Performance evaluation and ratio analysis of Pharmaceutical Company in Bangladesh
Faruk Hossan Md Ahsan Habib
Supervisor: José Ferraz Nunes Examiner: Bengt Kjellén
Master‟s thesis in international Business 15 ECTS Department of Economic and Informatics University West Spring term 2010
0
ABSTRACT
The thesis applies performance evaluation of pharmaceutical company in Bangladesh. It means evaluate how well the company performs. The main aim is achieved through ratio analysis of two pharmaceutical (Beximco and Square pharmaceutical) companies in Bangladesh. The main data collection from the annual financial reports on Beximco and square pharmaceutical companies in 2007 to 2008.Different financial ratio are evaluated such liquidity
…show more content…
Reference 9. Appendix
Appendix-A Appendix-B Appendix-C Appendix-D Appendix-E Appendix-F
47-48 49-51 52 53-54 56-57 58 59-60 61 62 63
4
1. INTRODUCTION
This chapter gives an introduction to this thesis. A general background of the subject is followed by the thesis purpose and question, limitation of the study, thesis out line. The questions are followed by the purpose of this thesis.
1.1. Background
Performance evaluation of a company is usually related to how well a company can use it assets, share holder equity and liability, revenue and expenses. Financial ratio analysis is one of the best tools of performance evaluation of any company. In order to determine the financial position of the pharmaceutical company and to make a judgment of how well the pharmaceutical company efficiency, its operation and management and how well the company has been able to utilize its assets and earn profit.
We used ratio analysis for easily measurement of liquidity position, asset management condition, profitability and market value and debt coverage situation of the
pharmaceutical company for performance evaluation. It analysis the company use of its assets and control of its expenses. It determines the greater the coverage of liquid assets to short-term liabilities and it also compute ability to pay pharmaceutical company monthly mortgage payments from the cash generate. It measures pharmaceutical company overall efficiency and performance. It determines of share
Secondary information is collected for this case. This case study limited only one techniques of financial analysis that is Ratio Analysis and also taken a single company. Thus the conclusion of the analysis carried out in a professional manner will be able to correctly describe the evaluation of the company and to substantiate the user’s decisions.
The success of a business depends on its ability to remain profitable over the long term, while being able to pay all its financial obligations and earning above average returns for its shareholders. This is made possible if the business is able to maximize on available opportunities and very efficiently and effectively use the resources it has to create maximum value for all involved stakeholders. One way the performance of a company can be measured on critical areas such as profitability, its ability to stay solvent, the amount of debt exposure and the effectiveness in resource utilization, is performing financial analysis where a set of ratios provides a snapshot of company performance and future
Ratio analysis is a tool brought by individuals used to evaluate analysis of information in the financial statements of a business. The ratio analysis forms an essential part of the financial analysis which is a vital part in the business planning. There are 3 different ways of assessing businesses performance and these are: solvency, profitability and performance. Ratio analysis assists managers to work out the production of the company by figuring the profitability ratios. Also, the management can evaluate their revenues to check if their productivity. Thus, probability ratios are helpful to the company in evaluating its performance based on current earning. By measuring the solvency ratio, the companies are able to keep an
There is a essential use and limitations of financial ratio analysis, One must keep in mind the following issues when using financial ratios: One of the most important reasons for using financial ratio analysis is comparability and for this, a reference point is required. Usually, financial ratios are compared to historical ratios of the business itself, competitor’s financial ratios or the overall ratios of the industry in question. Performance may be adjudged as against organizational goals or forecasts. A number of ratios must be analyzed together to get a true and reliable picture of the financial performance of the business. Relying on each ratio
Ratio analysis shows the correlation within certain figures of financial statements, like current assets and current liability, and is used for three types of company needs- within, intra- and inter-company. Association can be shown in proportion, rate, or percentage and can evaluate company’s liquidity, profitability, and solvency. Liquidity ratios show company’s ability to pay obligations and fulfill needs for cash; profitability ratios show wellbeing and success for the certain time period; and solvency ratios show company’s endurance over the years.
The best way to improve this ratio and better position the business to cover its short-term obligations is to better manage current liabilities (accounts payables). Generate more profit (cash) out of each sale by increasing profit (as long as it is competitive within the industry), reducing costs of goods sold (making the product with less cost or providing services with less costs) or finding efficiencies throughout the operating cycle.
The paper illustrates that financial ratio analysis is an important tool for firm’s to evaluate their financial health in order to identify areas of weakness so as to institute corrective measures.
Ratio analysis will be used to measure the profitability, liquidity and efficiency of the named business and to analyse the performance of the business using ratio analysis.
We are going to assess profitability ratios for 2014 year, including gross profit margins, return on sales, return on total assets, return on stockholder’s equity, and earnings per share. Next we are going to discuss liquidity ratios – current ration, quick ratio. Our analysis will include leverage ratios such as debt-to-equity ratio, interest coverage. Also, we will cover activity ratios including inventory turnover, fixed asset turnover, total assets turnover and accounts receivable turnover. Lastly, we will assess the price/earning ratio, the book value per share ratio, and the cash flow per share ratio.
The success of a business depends on its ability to remain profitable over the long term, while being able to pay all its financial obligations and earning above average returns for its shareholders. This is made possible if the business is able to maximize on available opportunities and very efficiently and effectively use the resources it has to create maximum value for all involved stakeholders. One way the performance of a company can be measured on critical areas such as profitability, its ability to stay solvent, the amount of debt exposure and the effectiveness in resource utilization, is performing financial analysis where a set of ratios provides a snapshot of company performance
In Part A, I will examine liquidity and coverage ratios, assessing each company’s ability to meet its debt obligations in both the short and long term, to pay dividends, and to cover its expected operating expenses. Next, in Part B, I will inspect profitability ratios, assessing the ability of each enterprise to provide its investors with a return on their
There are many financial ratios used in evaluation of a healthcare organization’s performance but for purpose of this study, it will be limited to activity, leverage investment, liquidity and profitability.
Before beginning an analysis of a company it is necessary to have a complete set of financial statements, preferably for the pas few years so that historical trends can be obtained. Ratios are a way for anyone to get an idea of the financial performance of a company by using the information contained in the financial statements. Ratios are grouped into four basic categories, liquidity, activity, profitability, and financial leverage. This document will use a variety of these ratios to analyze the firm, Sample Company, as of December 31,2000.
For any company, the ability to meet its short-term and long-term financial goals is an essential factor in maintaining its operations and ensuring future growth. A company evaluation at regular time intervals helps to check its financial health, its capital structure and its potential to attract investors.
Ratio analysis is the fundamental indicator of company’s performances for so many years; it is also can be seen as the very first step to measure a company’s performance along with its financial position. Moreover, ratio analysis has been researched and developed for many years, Bliss had presented the first coherent system of ratios, and he also stated that ratios are “indicator of the status of fundamental relationship within the business” Horrigan (1968). However there are some arguments on whether the ratio analysis is useful or not since to conduct these analyses will be costly to the company, also there are several limitations on how these ratios work. Therefore, the usefulness and the limitation of ratio analysis will be discussed further in this essay, with the use of easyJet’s annual report as examples.