235.37 44,234,498.08
44,234,498.08 5,229,106.55 5197553.52 31,553.03 44,202,945.05
44,202,945.05 5,229,106.55 5193846.04 35,260.51 44,167,684.55
44,167,684.55 5,229,106.55 5189702.93 39,403.62 44,128,280.93
44,128,280.93 5,229,106.55 5185073.01 44,033.54 44,084,247.39
44,084,247.39 5,229,106.55 5179899.07 49,207.48 44,035,039.91
44,035,039.91 5,229,106.55 5174117.19 54,989.36 43,980,050.55
43,980,050.55 5,229,106.55 5167655.94 61,450.61 43,918,599.94
43,918,599.94 5,229,106.55 5160435.49 68,671.06 43,849,928.88
43,849,928.88 5,229,106.55 5152366.64 76,739.91 43,773,188.98
43,773,188.98 5,229,106.55 5143349.7 85,756.85 43,687,432.13

44
43,687,432.13 5,229,106.55 5133273.28 95,833.27 43,591,598.86
43,591,598.86 5,229,106.55 5122012.87 107,093.68 43,484,505.17
43,484,505.17 5,229,106.55 5109429.36 119,677.19 43,364,827.98
43,364,827.98 5,229,106.55 5095367.29 133,739.26 43,231,088.72
43,231,088.72 5,229,106.55 5079652.92 149,453.63 43,081,635.09
43,081,635.09 5,229,106.55 5062092.12 167,014.43 42,914,620.67
42,914,620.67 5,229,106.55 5042467.93 186,638.62 42,727,982.05
42,727,982.05 5,229,106.55 5020537.89 208,568.66 42,519,413.39
42,519,413.39 5,229,106.55 4996031.07 233,075.48 42,286,337.91
42,286,337.91 5,229,106.55 4968644.7 260,461.85 42,025,876.06
42,025,876.06 5,229,106.55 4938040.44 291,066.11 41,734,809.95
41,734,809.95 5,229,106.55 4903840.17 325,266.38 41,409,543.57
41,409,543.57 5,229,106.55 4865621.37 363,485.18 41,046,058.39
41,046,058.39 5,229,106.55 4822911.86 406,194.69 40,639,863.70
40,639,863.70 5,229,106.55 4775183.99 453,922.56 40,185,941.14
40,185,941.14 5,229,106.55 4721848.08 507,258.47 39,678,682.67
39,678,682.67 5,229,106.55 4662245.21 566,861.34 39,111,821.34
39,111,821.34 5,229,106.55 4595639.01 633,467.54 38,478,353.79
38,478,353.79 5,229,106.55 4521206.57 707,899.98 37,770,453.81
37,770,453.81 5,229,106.55 4438028.32 791,078.23 36,979,375.59
36,979,375.59 5,229,106.55 4345076.63 884,029.92 36,095,345.67
36,095,345.67 5,229,106.55 4241203.12 987,903.43 35,107,442.23
35,107,442.23 5,229,106.55 4125124.46 1,103,982.09 34,003,460.15
34,003,460.15 5,229,106.55 3995406.57 1,233,699.98 32,769,760.16
32,769,760.16 5,229,106.55 3850446.82 1,378,659.73 31,391,100.43
31,391,100.43 5,229,106.55 3688454.3 1,540,652.25 29,850,448.18
29,850,448.18 5,229,106.55 3507427.66 1,721,678.89 28,128,769.29
28,128,769.29 5,229,106.55 3305130.39 1,923,976.16 26,204,793.14
26,204,793.14 5,229,106.55 3079063.19 2,150,043.36 24,054,749.78
24,054,749.78 5,229,106.55 2826433.1 2,402,673.45 21,652,076.33

45
21,652,076.33 5,229,106.55 2544118.97 2,684,987.58 18,967,088.75
18,967,088.75 5,229,106.55 2228632.93 3,000,473.62 15,966,615.12
15,966,615.12 5,229,106.55 1876077.28 3,353,029.27 12,613,585.85
12,613,585.85 5,229,106.55 1482096.34 3,747,010.21 8,866,575.64
8,866,575.64 5,229,106.55 1041822.64 4,187,283.91 4,679,291.73
4,679,291.73 5,229,106.55 549816.778 4,679,291.73 0.00
Trust Bank Limited
Square took loan of Tk. 150,000,000 from Trust Bank Limited at the rate of interest is
11.75% per annum and the loan is repayable in 57 equal monthly installments the installment
payment starts from October, 2007. Amount of installment payment is calculated 17,656,390.
Calculation
Trust Bank Limited
Amortization Schedule
Beginning
Balance
Instalment Interest
Principal
Payment
Ending
Balance
150,000,000 17,656,390.09 17625000 31,390.09 149,968,609.91
149,968,609.91 17,656,390.09 17621311.7 35,078.43 149,933,531.48
149,933,531.48 17,656,390.09 17617189.9 39,200.14 149,894,331.34
149,894,331.34 17,656,390.09 17612583.9 43,806.16 149,850,525.19
149,850,525.19 17,656,390.09 17607436.7 48,953.38 149,801,571.81
149,801,571.81 17,656,390.09 17601684.7 54,705.40 149,746,866.40

46
149,746,866.40 17,656,390.09 17595256.8 61,133.29 149,685,733.12
149,685,733.12 17,656,390.09 17588073.6 68,316.45 149,617,416.67
149,617,416.67 17,656,390.09 17580046.5 76,343.63 149,541,073.04
149,541,073.04 17,656,390.09 17571076.1 85,314.01 149,455,759.03
149,455,759.03 17,656,390.09 17561051.7 95,338.40 149,360,420.62
149,360,420.62 17,656,390.09 17549849.4 106,540.67 149,253,879.96
149,253,879.96 17,656,390.09 17537330.9 119,059.20 149,134,820.76
149,134,820.76 17,656,390.09 17523341.4 133,048.65 149,001,772.11
149,001,772.11 17,656,390.09 17507708.2 148,681.87 148,853,090.24
148,853,090.24 17,656,390.09 17490238.1 166,151.99 148,686,938.26
148,686,938.26 17,656,390.09 17470715.2 185,674.84 148,501,263.41
148,501,263.41 17,656,390.09 17448898.5 207,491.64 148,293,771.77
148,293,771.77 17,656,390.09 17424518.2 231,871.91 148,061,899.87
148,061,899.87 17,656,390.09 17397273.2 259,116.86 147,802,783.01
147,802,783.01 17,656,390.09 17366827 289,563.09 147,513,219.92
147,513,219.92 17,656,390.09 17332803.3 323,586.75 147,189,633.17
147,189,633.17 17,656,390.09 17294781.9 361,608.19 146,828,024.98
146,828,024.98 17,656,390.09 17252292.9 404,097.15 146,423,927.83
146,423,927.83 17,656,390.09 17204811.5 451,578.57 145,972,349.26
145,972,349.26 17,656,390.09 17151751 504,639.05 145,467,710.21
145,467,710.21 17,656,390.09 17092455.9 563,934.14 144,903,776.06
144,903,776.06 17,656,390.09 17026193.7 630,196.40 144,273,579.66
144,273,579.66 17,656,390.09 16952145.6 704,244.48 143,569,335.18
143,569,335.18 17,656,390.09 16869396.9 786,993.21 142,782,341.98
142,782,341.98 17,656,390.09 16776925.2 879,464.91 141,902,877.07
141,902,877.07 17,656,390.09 16673588.1 982,802.03 140,920,075.03
140,920,075.03 17,656,390.09 16558108.8 1,098,281.27 139,821,793.76

47
139,821,793.76 17,656,390.09 16429060.8 1,227,329.32 138,594,464.44
138,594,464.44 17,656,390.09 16284849.6 1,371,540.52 137,222,923.92
137,222,923.92 17,656,390.09 16123693.6 1,532,696.53 135,690,227.39
135,690,227.39 17,656,390.09 15943601.7 1,712,788.37 133,977,439.02
133,977,439.02 17,656,390.09 15742349.1 1,914,041.01 132,063,398.01
132,063,398.01 17,656,390.09 15517449.3 2,138,940.82 129,924,457.19
129,924,457.19 17,656,390.09 15266123.7 2,390,266.37 127,534,190.82
127,534,190.82 17,656,390.09 14985267.4 2,671,122.67 124,863,068.15
124,863,068.15 17,656,390.09 14671410.5 2,984,979.58 121,878,088.57
121,878,088.57 17,656,390.09 14320675.4 3,335,714.68 118,542,373.88
118,542,373.88 17,656,390.09 13928728.9 3,727,661.16 114,814,712.73
114,814,712.73 17,656,390.09 13490728.7 4,165,661.34 110,649,051.38
110,649,051.38 17,656,390.09 13001263.5 4,655,126.55 105,993,924.83
105,993,924.83 17,656,390.09 12454286.2 5,202,103.92 100,791,820.91
100,791,820.91 17,656,390.09 11843039 5,813,351.13 94,978,469.77
94,978,469.77 17,656,390.09 11159970.2 6,496,419.89 88,482,049.88
88,482,049.88 17,656,390.09 10396640.9 7,259,749.23 81,222,300.65
81,222,300.65 17,656,390.09 9543620.33 8,112,769.76 73,109,530.89
73,109,530.89 17,656,390.09 8590369.88 9,066,020.21 64,043,510.68
64,043,510.68 17,656,390.09 7525112.5 10,131,277.59 53,912,233.09
53,912,233.09 17,656,390.09 6334687.39 11,321,702.70 42,590,530.39
42,590,530.39 17,656,390.09 5004387.32 12,652,002.77 29,938,527.62
29,938,527.62 17,656,390.09 3517777 14,138,613.09 15,799,914.53
15,799,914.53 17,656,390.09 1856489.96 15,799,914.53 0.00

48
Numerous other Banks:
Square Pharmaceuticals limited also took long term loans from HSBC Limited, DEG
Germany etc. banks and financial institutions. The loan repayment to HSBC Ltd. started from
January, 2009 at 12.50% interest. Square applied time value of money to amortize the loan
amount.
DEG Germany provided Square a loan of Tk. 1,029,000,000. The loan is repayable in 08
equal half-yearly installments of USD 1,875,000 starting from August, 2010. Time value of
money concept is also applied here to disburse the loan amount.
Lease Payment:
Square Pharmaceuticals Ltd. also takes leases from various banks and financial institutions.
Various leases taken by Square Pharmaceuticals and their particulars are listed below:
Number
Banks/Financial
Institution
Minimum
Lease
Payment
Payment
Number of
Instalments
Date of
Commencement
01 Shahjalal Islami Bank
Limited
150,000,000 21,357,000
10 (Half
Yearly)
December, 2006
02 IDLC Limited 38,442,000 914,540 60 (Monthly) March, 2007
03 Prime Bank Limited 54,000,000 1,381,000 48 (Monthly) July, 2010
Square Pharmaceuticals Limited amortizes these lease payments by applying time value of
money concept. After all, we can say that Square Pharmaceuticals Limited applies the time
value of money concept significantly in their financial statements.

49
Chapter -7
Cost of Capital of Square Pharma Limited

50
COST OF CAPITAL
The minimum required rate of return a firm must earn on its investment to maintain the firm
value and attracts new firms is known as cost of capital.
 Rate of return above the cost of capital will increase firm value.
 Rate of return below the cost of capital will decrease the firm value.
Determination of Specific Cost of Capital
A firm may collect fund from different sources like debt, common stock, retained earnings
and preferred stock. Thus determining cost of capital includes:
 Cost of Debt
 Cost of Preference Share
 Cost of Equity
Cost of Debt
The after-tax cost of debt, which is designated Ki, is simply the yield to maturity (YTM) of
the debt, which represents the bondholders’ required rate of return, stated on an after-tax
basis:
Formula: After- tax component cost of debt, Ki = Kd (1 – tax rate)
Where, Kd= the required rate of return of investors who hold the firm’s bonds and Tax
rate = the marginal tax rate of the firm.
Cost of Preferred Stock
As with debt, the cost of preferred stock is based on the rate of return required by the firm’s
preferred stockholders, which is determined by the market price of the preferred stock.
Formula: 𝐶𝑜𝑠𝑡 𝑜𝑓 𝑃𝑟𝑒𝑓𝑒𝑟𝑒𝑛𝑐𝑒 𝑆ℎ𝑎𝑟𝑒, 𝐾𝑝 =
𝐷𝑝
𝑁𝑝
Here, Dp = Dividend provided to preference shareholders,
Np = Net Proceed from preference shares

51
Unlike the situation with bonds, no adjustment is made for taxes, because preferred stock
dividends are paid after a corporation pays income taxes.
Cost of Equity (i.e. Common Stock & Retained Earnings):
The cost of equity is the rate of return that investors require to make an equity investment in a
firm. Common stock does not generate a tax benefit as debt does because dividends are paid
after taxes.
Formula:
 Cost of common equity for new issue, 𝐾𝑛 =
𝐷1
𝑁𝑛
+ 𝐺
Here, D1 = Dividend, Nn = Net proceed from new issue, and G = Growth rate
 Cost of common equity for existing issue, 𝐾𝑒 =
𝐷1
𝑃0
+ 𝐺
Here, D1 = Dividend, P0 = Current paid, and G = Growth rate
Calculation of Cost of Capital Square Pharmaceuticals Limited for the Year of 2014
Cost of Equity
Cost of common equity for existing issue:
Firm Face Value
Current Market
Price Per Share
Dividend Per
Share
Growth
Rate
Square Pharma Limited 10 252.5 3 2.9%
Thus, Cost of common equity for existing issue, Ke =
3
252.5
+ .029 = 4.09%
Cost of common equity for new issue:
Firm
New
issue(shares)
Net proceed per
share
Dividend per
share
Growth
Rate
Square Pharma.
Ltd.
72,299,889 10 3 2.9%
Thus, Cost of common equity for new issue, Kn =
3
10
+ .029 = 32.9%

52
Cost of Debt
After- tax component cost of debt:
Firm Tax rate Before tax cost of debt
Square Pharmaceutical
Ltd.
25% 11.70%
After- tax component cost of debt, Ki = Kd (1 – tax rate)
= 11.70% (1-.25)
=8.775%

53
Chapter -8
Ratio Analysis of Square Pharma Limited

54
Ratio Analysis
Ratio analysis involves methods of calculating and interpreting financial ratios to analysis
and monitor the firm’s performance. We analysis firm’s current position through liquidity
ratio, activity ratio, debt ratio. These ratios help us knowing how much profit company earns
each year, the ability of company’s liquidity, company’s ability to turn its inventory into sales
and the ability to turn its account receivables into cash etc.
Liquidity Ratio
The liquidity of a firm is measured by its ability to satisfy its short-term obligations as they
come due. Liquidity refers to the solvency of the firm’s overall financial position-the ease
with which it can pay its bills. Because a common precursor to financial distress and
bankruptcy is low or declining liquidity, these ratios can provide early signs of cash flow
problems and impending business failure. Clearly it is desirable that a firm is able to pay its
bills, so having enough liquidity for day-to-day operations is important. However, liquid
assets, like cash held at banks and marketable securities, do not earn a particularly high rate
of return, so shareholders will not want a firm to overinvest in liquidity. Firms have to
balance the need for safety that liquidity provides against the low returns that liquid assets
generate for investors. The two basic measures of liquidity are the current ratio and the quick
(acid-test) ratio.
Current Ratio
The current ratio, one of the most commonly cited financial ratios, measures the firm’s ability
to meet its short-term obligations.
The current ratio is a liquidity and efficiency ratio that measures a firm's ability to pay off its
short term liabilities with its current assets. The current ratio is an important measure of
liquidity because short-term liabilities are due within the next year.
This means that a company has a limited amount of time in order to raise the funds to pay for
these liabilities. Current assets like cash, cash equivalents, and marketable securities can
easily be converted into cash in the short term. This means that companies with larger
amounts of current assets will more easily be able to pay off current liabilities when they
become due without having to sell off long-term, revenue generating assets.

55
It is expressed as follows:
Current ratio =
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
The current ratios for Square Pharmaceuticals Ltd for the last 5 years are given below:
Year 2014-2015 2013-2014 2012-2013 2011-2012 2010-2011
Current Ratio 4.07 2.27 1.58 1.59 1.50
Interpretation: There is an upward trend in current ratio over the years. In 2015, there is a
dramatic higher current ratio which indicates the company was unable to make efficient use
of its liquid asset. These too much liquidity is an indication of inefficient use of assets and
wastage of investment opportunities.
Quick (Acid-Test) Ratio
The quick ratio or acid test ratio is a liquidity ratio that measures the ability of a company to
pay its current liabilities when they come due with only quick assets. Quick assets are current
assets that can be converted to cash within 90 days or in the short-term. Cash, cash
4.07
2.27
1.58
1.59
1.5
2014-2015 2013-2014 2012-2013 2011-2 0 1 2 2 0 1 0-2011
CURRENT RATIO
Current Ratio

56
2.95
1.59
0.92
0.95
0.96
2014-2015 2013-2014 2 0 1 2-2013 2011-2012 2010-2 0 1 1
QUICK RATIO
Quick Ratio
equivalents, short-term investments or marketable securities, and current accounts receivable
are considered quick assets
The quick (acid-test) ratio is similar to the current ratio except that it excludes inventory,
which is generally the least liquid current asset. The quick ratio is calculated as follows:
Quick ratio =
(𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑎𝑠𝑠𝑒𝑡𝑠 ─ 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦)
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
The quick ratios for Square Pharmaceuticals Ltd for the last 5 years are given below:
Year 2014-2015 2013-2014 2012-2013 2011-2012 2010-2011
Current Ratio 2.95 1.59 0.92 0.95 0.96

57
Interpretation: The quick ratio provides a better measure of overall liquidity only when a
firm’s inventory cannot be easily converted into cash. Thus, it states the power of the
company to pay its current labiality instantly. This ratio was okay before 2015. In 2015, it
became so higher which indicates the inefficient use of liquid asset. And that can cause great
harm to the firm.
Activity Ratio
Activity ratio measures the speed with which various accounts converted into sales or cash.
We have Inventory Turnover, Average collection period, Account Receivables Turnover,
Asset turnover to measure the company’s speed with which it converts its various accounts
into sales.
Inventory Turnover
Inventory turnover measures the activity and liquidity of a firm’s inventory. The higher the
turnover the greater its ability to turn its inventory into sales. Higher inventory indicates
positive outcome for company. This can be measured by applying following formula:
Inventory Turnover =
𝐶𝑜𝑠𝑡 𝑜𝑓 𝐺𝑜𝑜𝑑𝑠 𝑆𝑜𝑙𝑑
𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦
Average Collection Period
It indicates the average amount of time needed to collect accounts receivable. It can be
measured by following formula:
Average Collection Period =
𝐴𝑐𝑐𝑜𝑢𝑛𝑡𝑠 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒𝑠
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑆𝑎𝑙𝑒𝑠 𝑃𝑒𝑟 𝐷𝑎𝑦
Here average sales per day is calculated by dividing total accounts receivables during the
period by 365 days.
Account Receivable Turnover
Accounts receivable turnover means how quickly receivables or debtors are converted into
cash. In other words, debtor turnover ratio is test of liquidity of the debtors of a firm. This

58
ratio indicates the speed with which debtors/accounts receivables are being collected. It
implies the efficiency of trade credit management. The higher the turnover ratio and shorter
the collection period, the better is the trade credit management and the better is the liquidity
of debtors as short collection period and high turnover ratio imply prompt payment on the
part of debtors. On the other hand, too low turnover ratio or long collection period may be the
cause of reduction of sale. Sales may be confined to only such type of customers who make
prompt payments. This is calculated through using following formula:
Account Receivable Turnover =
𝑇𝑜𝑡𝑎𝑙 𝑆𝑎𝑙𝑒𝑠
𝐴𝑐𝑐𝑜𝑢𝑛𝑡 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒𝑠
Total Asset Turnover
It indicates the efficiency with which the firm uses its assets to generate sales. The higher a
firm’s total asset turnover, the more efficiency its assets have been used. The measure is
probably of greatest interest to management because it indicates whether the firm’s
operations have been financially efficient. The formula is:
Total Asset Turnover =
𝑆𝑎𝑙𝑒𝑠
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
Here, the table of total assets, account receivables, total sales, cost of goods sold, inventory,
total asset turnover, inventory turnover, average collection period, average sales per day is
given below:
Year
Cost Of
Goods Sold
Inventories
Account
Receivable
Sales Total Assets
Total
Days
2011 9167253620 2541688329 772421345 18592856236 19444409654 365
2012 9167253620 2687818472 808311714 18,592,856,236 21453784762 365
2013 10223478073 2503683240 800974912 20,742,746,372 23447645506 365
2014 11727992671 2345389488 757757419 26549534878 26549534878 365
2015 14370872099 2684259324 894543303 31354182244 31354182244 365

59
Year
Inventory
Turnover
Average Sales
Per Day
Account Receivables
Turnover
Asset
Turnover
2011 3.60675757 15.16355461 24.07087318 0.956206
2012 3.410666946 15.86812547 23.00208684 0.866647
2013 4.083375209 14.09436521 25.896874 0.884641
2014 5.000445653 10.41756322 35.03698441 1
2015 5.353756983 10.41354876 35.05049128 1
These are the total information of last five years of Square Pharma Limited regarding
particular accounts necessary to calculate the Activity ratio.
Inventory Turnover:
The highest turnover can be seen in 2015 that is 5.35. The highest turnover refers to the
highest range of efficiency. The inventory turnover has been 3 times in early year and it has
increased to 5 times in 2015. It has started increasing from 2013 that is 4 times.
3.60675757 3.410666946
4.083375209
5.000445653
5.353756983
2011 2012 2013 2014 2015
Inventory Turnover

60
Account Receivable Turnover:
Accounts receivable turnover ratio is considered moderately high in the sense that the highest
turnover is 35 times in a year in this study and in the other years it is nearer to this number
i.e. 25 times in 2013, 23 times in 2012 and 24 times in 2011 and 20 times in 2012. The lowest
turnover is 23 times in 2012 and the highest turnover in in 2014 and 2015 that is 35 times in a
year. It indicates the highest efficiency.
Average Sales per Day:
The highest average sales per day seems to be happened in 2012, It takes almost 16 days to
collect an account receivables and 15 days in 2011. Whereas the lowest is in 2014 and 2015
that is 10 days. It takes only 10 days to collect an account receivable.
It indicates that with the passes of time the company is archiving efficiency in the collection
of money from account receivables. The lower times refers to the higher efficiency.
24.07087318 23.00208684
25.896874
35.03698441 35.05049128
0
5
10
15
20
25
30
35
40
2011 2012 2013 2014 2015
Account Receivables Turnover
15.16355461 15.86812547
14.09436521
10.41756322 10.41354876
2011 2012 2013 2014 2015
AVERAGE SALES PER DAY

61
Total Asset Turnover:
The company turn over its asset highest times in 2014 and 2015. It has turned over its assets
1.00 times per year. In 2012, the company’s turn over suddenly has dropped to 086 times but
in 2013, the total asset turnover has started to increase to 0.88 times.
It has to be increased because it has good efficiency in 2011 that is 0.95 times in a year and it
has reached highest turnover in 2014 and 2015. It indicates the company’s good managerial
efficiency and strong focus to gain a good financial position.
0.956205746
0.866646908
0.884640906
1 1
2011 2012 2013 2014 2015
ASSET TURNOVER

62
Profitability Ratio
Without profit, a firm cannot attract outside capital, owner, creditors and management pay
close attention to boosting profits because of the great importance the market place on
earning. Through using return on equity, return on asset and others we can find out the
profitability of the company.
Return On Asset
Return on asset measures the overall effectiveness of management in generating profits with
its available assets. The higher the firm’s return on total assets the better. The return on total
assets is calculated as follows:
ROA =
𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡
× 100
Return On Equity
It measures the return earned on the common stockholder’s investment in the firm. The
owners are better off the higher is the return. Return on common equity is calculated as
follows:
ROE =
𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒
𝑇𝑜𝑡𝑎𝑙 𝐶𝑜𝑚𝑚𝑜𝑛 𝐸𝑞𝑢𝑖𝑡𝑦
× 100
The table of Total Asset, Net income, Total Equity, ROA and ROE of Square
Pharmaceuticals Limited of last five years is given below:
Year
Shareholders'
Equity:
Total Assets Net Profit ROA ROE
2011 13817708990 19444409654 2897710641 14.90254 20.97099
2012 16266884255 21453784762 2897710641 13.50676 17.81356
2013 18844746184 23447645506 3341424783 14.25058 17.73133
2014 22277516628 26549534878 4031811268 15.186 18.09812
2015 28031892107 31354182244 5743623832 18.31853 20.4896

63
Return on Asset
From the above table, it is seen that the return on assets or earning power of Square
Pharmaceuticals Ltd. has a stable trend. The lowest return on asset is13% in 2012.
The highest return on asset is in 2015. It is 18% and it indicates the gradual increasing skills
of company’s management to use its assets to increase return accept in the year 2012.
Return on Equity:
The highest return on equity can be seen in 2011. After that it has started to fall from 20%
The lowest return on equity is recorded about 18% in 2012 and 21013. The return on equity
has started to rise again in 2015. It has gained 20% in 2015.
14.90253853
13.50675731 14.25057702 15.18599586
18.31852538
2011 2012 2013 2014 2015
ROA
20.97099196
17.81355664 17.73133345
18.0981181
20.48960452
2011 2012 2013 2014 2015
ROE

64
So, it may be said that the management of the company is efficient and sound enough in
handling their fund as well as the assets of the company. They are able to keep overall
stability in running the business, because the return on assets (earning power) and return on
equity is the indicative of overall efficient management and utilization of assets as well as
overall profitability of the company. The rate of return on assets and on equity that revealed
in the study is an auspicious sign for the company under the study.
Profit Margin:
Profit margin ratio shows the relationship between profit and sales and rate of return ratio
reflects the relationship between profit and investment. Three types of profit margin ratios are
shown in the study for the convenience of analysis. These are:
Gross Profit Margin =
𝐺𝑟𝑜𝑠𝑠 𝑃𝑟𝑜𝑓𝑖𝑡
× 100
Net Profit Margin =
𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡
× 100
Operating Expenses Ratio =
𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠
× 100
A table of necessary information to calculate the above mentioned ratios is given below:
Year Gross Profit Net Profit Sales
Gross Profit
Margin
Net Profit
Margin
2011 6887171623 2897710641 18592856236 37.04203128 15.59
2012 648975473 2577532683 18,592,856,236 37.04203128 15.60
2013 7736011423 3341424783 20,742,746,372 37.29502007 16.11
2014 9182781155 4031811268 24193356807 37.96 16.66
2015 11841989969 5743623832 30281713746 39.11 18.98
From Table, it is evident that profitability of the company during the study period is
completely satisfactory. Because the study shows the gross profit range 37.04 to 39.11 and
net profit range 15.58 to 18.96. But it is also seen that during the whole period of study, the
gross profit rate is much higher than the net profit rate. It is because of higher volume of

65
operating and other non-financial expenses. It is also seen in this analysis that the net profit
rate has been gradually increased during the study period. The highest net profit has been
earned in 2015 and then 2014, the recent years of study periods.
Debt Ratios:
The debt ratio measures the proportions of total assets financed by the firm’s creditors. The
higher the ratio, the greater the amount of other people’s money being bused to generate
profits.
The ratio is calculated as follows:
Debt Ratio =
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡
𝑇𝑜𝑡𝑎𝑙 𝐷𝑒𝑏𝑡
× 100
A table of necessary information of Square Pharmaceuticals Limited of last five years to
calculate the debt ratios is given below:
Year
Non-Current
Liabilities:
Current
Liabilities:
Total Assets Debt Ratio
2011 958511238 4668189426 19444409654 28.93736948
2012 933965662 4252934845 21453784762 24.1770884
2013 810461067 3792438255 23447645506 19.63053954
2014 855398657 3416619593 26549534878 16.09074611
2015 931442176 2390847961 31354182244 10.59600315

66
Here, the lowest debt ratio is in 2015. From 2011 to 2015 the ratio has started to fall. The
higher debt ratio indicates the greater the firm’s degree of indebtedness and the more
financial leverage. The company has achieved all types of positive vive in 2015. From the
overall analysis we can have this positive notion about Square Pharmaceuticals Limited
Company.
28.93736948
24.1770884
19.63053954
16.09074611
10.59600315
2011 2012 2013 2014 2015
DEBT RATIO

67
Conclusion
The study on the financial statements of Square Pharmaceuticals Limited is run based on the
all-important and popular financial tools, techniques and ideas. The company Square
Pharmaceuticals Limited has proved that it owes to its shareholders and strives for protection
of their capital as well as ensures highest return and growth of their assets as the company’s
gross profit increases by 28.96%, net profit increases by 42.5%, earnings per share increases
by 42.5%, and dividend Payout (cash) increases by 15%. The company also strives for
practicing good-governance in every sphere of activities covering inter alia not being limited
to, disclosure & reporting to shareholders, holding AGM in time, distribution of dividends
and other benefits to shareholders, reporting/dissemination of price sensitive information,
acquisition of shares by insiders, recruitment & promotion of staff, procurement & supplies,
sale of assets etc. all that directly and indirectly affect the interest of concerned groups - the
shareholders, the creditors, suppliers, employees, government and the public in general. The
financial ratios of the company are also okay. Although liquidity ratios are showing that
liquid asset management are becoming quite bad but in other sides such as activity ratios,
debt management ratios, profitability ratios are showing that the company doing well.
Finally, from overall financial perspective and based on financial knowledge it can be said
easily that the company is on the right track of success if it can manage its liquid asset
properly and keep up the efficiency showed in other managerial sectors.

68
Bibliography
i. Text Books:
 Principles of Managerial Finance, 13th
Edition by Lawrence J.
Gitman and Chad J. Zutter
 Essentials of Managerial Finance, 13th
Edition by Scott Besley
and Eugene F. Brigham
ii. Annual Reports:
 Square Pharmaceuticals Company Limited’s Annual Reports of
the Year 2011 to 2016.
iii. Websites:
 http://www.squarepharma.com.bd/5_years_operational_results.
php
 http://www.dsebd.org/displayCompany.php?name=SQURPHA
RMA
 http://www.pharmabiz.com/article/detnews.asp?articleid=2594
6&sectionid=50

Financial Statement Analysis of Square Pharmaceuticals Company Limited

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Financial Statement Analysis of Square Pharmaceuticals Company Limited