FIN440: Corporate finance
Assignment 1
Submitted To
Mr. Mirza M. Ferdous
Senior Lecturer
North South University
SUBMITTED BY
Section: 5
Mehenaz Akter Munni 2222685030
Md Mostakim Ul Haque 2233059030
Taskeya jahan 2222016030
Bushratul Zannat 2132543630
Pronoy Chandra Nandi 2233068030
Md Wasif 2131849630\
Company Overview
Square Pharmaceuticals LTD Bangladesh.
Square Pharma was founded in 1958 and it has grown into a dominant force in the local pharmaceutical
industry. Moreover, with a global presence it exports to 40 countries.
Square Pharmaceuticals LTD maintains a strong financial foundation with consistent profitability and
exceptional liquidity. Moreover, the company’s Liquidity ratios remain high across all years. Hence,
indicating a strong capability to meet short-term obligations with low liquidity risk. Also, the inventory
turnover ratio shows moderate fluctuations, while the total asset turnover ratio suggests room for
improving asset efficiency. Moreover, the company’s debt ratio stays low but due to high times interest
earned and cash coverage ratios the company has excellent debt servicing capacity. Although the
operating profit margin shows a slight decline, return on assets improves in 2024, which indicates better
utilization of resources. The EPS ratio shows steady growth, while the declining P/E and market-to-book
ratios reflect shifting investor sentiment and market valuation adjustments. Square Pharma’s stable
financial structure, leverage, and strong earnings position it as an ideal subject for financial analysis and
long-term strategic evaluation.
So, one of the reasons for selecting Square Pharma is its reliable financial reporting, since 1995 the
company has been listed in Dhaka Stock Exchange, hence making it easier to source and analyze financial
data. Secondly, Square Pharma has shown consistent profits year after year during the past decade which
indicates reliable use of forecasting techniques like percentage of sales method.
Financial Forecasting
The technique of projecting a company's future financial results using past data, present patterns,
and anticipated future events is known as financial forecasting. It assists companies with cash
flow management, budget planning, and strategic decision-making.For Forecasting, we used a
weighted average. Therefore, we have put on more weight progressively in recent years compared to the
previous ones.
Year Sales
2021 BDT 49,169,800,000
2022 BDT 55,798,183,000
2023 BDT 58,419,085,000
2024 BDT 59,794,585,000
Year Growth rate Weighting
factor
2021-2022 13.48 0.5
2022-2023 4.70 0.3
2023-2024 2.36 0.2
Sales growth
2021-2022 2022-2023 2023-2024
13.48% 4.70% 2.36%
Forecasted Growth
8.662%
Financial Planning
Common Size Income Statement:
Common Size Income Statement
Particulars 2024 Common Size (%)
Net Revenue 70,101,031,196 100.00%
COGS -37,028,601,545 -52.82176441
Gross Profit 33,072,429,651 47.17823559
Operating Expense -14,179,833,353 -20.22771008
Other Operating Income 338,685,993 0.4831398158
Operating Profit 19,231,282,291 27.43366533
Other Income 4,650,619,427 6.634166927
Profit before contribution to WPPF
& WWF 23,881,901,718 34.06783226
Profit before Tax 22,721,774,839 32.41289672
Income Tax Expenses -4,388,891,753 -6.260809118
Profit from associate undertakings 2,594,562,835 3.701176417
Net income 18,332,883,086 26.1520876
Dividends 9,751,961,110 13.9112948
Retained Earnings 114,139,071,906 162.8208173
Common Size Balance Sheet:
Spread Sheet:
Common Size Balance Sheet
Particulars 2024 Common Size
(%)
ASSETS
Non-Current Assets:
Property, Plant and Equipment 27,750,005,864 39.58573132
Investment in Associates 17,397,060,559 24.81712503
Investment in Marketable Securities 9,292,402,647 13.25572889
Long Term Investment - Others 6,992,206,904 9.974470824
61,431,675,974 87.63305607
Current Assets:
Inventories 12,582,152,295 17.94859802
Trade and Other Receivables 4,503,386,212 6.4241369
Advances, Deposits and Prepayments 2,106,522,837 3.004981241
Cash and Cash Equivalents 52,013,459,742 74.19785252
71,205,521,086 101.5755687
TOTAL ASSETS 132,637,197,060 189.2086247
EQUITY AND LIABILITIES
EQUITY:
Share Capital 8,864,510,100 N/A
Share Premium 2,035,465,000 N/A
General Reserve 105,878,200 0.1510365799
Fair Value Reserve -275,040,481 -0.3923486949
Tax Holiday Reserve 951,511,612 1.357343246
Translation Reserve 97,906,017 0.1396641609
Retained Earnings 114,139,071,906 162.8208173
Attributable to Equity Holders 125,919,302,354 179.6254637
Non-Controlling Interests 2,318,478 0.003307337938
TOTAL EQUITY 125,921,620,832 179.6287711
Liabilities:
Non-Current Liabilities:
Long Term Loan 814,539,826 N/A
Deferred Tax Liabilities 619,081,523 0.8831275552
1,433,621,349 2.045078831
Current Liabilities:
Long Term Loan - Current Portion 614,539,826 0.8766487675
Trade Payables 1,455,428,272 2.07618668
Other Payables 1,820,943,973 2.59759941
Current Tax Liabilities 912,265,905 1.301358752
Accrued Expenses 286,793,273 0.4091142
Unclaimed Dividend 191,983,630 0.2738670555
5,281,954,879 7.534774865
TOTAL LIABILITIES 6,715,576,228 9.579853696
TOTAL EQUITY AND LIABILITIES 132,637,197,060 189.2086247
Net Assets Value (NAV) per Share 142.05
Pro Forma Statements:
Forecasted 2025 Sales:
Forecasted Growth Rate = 8.622% = 0.08622
Sales 2024 (Taka): 7,01,01,03,196
Sales 2025 (Taka) = 7010103196 * (1 + 0.08622) = 7,61,45,14,294
Pro-Forma Income Statement:
PRO-FORMA INCOME STATEMENT
Particulars 2024 2025
Net Revenue 70,101,031,196.00 7,614,514,294.00
COGS (37,028,601,545.00) (4,022,120,801.34)
Gross Profit 33,072,429,651.00 3,592,393,492.66
Operating Expense (14,179,833,353.00) (1,540,241,875.39)
Other Operating Income 338,685,993.00 36,788,750.33
Operating Profit 19,231,282,291.00 2,088,940,367.92
Other Income 4,650,619,427.00 505,159,588.94
Profit before contribution to WPPF & 23,881,901,718.00 2,594,099,957.09
WWF
Profit before Tax 22,721,774,839.00 2,468,084,653.84
Income Tax Expenses (4,388,891,753.00) (1,470,804,073.31)
Profit from associate undertakings 2,594,562,835.00 281,826,607.32
Net income 18,332,883,086.00 1,991,354,448.48
Dividends 9,751,961,110.00 4,050,451,143.93
Earnings Per Share (EPS) 23.61 23.61
Pro-Forma Balance Sheet:
Retained Earnings 2023 = 103,33,90,85,459
Retained Earnings 2024 = 114,13,90,71,906
Net Income 2024 = 18,33,28,83,086
Net Income Forecast = 1,991,195,487.77
Addition to Retained Earnings 2024 = 114,13,90,71,906 - 103,33,90,85,459 = 10,79,99,86,447
Addition to Retained Earnings Percentage = (10,79,99,86,447/18,33,28,83,086)*100 = 58.91%
Addition to Retained Earnings Forecast = 58.91%(1,991,195,487.77) = 1,17,30,22,496
Retained Earnings 2025 = Retained Earnings 2024 + Addition to Retained Earnings Forecast =
1,14,13,90,71,906 + 1,17,30,22,496 = 1,15,31,20,94,400
Pro Forma Balance Sheet
Particulars 2024 2025
ASSETS
Non-Current
Assets:
Property, Plant and Equipment 27,750,005,864.00 3,014,261,169.99
Investment in Associates 17,397,060,559.00 1,889,703,532.74
Investment in Marketable Securities 9,292,402,647.00 1,009,359,371.38
Long Term Investment - Others 6,992,206,904.00 759,507,506.65
61,431,675,974.00 6,672,831,580.76
Current Assets:
Inventories 12,582,152,295.00 1,366,698,561.56
Trade and Other Receivables 4,503,386,212.00 489,166,822.48
Advances, Deposits and Prepayments 2,106,522,837.00 228,814,726.11
Cash and Cash Equivalents 52,013,459,742.00 5,649,806,086.00
71,205,521,086.00 7,734,486,196.15
TOTAL ASSETS 132,637,197,060.00 14,407,317,776.90
EQUITY AND LIABILITIES
EQUITY:
Share Capital 8,864,510,100.00 8,864,510,100.00
Share Premium 2,035,465,000.00 2,035,465,000.00
General Reserve 105,878,200.00 11,500,701.97
Fair Value Reserve (275,040,481.00) (29,875,447.45)
Tax Holiday Reserve 951,511,612.00 103,355,095.45
Translation Reserve 97,906,017.00 10,634,747.50
Retained Earnings 114,139,071,906.00 1,15,31,20,94,400
Attributable to Equity Holders 125,919,302,354.00 13,677,606,610.15
Non-Controlling Interests 2,318,478.00 251,837.72
TOTAL EQUITY 125,921,620,832.00 13,677,858,447.87
Liabilities:
Non-Current Liabilities:
Long Term Loan 814,539,826.00 814,539,826.00
Deferred Tax Liabilities 619,081,523.00 67,245,873.93
1,433,621,349.00 881,785,699.93
Current Liabilities:
Long Term Loan - Current Portion 614,539,826.00 66,752,545.71
Trade Payables 1,455,428,272.00 158,091,531.49
Other Payables 1,820,943,973.00 197,794,578.40
Current Tax Liabilities 912,265,905.00 99,092,148.22
Accrued Expenses 286,793,273.00 31,152,059.24
Unclaimed Dividend 191,983,630.00 20,853,646.09
5,281,954,879.00 573,736,509.15
TOTAL LIABILITIES 6,715,576,228.00 1,455,522,209.08
TOTAL EQUITY AND 132,637,197,060.00 15,133,380,656.95
LIABILITIES
Net Assets Value (NAV) per Share 142.05 142.05
External Financing Needed (EFN):
EFN = Total Assets - Total Equity and Liabilities = (14,407,317,776.9-15,133,380,656.95) taka
= -726,062,880.05 taka
The negative EFN indicates that Square Pharmaceuticals Ltd. is anticipated to possess surplus
internal financing, as its projected liabilities and equity above the total anticipated assets
Relative Valuation
1. Liquidity ratios
A. Current ratio
Current ratio
Year 2021 2022 2023 2024
Current 54,945,934 62,748,424 70,169,515 69,735,986
asset
Current 3,109,956 3,349,091 3,212,078 5,589,046
liabilities
Current 17.67 18.74 21.85 12.48
ratio
A very high current ratio suggests that the company has a strong ability to cover its short-term liabilities
with its current assets. However, an extremely high ratio, especially in 2023, could also indicate
inefficient use of current assets, such as holding excessive cash or inventory. The decline in 2024
indicates a slight decrease in this very high liquidity, but it remains very strong.
B. Quick ratio
Quick Ratio
Year 2021 2022 2023 2024
Current 54,945,934 62,748,424 70,169,515 69,735,986
asset
Inventory 7,245,396,928 8,214,111,144 12,227,198,105 0,732,803,469
Current 3,109,956 3,349,091 3,212,078 5,589,046
Liabilities
Quick 15.05 14.79 13.78 10.56
ratio
This ratio demonstrates the company's ability to cover current liabilities using only cash and cash
equivalents. The consistently high cash ratio indicates that a significant portion of current liabilities can
be met immediately, highlighting exceptional liquidity. The downward trend in this ratio over the years
suggests that the company is gradually utilizing its cash more, potentially for investments or operations
C. Cash ratio
Cash Ratio
Year 2021 2022 2023 2024
Cash 43,364,039,004 48,962,498,336 50,094,321,854 52,305,603,35
6
Current 3,109,956 3,349,091 3,212,078 5,589,046
Liabilities
Cash ratio 13.64 13.37 11.85 9.36
This ratio demonstrates the company's ability to cover current liabilities using only cash and cash
equivalents. The consistently high cash ratio indicates that a significant portion of current liabilities can
be met immediately, highlighting exceptional liquidity. The downward trend in this ratio over the years
suggests that the company is gradually utilizing its cash more, potentially for investments or operations
2. Activity Ratios
A. Inventory Turnover ratio
Inventory Turnover Ratio
Year 2021 2022 2023 2024
COGS 24,800, 27,958,026,980 31,772,093,3 37,028,601,545
035,555 00
Average 6,466,4 7,729,754,036 10,220,654,6 11,480,000,787
Inventory 01,628. 25
5
Inventory 3.83 3.62 3.11 3.23
Turnover
This ratio indicates how many times inventory is sold and replenished during the year. A decreasing trend
from 2021 to 2023 suggests that inventory is moving more slowly, which could imply overstocking,
decreased demand, or less efficient inventory management. The slight increase in 2024 might indicate an
improvement in inventory management or increased sales
B. Total Asset Turnover ratio
Total Asset Turnover Ratio
Year 2021 2022 2023 2024
Net Revenue 50,703,028, 57,597,94 62,747,682,864 70,101,031,196
902 1,359
Average Total 88,635,814, 102,720,4 116,787,087,216.5 116,913,109,95
assets 968.5 95,648.5 7
Total Asset 0.57 0.56 0.54 0.60
Turnover
This ratio measures how efficiently a company uses its assets to generate revenue. The relatively low and
slightly declining trend from 2021 to 2023 suggests that the company is not generating a high amount of
revenue per dollar of assets. This could be typical for asset-heavy industries. The increase in 2024
indicates an improvement in asset utilization.
C. Current Asset Intensity ratio
Current Asset Intensity Ratio
Year 2021 2022 2023 2024
Current asset 54,945,934 62,748,424 70,169,515 69,735,986
Total asset 95,452,262,5 109,988,728,7 121,816,30 112,009,914,748
80 17 5,166
Current asset Intensity 0.58 0.57 0.58 0.62
This ratio shows the proportion of current assets to total assets. The consistently high ratio indicates that a
significant portion of the company's assets are current assets. This aligns with the high liquidity ratios and
suggests a strong focus on short-term assets. The increasing trend in 2024 means more assets are held in
current form.
3. Debt ratios
A. Debt ratio
Debt Ratio
Year 2021 2022 2023 2024
Total Liabilities 4,557,119,4 6,535,279,335 6,619,656,401 6,214,795,12
12 8
Total Assets 95,452,262, 109,988,728,71 121,816,305,166 112,009,914,
580 7 748
Debt Ratio 4.77% 5.94% 5.43% 5.55%
A very low debt ratio indicates that the company relies minimally on debt financing for its assets. This
suggests a very conservative financial structure and low financial risk. The slight fluctuations remain
within a very healthy range
B. Long term debt ratio
Long term debt Ratio
Year 2021 2022 2023 2024
Long term liabilities 1,378,560,486 2,873,450,552 2,390,510,6 625,749,549
85
Total Assets 95,452,262,580 109,988,728,717 121,816,30 112,009,914
5,166 ,748
Long term debt ratio 1.44 2.61 1.96 0.56
The ratios fluctuated between approximately 0.56% and 2.61%. This suggests the company is not heavily
reliant on long-term borrowing to finance its assets. The significant decrease in 2024 to 0.56% indicates a
reduction in long-term liabilities.
C. Debt equity ratio
Debt to equity Ratio
Year 2021 2022 2023 2024
Total Liabilities 4,557,119,412 6,535,279,3 6,619,656,401 6,214,795,1
35 28
Total equity 90,894,643,16 103,452,97 115,195,939,3 105,795,11
8 9,750 89 9,620
Debt equity ratio 5.01 6.32 5.75 5.88
The debt-to-equity ratio also remained low, ranging from approximately 5.01% to 6.32% over the four
years. This demonstrates that the company's financing is predominantly from equity rather than debt. A
low debt-to-equity ratio generally signifies a financially stable company with a lower risk profile for
creditors.
4. Profitability ratios
A. Operating profit Margin ratio
Operating profit Margin Ratio
Year 2021 2022 2023 2024
Operating profit 16,257,934 18,382,544, 18,221,668,254 19,231,282,291
,544 485
Sales 50,703,028 57,597,941, 62,747,682,864 70,101,031,196
,902 359
Operating profit 0.3206 0.3191 0.2904 0.2743
margin
This ratio indicates how much profit a company makes from its core operations for every dollar of
revenue. The operating profit margin is relatively stable but shows a slight declining trend from 2021 to
2024. This suggests that the company's operational efficiency or pricing power may be slightly
decreasing, or operating costs are rising relative to sales.
B. Return on Assets ratio
Return on Assets Ratio
Year 2021 2022 2023 2024
Net income 14,656,23 16,165,931, 16,457,626 18,332,883,086
9,015 964 ,777
Total assets 95,452,26 109,988,728 121,816,30 112,009,914,748
2,580 ,717 5,166
Return on assets 0.1535 0.1470 0.1351 0.1637
ROA measures how efficiently a company uses its assets to generate profit. The ROA shows a slight
decline from 2021 to 2023, indicating that the company was generating less profit per dollar of assets.
However, there's a notable improvement in 2024, suggesting increased efficiency in utilizing assets to
generate net income.
C. Payout ratio
Payout Ratio
Year 2021 2022 2023 2024
Net 14,656,239,0 16,165,931,9 16,457,626,7 18,332,883,0
incom 15 64 77 86
e
Divide 5,318,706,00 8,864,510,00 9,307,735,60 9,750,961,11
nd 0 5 0
Payout 36.29% 54.84% 56.56% 53.18%
ratio
The company's payout ratio has consistently been above 50% since 2021. This indicates that the company
is highly profitable and committed to rewarding shareholders, but it is retaining less money for future
growth.
5. Market Ratios
A. Earning per share ratio
Earnings Per Share Ratio
Year 2021 2022 2023 2024
Net 14,656,239,0 16,165,931,9 16,457,626,7 18,332,883,0
Income 15 64 77 86
Outstandi 886,451,010 886,451,010 886,451,010 886,451,010
ng Shares
EPS Ratio 16.53 18.23 18.56 20.68
EPS indicates the portion of a company's profit allocated to each outstanding share of common stock. The
consistent increase in EPS from 2021 to 2024 demonstrates healthy growth in profitability on a per-share
basis, which is generally positive for investors.
B. Price to Earning ratio
Price to Earnings Ratio
Year 2021 2022 2023 2024
Market 215.50 216.7 210.20 210.90
Price per
Share
EPS 16.53 18.23 18.56 20.68
P/E Ratio 13.03 11.88 11.32 10.19
The P/E ratio shows how much investors are willing to pay per dollar of earnings. A declining P/E ratio
over these years, while EPS is increasing, suggests that the market's valuation of the company's earnings
is decreasing, or the stock price is not increasing as fast as earnings. This could indicate that investors
perceive lower growth prospects or increased risk, or simply that the stock is becoming relatively cheaper
C. Market over book Ratio
Market over Book Ratio
Year 2021 2022 2023 2024
Market Price per Share 215.50 216.7 210.20 210.90
Book Value per Share 92.75 104.92 113.39 119.35
Market over book Ratio 2.32 2.06 1.85 1.76
This ratio compares a company's market value to its book value. A ratio greater than 1 indicates that the
market values the company higher than its accounting value. The declining trend from 2021 to 2024
suggests that the market's premium over the company's book value is decreasing. This aligns with the
declining P/E ratio and could indicate a decreasing investor optimism regarding the company's future
growth or asset valuation.
Strategic Recommendation for EFN
Strategic Recommendations
Square Pharmaceuticals Ltd. has a strong financial position, with adequate liquidity, low leverage, and
good profitability. The negative EFN for FY2025 demonstrates that external finance is not required.
Instead of looking for new financial sources, the organization should -
● Divert Surplus Funds to Strategic Initiatives:
○ Invest in research and development (R&D) to improve innovation and support
international expansion.
○ Use extra cash to pay off the company’s long-term loan early. This will reduce
interest costs and strengthen the company’s equity position.
○ Consider buying back shares since the P/E ratio is declining (10.19 in 2024). This
can help increase earnings per share (EPS) and improve shareholder value.
● Review and adjust the dividend policy:
○ Reduce the dividend payout ratio from 110% (2025 projection) to around
50–60%, which is closer to past years’ average (53–57%). This change will allow
the company to keep ৳800–900 million per year for future growth.
● Make better use of the company’s assets:
○ Work on increasing the inventory turnover ratio to 4.0× (currently at 3.23×). This
can help free up ৳3,000–4,000 million that is currently tied up in inventory.
○ Instead of holding large amounts of idle cash, invest in safe, short-term securities
to earn a better return.
● Maintain financial strength and flexibility:
Avoid taking new loans to keep the company’s debt levels low (Debt-to-Equity ratio is
already low at 5.88%).Set up undrawn credit facilities worth ৳1,000–1,500 million to
take advantage of any good investment or acquisition opportunities in the future..
