- Home
- Report, Assignment, Case Study and Term Paper
- Bangladesh Study
- Short Term Liquidity Ratio Analysis of Square Pharmaceuticals Ltd Bangladesh (Part-2)
Short Term Liquidity Ratio Analysis of Square Pharmaceuticals Ltd Bangladesh (Part-2)
- By humpty dumpty
- Published 4 February 2012
- Bangladesh Study
- Unrated
SHORT TERM LIQUIDITY RATIO ANALYSIS
Current Ratio
On average the current ratio of Square Pharmaceuticals Limited Bangladesh was 1.62 during fiscal year (FY) 2006-2010. According to current ratio, it must be assumed that Square Pharmaceuticals Limited Bangladesh was successful to meet its short term obligations very well for the past fiscal years and will maintain a successful healthy financial performance in coming years.
The current asset of the firm had increased by 18.42% between the fiscal year of 2006 and 2010 but at the same time the current liabilities had decreased by 1.95 %. While analyzing a firm’s current assets, firm’s inventories had played an important role to discover firm actual position to meet short-term obligation. The inventories of Square pharmaceuticals Limited Bangladesh had positively changed by 13.75% annually on average throughout the fiscal year of 2006 – 2010. Having a huge amount of inventory is not good for a firm. There is a chance of having outdated or slow moving product in the inventory. As a pharmaceuticals firm this is quite a concern because they produce drugs which are used by humans and an outdated product might cause some one illness or death. Therefore, increase in inventory is a good sign for a pharmaceuticals company as far as their inventory do not have obsolete products.
Firm’s cash and cash equivalents had decreased by 18.13%, short term loan [current asset] had decreased by 35.65 %, Trade debtors had increased by 76.03% between the fiscal year 2006 and 2010. The decrease in current liabilities by 1.95% is a positive sign towards the growth of the company and its ability to meet the short term obligations.
In addition, in our depth analysis of the firm’s current asset and liabilities figure we have found that in 2007 current asset of the firm reduced by 8.66 % and current liabilities increased by 13.04%. This was caused by an increase in Short-term Bank Loans and Other Financial Liabilities. Besides in last five years the worst current ratio figure was in 2008 FY. In 2008 FY the short-term bank loans was 54.84% more than 2006 FY. This increase made firm more vulnerable to meet its short term obligations than its previous fiscal years. In contrary, the firm made significant improvement to reduce its short-term bank loans in FY 2009 and 2010. In 2009 and 2010 FY the short-term bank loan reduced by 42.53 % and 72.41 % from FY 2008. Short-Term Bank Loans are the major portion of current liabilities for firm financial figures. Other current liabilities accounts such as Trade Creditors, Long Term Loan (current portion) and other liabilities expense has increased throughout the fiscal years 2006-2010 of Square Pharmaceuticals Limited Bangladesh.
Current Ratio
2006 2007 2008 2009 2010
1.78 1.44 1.26 1.46 2.15
Table of Current Ratio for Fiscal Year 2006-2010
Quick Ratio (Acid Test)
Square Pharmaceuticals Limited Bangladesh had an average of 0.91 for the fiscal year 2006- 2010. 0.91 is a unhealthy figure for a firm. Alongside, the higher the figure, the better opportunity for the firm to eliminate its current liabilities without relying on its inventory. By analyzing the current asset and inventory of this pharmaceuticals firm, on average the total inventory is 44.40% of its current assets between FY 2006 and 2010 and this refers that the firm’s current asset consists a large portion of inventories. Therefore the firm will need to increase the figures of other accounts, under its current asset and reduce the dependency on inventories to meet short term obligations. In addition, Current assets without the inventories portion decreased by 4.54% between the fiscal year of 2006 and 2010 and the inventories of Square pharmaceuticals Limited Bangladesh has increased by 64.41% at the same time. The firm had the worst quick ratio figure in 2009 but eventually it has increased in 2010 due to a decline in its short-term bank loans.
Quick Ratio
2006 2007 2008 2009 2010
1.19 0.84 0.68 0.66 1.16
Table of Quick Ratio for Fiscal Year 2006-2010
Net Working Capital to Total Assets
On average Square Pharmaceuticals Limited Bangladesh had Net working capital worth of 1,513,815,265.40 BDT between FY 2006 to 2010. Net Working Capital to Total Assets ratio shows a firm ability of short-term liquidity. A positive Net Working Capital shows that the firm have meet the short term obligations and more likely to have a flat operation in future. As stated before, this firm’s current asset had increased by 18.42% between the fiscal year of 2006-2010 but at the same time the current liabilities had decreased by 1.95 %.Due to this difference between current asset and current liabilities the firm was able to have a positive Net Working Capital. In addition, Square Pharmaceuticals Limited Bangladesh Total Asset had increased by 61.63% between the FY 2006 and 2010 and Net Working Capital had increased by 44.42% in the same period.
The firm faced its worst Net Working Capital to Total Assets ratio figure in FY 2008 because the firm had lowest Net Working Capital in terms of last 5 (five) fiscal year caused by an increase in short-term bank loans.
Net Working Capital to Total Asset
2006 2007 2008 2009 2010
0.19 0.11 0.07 0.09 0.17
Table of NWC to Total Assets for Fiscal Year 2006-2010
Interval Measure
Interval measure exhibits a firm’s ability to maintain its daily business expense by using its current assets just. In other word this ratio is expressed in terms of days and shows that the firm can cover its daily operating expense by relying on its current asset only and run its business for specific number of days.
In case of Square Pharmaceuticals Limited Bangladesh, the average interval measure is 260.26 days during the fiscal years 2006-2010.
The daily operating expense and current asset of this pharmaceutical firm on average was 16,555,423.74 BDT and 4,148,771,230 BDT respectively. On average the daily operating expense of this firm had changed by 17.59 % annually on average between FY 2006 and 2010. The current asset of the firm had increased by 18.42% between the fiscal year of 2006 and 2010 but the daily operating expense had increased at a staggering rate of 90.92% at the same time. Therefore, the interval measure of Square Pharmaceuticals Limited Bangladesh had dropped by 132.62 days in FY 2010 from 2006, which was approximately 37.97% less than 2006. Interval measure provides a strong view of firm’s ability to run its operation even it faces any financial disaster. In present, Square Pharmaceuticals Limited Bangladesh is not performing as well as performing in FY 2006 according to interval measure. Therefore, it would advisable for this firm to minimize its operating cost and increase its short term asset for the betterment of the firm.
Interval Measure
2006 2007 2008 2009 2010
349.23 260.83 268.30 206.31 216.61
Table of Interval Measure (in days) for Fiscal Year 2006-2010
Cash Ratio
Square Pharmaceuticals Limited Bangladesh had a cash ratio of 0.10 on average during the fiscal years 2006-2010. Cash ratio reflects firms ability to pay its current liabilities, using its most liquidate asset such as Cash and cash equivalents only. By evaluating the current asset and cash and cash equivalents of this, on average the cash and cash equivalents was 5.87% of its current assets between FY 2006 and 2010 and this refers that the firm’s inventories consist a large portion in its current asset. In terms of other account, the portion of cash and cash equivalents in current asset was very undersized and we must add that firm’s cash and cash equivalents had decreased by 18.13% between 2006 and 2010 FY. For the betterment of the firm, it should try to increase its cash and cash equivalents. This would help to establish a good foundation to attract investors since many investors take cash ratio under deliberation for investing in a firm. The firm experienced its worst cash ratio figure in 2007 and by 2010 it had comparatively reached to a better state of cash ratio.
Cash Ratio
2006 2007 2008 2009 2010
0.14 0.05 0.06 0.11 0.12
Table of Cash Ratio for Fiscal Year 2006-2010
Current Ratio
On average the current ratio of Square Pharmaceuticals Limited Bangladesh was 1.62 during fiscal year (FY) 2006-2010. According to current ratio, it must be assumed that Square Pharmaceuticals Limited Bangladesh was successful to meet its short term obligations very well for the past fiscal years and will maintain a successful healthy financial performance in coming years.
The current asset of the firm had increased by 18.42% between the fiscal year of 2006 and 2010 but at the same time the current liabilities had decreased by 1.95 %. While analyzing a firm’s current assets, firm’s inventories had played an important role to discover firm actual position to meet short-term obligation. The inventories of Square pharmaceuticals Limited Bangladesh had positively changed by 13.75% annually on average throughout the fiscal year of 2006 – 2010. Having a huge amount of inventory is not good for a firm. There is a chance of having outdated or slow moving product in the inventory. As a pharmaceuticals firm this is quite a concern because they produce drugs which are used by humans and an outdated product might cause some one illness or death. Therefore, increase in inventory is a good sign for a pharmaceuticals company as far as their inventory do not have obsolete products.
Firm’s cash and cash equivalents had decreased by 18.13%, short term loan [current asset] had decreased by 35.65 %, Trade debtors had increased by 76.03% between the fiscal year 2006 and 2010. The decrease in current liabilities by 1.95% is a positive sign towards the growth of the company and its ability to meet the short term obligations.
In addition, in our depth analysis of the firm’s current asset and liabilities figure we have found that in 2007 current asset of the firm reduced by 8.66 % and current liabilities increased by 13.04%. This was caused by an increase in Short-term Bank Loans and Other Financial Liabilities. Besides in last five years the worst current ratio figure was in 2008 FY. In 2008 FY the short-term bank loans was 54.84% more than 2006 FY. This increase made firm more vulnerable to meet its short term obligations than its previous fiscal years. In contrary, the firm made significant improvement to reduce its short-term bank loans in FY 2009 and 2010. In 2009 and 2010 FY the short-term bank loan reduced by 42.53 % and 72.41 % from FY 2008. Short-Term Bank Loans are the major portion of current liabilities for firm financial figures. Other current liabilities accounts such as Trade Creditors, Long Term Loan (current portion) and other liabilities expense has increased throughout the fiscal years 2006-2010 of Square Pharmaceuticals Limited Bangladesh.
Current Ratio
2006 2007 2008 2009 2010
1.78 1.44 1.26 1.46 2.15
Table of Current Ratio for Fiscal Year 2006-2010
Quick Ratio (Acid Test)
Square Pharmaceuticals Limited Bangladesh had an average of 0.91 for the fiscal year 2006- 2010. 0.91 is a unhealthy figure for a firm. Alongside, the higher the figure, the better opportunity for the firm to eliminate its current liabilities without relying on its inventory. By analyzing the current asset and inventory of this pharmaceuticals firm, on average the total inventory is 44.40% of its current assets between FY 2006 and 2010 and this refers that the firm’s current asset consists a large portion of inventories. Therefore the firm will need to increase the figures of other accounts, under its current asset and reduce the dependency on inventories to meet short term obligations. In addition, Current assets without the inventories portion decreased by 4.54% between the fiscal year of 2006 and 2010 and the inventories of Square pharmaceuticals Limited Bangladesh has increased by 64.41% at the same time. The firm had the worst quick ratio figure in 2009 but eventually it has increased in 2010 due to a decline in its short-term bank loans.
Quick Ratio
2006 2007 2008 2009 2010
1.19 0.84 0.68 0.66 1.16
Table of Quick Ratio for Fiscal Year 2006-2010
Net Working Capital to Total Assets
On average Square Pharmaceuticals Limited Bangladesh had Net working capital worth of 1,513,815,265.40 BDT between FY 2006 to 2010. Net Working Capital to Total Assets ratio shows a firm ability of short-term liquidity. A positive Net Working Capital shows that the firm have meet the short term obligations and more likely to have a flat operation in future. As stated before, this firm’s current asset had increased by 18.42% between the fiscal year of 2006-2010 but at the same time the current liabilities had decreased by 1.95 %.Due to this difference between current asset and current liabilities the firm was able to have a positive Net Working Capital. In addition, Square Pharmaceuticals Limited Bangladesh Total Asset had increased by 61.63% between the FY 2006 and 2010 and Net Working Capital had increased by 44.42% in the same period.
The firm faced its worst Net Working Capital to Total Assets ratio figure in FY 2008 because the firm had lowest Net Working Capital in terms of last 5 (five) fiscal year caused by an increase in short-term bank loans.
Net Working Capital to Total Asset
2006 2007 2008 2009 2010
0.19 0.11 0.07 0.09 0.17
Table of NWC to Total Assets for Fiscal Year 2006-2010
Interval Measure
Interval measure exhibits a firm’s ability to maintain its daily business expense by using its current assets just. In other word this ratio is expressed in terms of days and shows that the firm can cover its daily operating expense by relying on its current asset only and run its business for specific number of days.
In case of Square Pharmaceuticals Limited Bangladesh, the average interval measure is 260.26 days during the fiscal years 2006-2010.
The daily operating expense and current asset of this pharmaceutical firm on average was 16,555,423.74 BDT and 4,148,771,230 BDT respectively. On average the daily operating expense of this firm had changed by 17.59 % annually on average between FY 2006 and 2010. The current asset of the firm had increased by 18.42% between the fiscal year of 2006 and 2010 but the daily operating expense had increased at a staggering rate of 90.92% at the same time. Therefore, the interval measure of Square Pharmaceuticals Limited Bangladesh had dropped by 132.62 days in FY 2010 from 2006, which was approximately 37.97% less than 2006. Interval measure provides a strong view of firm’s ability to run its operation even it faces any financial disaster. In present, Square Pharmaceuticals Limited Bangladesh is not performing as well as performing in FY 2006 according to interval measure. Therefore, it would advisable for this firm to minimize its operating cost and increase its short term asset for the betterment of the firm.
Interval Measure
2006 2007 2008 2009 2010
349.23 260.83 268.30 206.31 216.61
Table of Interval Measure (in days) for Fiscal Year 2006-2010
Cash Ratio
Square Pharmaceuticals Limited Bangladesh had a cash ratio of 0.10 on average during the fiscal years 2006-2010. Cash ratio reflects firms ability to pay its current liabilities, using its most liquidate asset such as Cash and cash equivalents only. By evaluating the current asset and cash and cash equivalents of this, on average the cash and cash equivalents was 5.87% of its current assets between FY 2006 and 2010 and this refers that the firm’s inventories consist a large portion in its current asset. In terms of other account, the portion of cash and cash equivalents in current asset was very undersized and we must add that firm’s cash and cash equivalents had decreased by 18.13% between 2006 and 2010 FY. For the betterment of the firm, it should try to increase its cash and cash equivalents. This would help to establish a good foundation to attract investors since many investors take cash ratio under deliberation for investing in a firm. The firm experienced its worst cash ratio figure in 2007 and by 2010 it had comparatively reached to a better state of cash ratio.
Cash Ratio
2006 2007 2008 2009 2010
0.14 0.05 0.06 0.11 0.12
Table of Cash Ratio for Fiscal Year 2006-2010
Spread The Word
Article Series
This article is part 2 of a 8 part series. Other articles in this series are shown below:
-
Short Term Liquidity Ratio Analysis of Square Pharmaceuticals Ltd Bangladesh (Part-2)