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- Ratio Analysis of Square Pharmaceuticals Ltd
Ratio Analysis of Square Pharmaceuticals Ltd
- By Yasir Farabi
- Published 22 September 2007
- Report, Assignment, Case Study and Term Paper
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Brief History of Square Pharmaceuticals & Liquidity Ratios
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BRIEF HISTORY
Square Pharmaceuticals Ltd. is a renowned company in Bangladesh. It is a flagship company in the pharmaceutical industry which has reached this mountain of success by fighting many potential competitors like BEXIMCO Pharma, INCEPTA, ACME, RENETA, OPSONIN, SK+F, SANOFI-AVENTIS etc. It initially started as a Partnership in 1958. It was incorporated as a Private Ltd. Company in 1964 and converted into Public Limited Company in 1991. Its initial public offering started in Dhaka and Chittagong stock exchange simultaneously in 1995. 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.
RATIO ANALYSIS
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.
Financial ratios can be classified according to the information they provide. The following types of ratios frequently are used:
1. Liquidity ratios
2. Asset management ratios
3. Debt management ratios
4. Profitability ratios
5. Market value ratios
LIQUIDITY RATIOS
Liquidity ratios are the first ones to come in the picture. These ratios actually show the relationship of a firm’s cash and other current assets to its current liabilities. Two ratios are discussed under Liquidity ratios. They are:
1. Current ratio
2. Quick/ Acid Test ratio.
1. Current ratio: This ratio indicates the extent to which current liabilities are covered by those assets expected to be converted to cash in the near future. Current assets normally include cash, marketable securities, accounts receivables, and inventories. Current liabilities consist of accounts payable, short-term notes payable, current maturities of long-term debt, accrued taxes, and other accrued expenses (principally wages).
Current Ratio=Current Assets/Current Liabilities
Following table shows the Current ratios of Square Pharmaceuticals in different years:
Year |
2005-06 |
2004-05 |
2003-04 |
Current ratio |
1.78 times |
1.66 times |
1.62 times |
Following graph shows the change of Current ratios over different periods:
From the analysis, we can see that in 2003-04 the current assets were 1.62 times than the current liabilities that has not fluctuated much through out these three years. A minimal increase is seen in 2004-05 and it went up to 1.66 times which kept slightly increasing and resulted at 1.78 times in 2005-06. The reason for such stability can be there not investing remarkably on assets and not making any huge loan or financing from outside. If we take a closer look on the balance sheet, this assumption gets a more realistic touch. Year by year assets have gone slightly up and the liabilities as well, but proportionately assets were a littler higher than the liabilities which actually reflected as a marginal increase in the ratio.
2. Quick/ Acid Test ratio: This ratio indicates the firm’s liquidity position as well. It actually refers to the extent to which current liabilities are covered by those assets except inventories.
Quick Ratio=(Current Assets-Inventories)/Current Liabilities
Following table shows the Quick/ acid test ratios of Square Pharmaceuticals in different years:
Year |
2005-06 |
2004-05 |
2003-04 |
Quick ratio |
1.19 times |
1.08 times |
.98 times |
Following graph shows the change of Current ratios over different periods:
Analysis of this ratio speaks in a same language as current ratio. In 2003-04, the quick ratio was .98 times which increased very silently just like current ratio and resulted as 1.19 times in 2005-06. Both of these ratios portray the idea that square has so far an almost constant liquidity position which is good at some point, but at the same token it can be said that they have not been able to improve them-selves. Standing at this point, we can make an assumption that may be their profit margin was not so high that they can make some investments paying off the liabilities that could result in an increase in assets and decrease in liabilities to make the liquidity position far better. This assumption can only be proved as we go on analyzing their financial statement and calculate the profitability ratios.
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Yasir Farabi
I am studying Business Administration at North South University.
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