report body fbk 313

Analysis on propensity to be bankrupt: Pharmaceuticals Industry Bangladesh

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Title: “Analysis on propensity to be bankrupt: Pharmaceuticals

Industry Bangladesh‖

Abstract:

The purpose of this study is to learn about financial distress identify

the causes of financial distress, internal and external factors of

financial distress, what are the symptoms of financial distress and the

remedies of financial distress. This report will also cover a detail

about bankruptcy, the common causes of being failure of a firm. We

also discuss the popular Z-Score model which renowned for

calculating the possibility of being bankrupt. And last this report will

present the practical application of Z-Score model on ten

pharmaceuticals companies which are operate their business in

Bangladesh.

Key words:

Bankruptcy, Financial distress, Pharmaceuticals industries, Z-Score model.


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Chapter: 1

Introduction


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1.1.Introduction:

Companies are never protected against bankruptcy. Either in an economic expansion or in a

recession, firms are likely to go bankrupt. An important competitive advantage is to

understand the factors which lead to bankrupt a firm and to calculate the propensity of being

bankrupt of a firm earlier.

The purpose of this study is to assess the issue propensity of being bankrupt. This is

attempted by studying ten companies of Bangladesh pharmaceutical Industry. This study

combines both theoretical and investigational interest. From a theoretical perspective this

study discusses about the financial distress, bankruptcy and well-known Z-score model, and

from an investigational perspective it will provide the data of ten pharmaceutical companies

of Bangladesh this part also concrete on the implication of well-known Z-Score model to take

decision about the propensity of being bankrupt of the investigated firm.

1.2.Objective of the study:

The study mainly focuses on the analysis of the possibility of being bankrupt of a firm. The

other specific objectives are as follows:

1. To explore what is financial distress and causes of financial distress.

2. To identify the symptoms of financial distress and remedies for financial distress.

3. To explore the causes of bankruptcy. and

4. To know the application of the Altman Z-Score model.

1.3.Limitation of the study:

In order to structure this study, three major limitations are set. The first one concerns the

model. Previous knowledge regarding this topic is very low. It is totally new to us and we

didn‘t work with this model before. However; the model used will apply only quantitative

data. Specifically, only financial statement data will be selected as they are available.

Second, Data Constraint, as secondary and processed data has been used to prepare the

report, deep and diversified insights cannot be brought down in several cases.


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Finally the Time constraint, the period spent to prepare the report was not sufficient to have

effective insight,

1.4.Methodology of the study:

It is an exploratory research. Here we tried to explore the propensity of being bankrupt. We

take nine pharmaceuticals company as sample size. We analyze their financial statements and

annual reports to collect the essential information to conduct the study. In this study we used

both Primary & Secondary data. Primary data collected from analyzing company‘s financial

statement and visiting Dhaka Stock Exchange Commission. Secondary data were collected

from different articles of recognized journals, from surfing internet and other related sources.

It took almost two month to prepare this report.

In this report we mainly tried to analyze the possibility of bankruptcy through using Z-Score

model. The ingredients of Z-Score model of this model is mentioned below.

X 1 = Working Capital / Total Assets, X 2 = Retained Earnings / Total Assets,

X 3 = Earnings Before Interest and Taxes / Total Assets, X 4 = Market Value of Equity /

Total Liabilities, X 5 = Sales/ Total Assets.

The Z score bankruptcy model is: Z = 1.2X 1 + 1.4X 2 + 3.3X 3 + 0.6X 4 + .999X 5.

The Discrimination zones are as follows:

Z > 2.99 -―Safe‖ Zones, 1.81 < Z < 2.99 -―Grey‖ Zones, Z < 1.81 -―Distress‖ Zones

We also analyze the liquidity ratio and debt management ratio to predict the possibility of

bankruptcy. We tried to represents the data or information by different tables and graph.

Theoretical discussion chapter we tried to show what is financial distress , causes of financial

distress, cost of financial distress and a brief discussion about bankruptcy ,Z-Score model and

etc.


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Chapter 2

Theoretical framework


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2.1. Bangladesh Pharmaceutical Industry:

In Bangladesh Pharmaceutical sector is one of the most developed hi tech sector which is

contributing in the country's economy. After the promulgation of Drug Control Ordinance -

1982, the development of this sector was accelerated. The professional knowledge, thoughts

and innovative ideas of the pharmacists working in this sector are the key factors for this

development. Due to recent development of this sector we are exporting medicines to global

market including European market. This sector is also providing 95% of the total medicine

requirement of the local market. Leading Pharmaceutical Companies are expanding their

business with the aim to expand export market. Recently few new industries have been

established with hi tech equipments and professionals which will enhance the strength of this

sector.

2.2. Contribution to the economy of Bangladesh:

The pharmaceutical industries in Bangladesh are gifted with unparalleled potential to grow in

the days ahead as they enjoy a number of competitive advantages, industry insiders said. The

$700 million sector with more than 230 manufacturers is continuously expanding with new

products to new international destinations. Among all the 50 LDC countries Bangladesh is

the only country having quality pharmaceutical manufacturing base with marketing potential,

and exporting to at least 80 destinations of the world. Almost all companies are equipped

with World Health Organization (WHO) Good Manufacturing Practice (GMP) standards.

It has the ability to face competition from developing countries like India, China, Brazil and

Turkey in its export markets due to strict quality compliance, The export value of

pharmaceuticals is small but growing at 50 percent per year. Exports increased from $8.2

million in 2004 to $28.3 million in 2007, while export destinations climbed from 37 countries

to 72 during the period.


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2.3 .Financial Distress:

Financial distress is a term in corporate finance used to indicate a condition when promises to

creditors of a company are broken or honored with difficulty. If financial distress cannot be

relieved, it can lead to bankruptcy. Financial distress is usually associated with some costs to

the company; these are known as costs of financial distress.

A company under financial distress can incur costs related to the situation, such as more

expensive financing, opportunity costs of projects and less productive employees. The firm's

cost of borrowing additional capital will usually increase, making it more difficult and

expensive to raise the much needed funds. In an effort to satisfy short-term obligations,

management might pass on profitable longer-term projects. Employees of a distressed firm

usually have lower morale and higher stress caused by the increased chance of bankruptcy,

which would force them out of their jobs. Such workers can be less productive when under

such a burden.

Simply, financial distress means severe liquidity problems that cannot be resolved without a

sizable rescaling of the entity‘s operations or structure.

2.3.1.Causes of financial distress:

I. Inadequate financing: the business didn‘t start with enough finance and has

struggled from day one.

II. Missing of essential skill: The management team is unbalanced and there are

essential skill missing.

III. Making wrong decisions: A small number of big decisions have been made which

were wrong.

IV. Nasty economy: The economy has turned nasty, reducing demand, increasing interest

rates and a worsening foreign exchange rate.

V. Inadequate financial control: There is inadequate financial control and the senior

managers are not aware of how badly the business is performing.

VI. Lack of idea generation: Innovative products from competitors or from substitute

solutions reduce the attractiveness of the company‘s products and services.

VII. Competitive market: The business is in a price war.


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VIII. Absence of management succession: The owner/CEO suffers severe ill health or dies

and there is no management succession.

IX. Catastrophic loss: The business suffers a catastrophic loss e.g. the factory burns down

, a major customer is bankrupt creating a major bad debt or the business has massive

legal claim against it.

There are some other reasons of financial distress and Broadly these reasons can be classified

into internal causes and external causes

2.3.2.Internal causes:

The internal causes of financial distress are many. Some of the main internal causes are

discussed following:

The managerial incompetency can leads a firm to financial distress. Wrong capital structure,

wrong investment decision lack of financial discipline heavy debt burden also can leads a

firm to the way of financial distress. Over investment in fixed asset raise the firms cost to a

great extent which may bring financial crisis for a firm. Bad cash planning and control,

Ineffective leadership, inadequate sales promotion, irrational price structure may also cause

financial distress. Lack expenditure control may also create crisis of working capital.

Sometimes excessive borrowing may causes the debt to asset ratios to much high this may

also bring financial distress for a firm etc..

2.3.3.External Environment:

The external environment may also affect the operations of a company adversely. Some of

the major issues, which are generated by the external environment, are:

1. Government policies regarding taxation, power tariff, power supply, customs duties

and import duties, restrictions on imports and exports etc.

2. Quota system imposed by the government on raw materials/ finished goods

3. Development of new technology

4. Sudden withdrawal by some of the major customers resulting into decline in orders

5. A change in the consumers‘ tastes and preferences


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6. Strained relationship with the external government

7. A change in the lending policies of the financial institutions

2.3.4.Warning signs of financial distress:

We have all heard the saying, ‗cash is king‘, but when it comes to running a business,

ensuring the business have sufficient cash to pay staff, GST obligations, debtors and other

operational expenses is crucial to maintaining the ongoing viability of your business. Despite

the importance of preserving strong cash flow, many business owners fail to monitor their

cash position, often ignoring the warning signs, which if left unchecked, could sound the

death knell of their business. The following are some important signs for financial distress:

I. Desperate short of cash. Borrowing capacity exhausted.

II. Pressure of suppliers for faster payment.

III. Loss of capital in the market.

IV. High leverage because of over borrowings.

V. Lack of proper maintenance of plant, machinery and equipments.

VI. Poor asset turnover.

VII. Large accumulation of inventories.

VIII. Suppliers showing reluctance to offer trade discounts.

2.3.5. Cost of financial distress:

The distress condition involves costs. The primary cost is the bankruptcy or insolvency costs.

When the company is declared as insolvent/ bankrupt, it has to meet legal costs by way of

reimbursement of expenses incurred by the receiver, his salaries and allowances. The cost of

financial distress depends on the probability of distress and management of the distress costs

(Brealey and Myers –2000). The bankruptcy cost to the owners depends on the type of

organization. In a sole proprietorship or partnership form of organization, the

proprietor/partners have to bear the costs. But in a joint stock company, where the liability of

members is limited, the shareholders can walk off leaving the burden on the creditors. The

loss to the shareholders depends on the value of the firm. A firm which was enjoying high

market value, if suddenly turn to bankrupt, the shareholders may feel the loss heavy because


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of the sudden decline in the value of shares and thereby the decrease in their wealth. Now the

question is whether the losses are for the shareholders alone. What about the other

stakeholders like employees, suppliers of raw materials and spares, ancillary units and their

employees, the shops and establishments in and around the company, retail outlets of the

company, the state and the central governments, local administration etc. In a broader sense,

the distress cost has to be born be the whole village or township or the area where the

company is located. A distressed firm will always look for more funds and start borrowing

heavily. This increases their leverage pushing them to a debt trap. Apart from the normal

interest cost; a distressed firm has to pay overdue interest for the default too. Besides since

the firm may be defaulting submission of essential financial and other information to the

lenders, they may have to face penalty as well. The distressed firm will find it difficult to

raise funds due to poor credit rating. Such firms may have to pay higher interest charges on

their borrowings. This is in addition to the sacrifices they have to make by way of wage cut,

cost reduction, expenditure cut etc.

2.4.Bankruptcy:

The word bankruptcy is derived from Italian banca rotta, meaning "broken bench", which

may stem from a custom of breaking a moneychanger's bench or counter to signify his

insolvency, or which may be only a figure of speech. Bankruptcy is a legal status of a person

or other entity that cannot repay the debts it owes to creditors. In most jurisdictions,

bankruptcy is imposed by a court order, often initiated by the debtor.

Legal procedure for liquidating a business (or property owned by an individual ) which

cannot fully pay its debts out of its current assets . Bankruptcy can be brought upon itself by

an insolvent debtor (called 'voluntary bankruptcy ') or it can be forced on court orders issued

on creditors ' petition (called 'involuntary bankruptcy'). Two major objectives of a bankruptcy

are (1) fair settlement of the legal claims of the creditors through an equitable distribution of

debtor's assets, and (2) to provide the debtor an opportunity for fresh start. Bankruptcy

amounts to a business-failure, but voluntary winding up does not.


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2.4.1. Common Causes of failure or being bankrupt:

1. Choosing a business that isn't very profitable: Even though the company generates

lots of activity, the profits never materialize to the extent necessary to sustain an on-

going company.

2. Inadequate cash reserve: If a company don't have enough cash to carry itself through

the first six months or so before the business starts making money, its prospects for

Success are not good

3. Failure to clearly define and understand market, customers, and customers' buying

habits: Who are the target customers? The company should be able to clearly identify

them in one or two sentences. How is it going to reach them? Is its product or service

seasonal? What will it do in the off- season? How loyal are its potential customers to

their current supplier? Do customers keep coming back or do they just purchase one

time.

4. Failure to price your product or service correctly: The company must clearly define

its pricing strategy. It can be the cheapest or can be the best, but if it try to do both,

it'll fail.

5. Overgeneralization: Trying to do everything for everyone is a sure road to ruin.

Spreading the activity too thin diminishes quality. The market pays excellent rewards

for excellent results, average rewards for average results, and below average rewards

for below average results.

6. Overdependence on a single customer: At first, it looks great. But then the company

will realize the company is at their mercy. Whenever it have one customer so big that

losing them would mean closing up shop, watch out. Having a large base of small

customers is much preferred.

7. Putting up with inadequate management: A common problem faced by Successful

companies is growing beyond management resources or skills. As the company

grows, the company may surpass certain individuals' ability to manage and plan. If a

change becomes necessary, don't lower its standards just to fill vacant positions or to

accommodate someone within the organization. Decide on the skills necessary for the

position and insist the individual has them.


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2.5.Financial Ratios used for Calculating Z-Score:

The ratios used for calculating Z-Score are giveown bel

2.5.1.Working Capital to Total Asset

Working capital is the difference between current assets and liabilities. Current assets are

those assets that will be converted to cash within one year. Examples include accounts

receivable and inventory. Current liabilities are those liabilities that are due in less than one

year. Examples include accounts payable and other short-term debts. Together, the two items

represent working capital, where working refers to those assets and liabilities that are closest

to being used or paid off. The ratio of working capital to total assets is a ratio that helps

analysts and investors to gauge the operational efficiency of a company's management.

Working capital to Total Asset calculation is given below:

2.5.2.Retained Earnings to Total Asset:

The retained earnings of a company are the percentage of net earnings not paid out as

dividends; they are ―retained‖ to be reinvested in the firm or used to pay down debt. Retained

earnings are calculated as follows:

Beginning retained earnings + net income (net loss) – dividends paid

The ratio of retained earnings to total assets helps measure the extent to which a company

relies on debt, or leverage. The lower the ratio, the more a company is funding assets by

borrowing instead of through retained earnings which, again, increases the risk of bankruptcy

if the firm cannot meet its debt obligations.

Retained Earnings to Total Asset calculation formula is following:


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2.5.3.EBIT to Total Asset:

Earnings before interest and tax (EBIT) to total assets ratio indicates a proportion between the

measure that shows company‘s profitability and company‘s assets. In short, it represents

general profitability of the company‘s assets. Data to calculate this ratio is collected from the

income statement and balance sheet.

Calculation formula is following:

This ratio is similar to ROA ratio. The only difference if that when calculating ROA, we use

net earnings (net income), whereas in EBIT/TA ratio we use earnings before interest and tax.

2.5.4.Market value of Equity to Total Liability

The ratio of market value of equity to total liabilities shows how much a company‘s market

value (as measured by market capitalization, or share price times shares outstanding) could

decline before liabilities exceeded assets.

Calculation formula is :

Unlike the other ratio components used by the Z-Score, market value isn‘t based purely on

fundamentals—the market capitalization of a firm is an indication of the market‘s confidence

in a company‘s financial position. Generally speaking, the higher the market capitalization of

a company, the higher the likelihood that the firm can survive going forward.

2.5.5. Sales to Total asset:

The ratio of sales to total assets, more commonly referred to as asset turnover, measures the

amount of sales generated by a company for every money‗s worth of its assets.

http://www.financialratioss.com/profitability-ratios/return-on-assets


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In other words, asset turnover is an indication of how efficiently a company is as using its

assets to generate sales. The higher the number the better, while low or falling asset turnover

can signal a failure by the company to expand its market share.

.2.6.Liquidity ratio:

The degree to which an asset or security can be bought or sold in the market without affecting

the asset's price. Liquidity is characterized by a high level of trading activity. Assets that can

be easily bought or sold are known as liquid assets.

Common liquidity ratios include the current ratio, the quick ratio and the operating cash flow

ratio. Different analysts consider different assets to be relevant in calculating liquidity. Some

analysts will calculate only the sum of cash and equivalents divided by current liabilities

because they feel that they are the most liquid assets, and would be the most likely to be used

to cover short-term debts in an emergency.

A company's ability to turn short-term assets into cash to cover debts is of the utmost

importance when creditors are seeking payment. Bankruptcy analysts and mortgage

originators frequently use the liquidity ratios to determine whether a company will be able to

continue as a going concern.

2.6.1.Current ratio:

The ratio is mainly used to give an idea of the company's ability to pay back its short-term

liabilities (debt and payables) with its short-term assets (cash, inventory, receivables). The

higher the current ratio, the more capable the company is of paying its obligations. A ratio

under 1 suggests that the company would be unable to pay off its obligations if they came due

at that point. While this shows the company is not in good financial health, it does not

necessarily mean that it will go bankrupt - as there are many ways to access financing - but it

is definitely not a good sign

Calculation Formula is

;The current ratio can give a sense of the efficiency of a company's operating cycle or its

ability to turn its product into cash. Companies that have trouble getting paid on their

receivables or have long inventory turnover can run into liquidity problems because they are


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unable to alleviate their obligations. Because business operations differ in each industry, it is

always more useful to compare companies within the same industry.

2.6.2Quick Ratio:

An indicator of a company‗s short-term liquidity. The quick ratio measures a company‗s

ability to meet its short-term obligations with its most liquid assets. For this reason, the ratio

excludes inventories from current assets, and is calculated as follows:

Quick ratio = (current ask ets – inventories) / current liabilities, or = (cash and equivalents +

marketable securities + accounts receivable) / current liabilities

The quick ratio measures the dollar amount of liquid assets available for each dollar of

current liabilities. Thus, a quick ratio of 1.5 means that a company has Tk. 1.50 of liquid

assets available to cover each Tk.1 of current liabilities. The higher the quick ratio, the better

the company's liquidity position. Also known as the ―acid-test ratio" or "quick assets ratio."

2.7.Debt Management Ratio:

Debt Management Ratios attempt to measure the firm's use of Financial Leverage and ability

to avoid financial distress in the long run. These ratios are also known as Long-Term

Solvency Ratios.

Debt is called Financial Leverage because the use of debt can improve returns to stockholders

in good years and increase their losses in bad years. Debt generally represents a fixed cost of

financing to a firm. Thus, if the firm can earn more on assets which are financed with debt

than the cost of servicing the debt then these additional earnings will flow through to the

stockholders. Moreover, our tax law favors debt as a source of financing since interest

expense is tax deductible.

With the use of debt also comes the possibility of financial distress and bankruptcy.The

amount of debt that a firm can utilize is said to a great extent by the characteristics of the

firm's industry. Firms which are in industries with volatile sales and cash flows cannot utilize

debt to the same extent as firms in industries with stable sales and cash flows. Thus, the

optimal mix of debt for a firm involves a tradeoff between the benefits of leverage and

possibility of financial distress.


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2.7.1.Debt to Total Assets Ratio:

Debt to Total Assets Ratio:

A financial ratio that measures the extent of a company‘s or consumer‘s leverage. The debt

ratio is defined as the ratio of total debt to total assets, expressed in percentage, and can be

interpreted as the proportion of a company‘s assets that are financed by debt.

The higher this ratio, the more leveraged the company and the greater its financial risk. Debt

ratios vary widely across industries, with capital-intensive businesses such as utilities and

pipelines having much higher debt ratios than other industries like technology. In the

consumer lending and mortgage businesses, debt ratio is defined as the ratio of total debt

service obligations to gross annual income.

2.7.2.The times interest earned:

The times interest earned ratio indicates the extent of which earnings are available to meet

interest payments.

A lower times interest earned ratio means less earnings are available to meet interest

payments and that the business is more vulnerable to increases in interest rates. It may be

calculated as either EBIT by the total interest payable.

Interest Charges = Traditionally "charges" refers to interest expense found on the income

statement.

Times Interest Earned or Interest Coverage is a great tool when measuring a company's

ability to meet its debt obligations. When the interest coverage ratio is smaller than 1, the

company is not generating enough cash from its operations EBIT to meet its interest

obligations. The Company would then have to either use cash on hand to make up the

difference or borrow funds. Typically, it is a warning sign when interest coverage falls below

2.5xs.

http://en.wikipedia.org/wiki/Earnings_before_interest_and_taxes

http://en.wikipedia.org/wiki/Interest


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2.8.Z-Score Model:

The Altman Z-Score (named after Edward Altman, the New York University professor who

devised it) is a statistical tool used to measure the likelihood that a company will go bankrupt.

The formula may be used to predict the probability that a firm will go into bankruptcy within

two years. Z-scores are used to predict corporate defaults and an easy-to-calculate control

measure for the financial distress status of companies in academic studies. The Z-score uses

multiple corporate income and balance sheet values to measure the financial health of a

company.

2.8.1.The Z-Score Ingredients

The Z-Score is calculated by multiplying each of several financial ratios by an appropriate

coefficient and then summing the results. The ratios rely on these financial measures:

1. Working Capital is equal to Current Assets minus Current Liabilities.

2. Total Assets is the total of the Assets section of the Balance Sheet.

3. Retained Earnings is found in the Equity section of the Balance Sheet.

4. EBIT (Earnings Before Interest and Taxes) includes the income or loss from

operations and from any unusual or extraordinary items but not the tax effects of

these items. It can be calculated as follows: Find Net Income; add back any

income tax expenses and subtract any income tax benefits; then add back any

interest expenses.

5. Market Value of Equity is the total value of all shares of common and preferred

stock. The dates these values are chosen need not correspond exactly with the

dates of the financial statements to which the market value is compared.

6. Net Worth is also known as Shareholders' Equity or, simply, Equity. It is equalto

Total Assets minus Total Liabilities. Book Value of Total Liabilities is the sum of

all current and long-term liabilities from the Balance Sheet.

7. Sales include other income normally categorized as revenues in the firm's Income

Statement.


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2.8.2.Interpretation of The Z-Score:

The Z-Score is not intended to predict when a firm will file a formal declaration of

bankruptcy in a federal district court. It is instead a measure of how closely a firm resembles

other firms that have filed for bankruptcy. It is a measure of corporate financial distress, a

measure of economic bankruptcy.

The Z Score model is a tool that can complement your other analytical tools. Seldom,

however, should you use any of the Z Score measures as your only means of analysis.

The original Z-score formula was as follows:

Z = 1.2X 1 + 1.4X 2 + 3.3X 3 + 0.6X 4 + 0.999X 5.

X 1 = Working Capital / Total Assets. Measures liquid assets in relation to the size of the

company.

X 2 = Retained Earnings / Total Assets. Measures profitability that reflects the company's age

and earning power.

X 3 = Earnings Before Interest and Taxes / Total Assets. Measures operating efficiency apart

from tax and leveraging factors. It recognizes operating earnings as being important to long-

term viability.

X 4 = Market Value of Equity / Book Value of Total Liabilities. Adds market dimension that

can show up security price fluctuation as a possible red flag.

X 5 = Sales/ Total Assets. Standard measure for total asset turnover (varies greatly from

industry to industry)

Z score bankruptcy model :m

Z = 1.2X 1 + 1.4X 2 + 3.3X 3 + 0.6X 4 + .999X 5

Zones of Discrimination:

Z > 2.99 -―Safe‖ Zones, 1.81 < Z < 2.99 -―Grey‖ Zones, Z < 1.81 -―Distress‖ Zones


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Chapter 3

Data Analysis


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3.1. Z-Score Data Analysis:

In this chapter we analyze the Z-Score model on ten Pharmaceuticals Company which are

operating their business in our country. But, first we briefly discussed about the overview of

the Bangladesh Pharmaceuticals Industries and its contribution to the economic development

of Bangladesh

3.2.Tabulation of Data:

In this segment the data which are collected from Dhaka Stock Exchange and analyzing

company‘s financial report are presented in tabular form under the particular company‘s

head. Then Z-score is calculated the values of Z-Score getting from different years are

presented in a graph named Z-Score tendency of respective company.

3.2.1. Working Capital to Total Asset:

Working capital is a company‘s current assets less its current liabilities and measures a

company‘s efficiency and its short-term financial health. Positive working capital means that

the company is able to meet its short-term obligations. Negative working capital means that a

company‘s current assets cannot meet its short-term liabilities; it could have problems paying

back creditors in the short term, ultimately forcing it into bankruptcy. Companies with

healthy, positive working capital shouldn‘t have problems paying their bills.


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The following represents the Working capital to total asset ratio of assigned nine

Pharmaceuticals Company.

Sl.

No.

Company name Year Average

2012 2011 2010 2009 2008

1. ACI Limited 0.09336 0.147687 0.176947 0.157987 0.085086 0.132214

2. Ambee Pharmaceuticals 0.03095 0.017319 0.001343 -0.0007 -0.01224 0.007336

3. Beximco Pharmaceuticals 0.20872 0.195382 0.17211 0.23101 0.02171 0.021710

4. Glaxo Smithkline 0.36959 0.417691 0.51124 0.34634 0.66009 0.460993

5. IBN Sina 0.04125 0.012950 -0.02222 -0.1184 -0.08662 -0.03461

6. Libra infusion 0.02306 0.017556 -0.05224 -0.1498 -0.06873 -0.04603

7. Pharma Aids 0.28500 0.237353 0.160043 0.07475 -0.78798 -0.00616

8. Reneta pharma ltd. 0.04443 -0.11983 -0.02594 0.10568 0.891605 0.179189

9. Square Pharma ltd. 0.00158 0.116183 0.12106 0.17016 0.090757 0.099951

10. Industry average 0.12199 1.225481 0.11581 0.09077 0.088185 0.106518

Table no. 1: Working Capital to Total asset of nine Pharmaceuticals company

By analyzing the above table we can said that almost all the company have working capital

shortage. It could have problems paying back creditors in the short term, ultimately forcing it

into bankruptcy. Some of the company has negative results for example in 2009 and 2008

Ambee Pharma. has negative working capital to total asset ratio . Libra infusion and IBN

Sina have faced same problem like Ambee pharma in 2008,2009 and 2010. Their average

performance of last five years was also negative. Pharma Aids and Reneta Pharma ltd. was

Also faced the same problem in 2008 and 2010, 2011 respectively.


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The following graph shows the Working Capital to Total Asset ratio of nine Pharmaceuticals

company:

Graph no. 1: Working Capital to total asset of nine Pharmaceuticals company

-1.00 -0.50 0.00 0.50 1.00 1.50

ACI Limited

Ambee Pharmaceuticals

Beximco Pharmaceuticals

Glaxo Smithkline

IBN Sina

Libra infusion

Pharma Aids

Reneta pharma ltd.

Square Pharma ltd.

Industry average

ACILimited

AmbeePharmaceuticals

BeximcoPharmaceuticals

GlaxoSmithklin

eIBN Sina

Librainfusion

PharmaAids

Renetapharma

ltd.

SquarePharma

ltd.

Industryaverage

Average 0.13 0.01 0.02 0.46 -0.03 -0.05 -0.01 0.18 0.10 0.11

2008 0.09 -0.01 0.02 0.66 -0.09 -0.07 -0.79 0.89 0.09 0.09

2009 0.16 0.00 0.23 0.35 -0.12 -0.15 0.07 0.11 0.17 0.09

2010 0.18 0.00 0.17 0.51 -0.02 -0.05 0.16 -0.03 0.12 0.12

2011 0.15 0.02 0.20 0.42 0.01 0.02 0.24 -0.12 0.12 1.23

2012 0.09 0.03 0.21 0.37 0.04 0.02 0.29 0.04 0.00 0.12

Working Capital to total asset of nine Pharmaceuticals company


23

The graph above represents the condition of working capital to total asset ratio of nine listed

pharmaceuticals companies. The graph shows that Libra infusion, Reneta Pharma Ltd,

Pharma Aids and IBN Sina have some negative Working capital to Total Asset ratio. The

other companies have not a satisfactory performance all most all the company have a working

capital ratio bellow one. This can create a problem to satisfy the day to day business activities

and ultimately can lead to the bankruptcy.

3.2.2. Retained Earnings to Total Asset:

The ratio of retained earnings to total assets helps measure the extent to which a company

relies on debt, or leverage. The lower the ratio, the more a company is funding assets by

borrowing instead of through retained earnings which, again, increases the risk of bankruptcy

if the firm cannot meet its debt obligations.

The following represents the Retained Earnings to Total Asset ratio of assigned nine

Pharmaceuticals Company.

Sl.

No.

Company

name

Year Average

2012 2011 2010 2009 2008

1. Aci limited 0.263848 0.282643 0.277821 0.306039 0.215949 0.26926

2. Ambee pharma 0.097352 0.009114 0.08261 0.07714 0.076565 0.06855

3. Beximco Pharma 0.272518 0.255706 0.23803 0.21528 0.270256 0.25036


5. IBN Sina 0.157527 0.280730 0.24989 0.17187 0.183435 0.20869

6. Libra infusion 0.017269 0.017242 0.01595 0.07659 0.099301 0.04527

7. Pharma Aids 0.351693 0.353767 0.58912 0.54350 0.503229 0.46826

8. Reneta Pharma 0.453548 0.447604 0.82358 0.82632 0.423263 0.59486

9. Square pharma ltd 0.541537 0.516355 0.42959 0.45258 0.414972 0.47100


Table no. 2: Retained Earnings to Total asset Ratio of nine Pharmaceuticals Company

The table above shows the retained earnings to total asset ratio of nine listed pharmaceuticals

company. The table shows that all the company have the retained earnings to total asset ratio

bellow one. What does it mean? It means all the firm chooses borrowing rather than retained


24

earnings to finance their project which, again, increases the risk of bankruptcy if the firm cannot

meet its debt obligations.

The following graph represents the Retained Earnings to Total Asset of Respective Nine Listed

Pharmaceuticals Company

Graph no. 2: Retained Earnings to Total asset Ratio of nine Pharmaceuticals Company

The graph shows that the retained earnings to total asset ratios of nine Pharmaceuticals Company

listed in DSE from the graph shows that all the companies have the ratio bellow one which, indicates

0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90

Aci limited

Ambee pharma

Beximco Pharma

Glaxo Smithkline

IBN Sina

Libra infusion

Pharma Aids

Reneta Pharma

Square pharma ltd

Industry average

Acilimited

Ambeepharma

BeximcoPharma

GlaxoSmithklin

eIBN Sina

Librainfusion

PharmaAids

RenetaPharma

Squarepharma

ltd

Industryaverage

Average 0.27 0.07 0.25 0.51 0.21 0.05 0.47 0.59 0.47 0.32

2008 0.22 0.08 0.27 0.53 0.18 0.10 0.50 0.42 0.41 0.31

2009 0.31 0.08 0.22 0.58 0.17 0.08 0.54 0.83 0.45 0.36

2010 0.28 0.08 0.24 0.55 0.25 0.02 0.59 0.82 0.43 0.36

2011 0.28 0.01 0.26 0.48 0.28 0.02 0.35 0.45 0.52 0.30

2012 0.26 0.10 0.27 0.42 0.16 0.02 0.35 0.45 0.54 0.29

Retained Earnings to Total Asset of Respective Nine Listed Pharmaceuticals Company


25

that the companies finance their projects through bond rather than retained earnings. If the company

fails to repay the loan the creditors may force to declare the firm bankrupt.

3.2.3 .EBIT to Total Asset:

This is a variation on return on assets, which is net income divided by total assets. This ratio

assesses a firm‘s ability to generate profits from its assets before deducting interest and taxes.

The following represents the Earnings before Interest and tax to Total Asset ratio of assigned

nine Pharmaceuticals Company listed in DSE.

Sl

No.

Company

name

Year Average

2012 2011 2010 2009 2008

1. ACI Ltd 0.05577 0.080498 0.08342 0.14718 0.15829 0.10503

2. Ambee Pharma 0.084032 0.081596 0.073535 0.07193 0.06605 0.07543

3. Beximco Pharma 0.08978 0.086330 0.07653 0.05033 0.06739 0.07407

4. Glaxso smith 0.12259 0.160266 0.24431 0.25381 0.15607 0.18741

5. IBN Sina 0.08352 0.113823 0.12535 0.07888 0.10257 0.10083

6. Libra Infusion 0.01235 0.016015 0.01427 0.06580 0.09257 0.04020

7. Pharma Aids 0.17949 0.187298 0.06946 0.14979 0.16398 0.15000

8. Reneta Pharma 0.22158 0.223278 0.43018 0.43904 0.23195 0.30920

9. Square Pharma 0.16431 0.154804 0.14151 0.17895 0.17873 0.16366

10. Industry Average 0.10613 0.11863 0.13963 0.15709 0.12985 0.13027

Table no. 3: EBIT to Total asset Ratio of nine Pharmaceuticals Company

The ratio represents the firm‘s ability to generate profit using its asset. But in the table all the

companies have EBIT to Total Asset ratio bellow one it is not necessary that the result must

have to greater than one but the ratio should represents a satisfactory performance. Among

the nine companies Reneta pharma Ltd. is performing well than other. The lower the ratio is

the higher chance of being bankrupt.


26

The following graph represents the situation of earnings before interest and tax over

company‘s total asset.

Graph no. 3: EBIT to Total asset Ratio of nine Pharmaceuticals Company

0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35 0.40 0.45 0.50

ACI Ltd

Ambee Pharma

Beximco Pharma

Glaxso smith

IBN Sina

Libra Infusion

Pharma Aids

Reneta Pharma

Square Pharma

Industry Average

ACI LtdAmbeePharma

BeximcoPharma

Glaxsosmith

IBN SinaLibra

InfusionPharma

AidsRenetaPharma

SquarePharma

IndustryAverage

Average 0.11 0.08 0.07 0.19 0.10 0.04 0.15 0.31 0.16 0.13

2008 0.16 0.07 0.07 0.16 0.10 0.09 0.16 0.23 0.18 0.13

2009 0.15 0.07 0.05 0.25 0.08 0.07 0.15 0.44 0.18 0.16

2010 0.08 0.07 0.08 0.24 0.13 0.01 0.07 0.43 0.14 0.14

2011 0.08 0.08 0.09 0.16 0.11 0.02 0.19 0.22 0.15 0.12

2012 0.06 0.08 0.09 0.12 0.08 0.01 0.18 0.22 0.16 0.11

EBIT to Total asset Ratio of nine Pharmaceuticals Company


27

This graph shows that almost all the company has poor results. They are not able enough to

earn a satisfactory profit. But Reneta Pharmaceuticals has almost 31% EBIT to Total Asset

Ratio. Among all company Libra Infusion has been performing very pitiable

3.2.4. Market value of Equity to Total Liability:

The ratio of market value of equity to total liabilities shows how much a company‘s market

value (as measured by market capitalization, or share price times shares outstanding) could

decline before liabilities exceeded assets.

Sl.

No.

Company

name

Year Average

2012 2011 2010 2009 2008

1. Aci limited 0.413143 0.64350 1.38290 1.92762 1.78951 1.23133

2. Ambee Pharma 2.001283 3.65376 4.18520 1.73405 1.15549 2.54596

3. Beximco parma 2.754818 3.99062 5.09086 2.61475 4.83425 3.85706

4. Glaco smithkline 4.34959 6.78859 18.2613 16.2423 8.83403 10.8951

5. IBN Sina 3.51809 4.80424 4.88910 3.59483 2.75765 3.91278

6. Libra infusion 0.51274 0.97251 0.53626 0.59164 0.81746 0.68612

7. Pharma Aids 10.4456 20.4242 5.06696 3.28584 4.17082 8.67870

8. Reneta 4.46010 7.29311 4.57451 10.5993 6.00636 6.58668

9. Square Pharma 1.43864 12.1161 11.4077 15.5500 10.7309 10.2487


Table no. 4: Market Value of Equity to Total liability Ratio of nine Pharmaceuticals

Company

The table shows the investors preference towards the company‘s stock. We get the results

dividing market value of equity by total liabilities. In this table we see that Glaco smithkline

has the highest average. Where ACI Ltd. and Libra Infusion have the lowest average. So it

means that investor has less preference towards the ACI Ltd. and Libra infusion.where as

Glaxo smithkline and Squar pharma dominating the market.


28

The graph below shows the Market Value of Equity to atotal asset Ratio of nine

Pharmaceuticals Company

Graph no. 4: Market Value of Equity to Total Liability Ratio of nine Pharmaceuticals

Company

0.00 5.00 10.00 15.00 20.00 25.00

Aci limited

Ambee Pharma

Beximco parma

Glaco smithkline

IBN Sina

Libra infusion

Pharma Aids

Reneta

Square Pharma

Industry average

Acilimited

AmbeePharma

Beximcoparma

Glacosmithkli

neIBN Sina

Librainfusion

PharmaAids

RenetaSquarePharma

Industryaverage

Average 1.23 2.55 3.86 10.90 3.91 0.69 8.68 6.59 10.25 5.40

2008 1.79 1.16 4.83 8.83 2.76 0.82 4.17 6.01 10.73 4.57

2009 1.93 1.73 2.61 16.24 3.59 0.59 3.29 10.60 15.55 6.24

2010 1.38 4.19 5.09 18.26 4.89 0.54 5.07 4.57 11.41 6.15

2011 0.64 3.65 3.99 6.79 4.80 0.97 20.42 7.29 12.12 6.74

2012 0.41 2.00 2.75 4.35 3.52 0.51 10.45 4.46 1.44 3.32

Market Value of Equity to atotal asset Ratio of nine Pharmaceuticals Company


29

The graph shows that the company‘s Market Value of Equity to Total asset Ratio, the

findings are the Square Pharmaceuticals and Glaxo smithkline have better performance.

Whereas Libra Infusion and ACI Ltd performed very poorly. But Pharma Aids performs very

outstanding in the last two years.

3.2.5.Sales to Total asset:

The ratio of sales to total assets, more commonly referred to as asset turnover, measures the

amount of sales generated by a company for every money‘s worth of its assets.In other

words, asset turnover is an indication of how efficiently a company is as using its assets to

generate sales. The higher the number the better, while low or falling asset turnover can

signal a failure by the company to expand its market share.

The table below Sales to Total asset Ratio of nine Pharmaceuticals Company

Sl

No.

Company

name

Year Average

2012 2011 2010 2009 2008

1. ACI ltd. 0.73297 0.76722 0.81717 0.96058 1.49548 0.954689

2. Ambee Pharma 1.00807 0.96109 0.93748 0.87826 0.86152 0.929289

3. Beximco phrma 0.37776 0.34255 0.30370 0.24473 0.27059 0.307871

4. Glaxo smith 1.81247 1.82018 1.65676 1.77706 1.38591 1.690481

5. IBN Sina 1.91633 2.53017 2.56575 1.81491 2.04732 2.174901

6. Libra infusion 0.09290 0.14123 0.15775 0.86532 1.35373 0.522192

7. Pharma Aids 0.79364 0.86328 0.69040 0.92483 0.85563 0.825561

8. Reneta Pharma 0.78657 0.84763 1.66862 1.76642 0.97707 1.209267



Table no. 5: Sales to Total asset Ratio of nine Pharmaceuticals Company

This table represents company‘s ability to generate sale compared with its total asset or

simply asset turnover. The ACI limited has the highest turnover rate. This is double than

industry average. Glaxo smithkline has also performed well because the higher the number

the better, but the others have an average performance. Because the low asset turnover is a

signal of failure of the company to expand its market share.


30

The graph below Sales to atotal asset Ratio of nine Pharmaceuticals Company:

Graph no. 5: Sales to Total asset Ratio of nine Pharmaceuticals Company

The graph represents the asset turnover rates of our respective nine Pharmaceuticals

companies. Here we see that IBN Sina, Glaxo Smithkline and Reneta pharmaceuticals have

performed well. Their turnover is above two or almost two. That is their sales is almost two

times of their assets. The higher ratio is the better performance the other companies ave a

average results i.e. their performance is not so good cause low or falling asset turnover can

signal a failure by the company to expand its market share.

0.00 0.50 1.00 1.50 2.00 2.50 3.00

ACI ltd.

Ambee Pharma

Beximco phrma

Glaxo smith

IBN Sina

Libra infusion

Pharma Aids

Reneta Pharma

Square pharma ltd

Industry average

ACI ltd.AmbeePharma

Beximcophrma

Glaxosmith

IBN SinaLibra

infusionPharma

AidsRenetaPharma

Squarepharma

ltd

Industryaverage

Average 0.95 0.93 0.31 1.69 2.17 0.52 0.83 1.21 0.74 1.04

2008 1.50 0.86 0.27 1.39 2.05 1.35 0.86 0.98 0.74 1.11

2009 0.96 0.88 0.24 1.78 1.81 0.87 0.92 1.77 0.76 1.11

2010 0.82 0.94 0.30 1.66 2.57 0.16 0.69 1.67 0.69 1.05

2011 0.77 0.96 0.34 1.82 2.53 0.14 0.86 0.85 0.75 1.00

2012 0.73 1.01 0.38 1.81 1.92 0.09 0.79 0.79 0.77 0.92

Sales to atotal asset Ratio of nine Pharmaceuticals Company


31

3.3.Z-Score Test Results:

Z-scores are used to predict corporate defaults and an easy-to-calculate control measure for

the financial distress status of companies in academic studies. The Z-score uses multiple

corporate income and balance sheet values to measure the financial health of a company.

The following graph represents the Z-Score results of our respective nine companies:

Sl Company

name

Year Average

No. 2012 2011 2010 2009 2008

1. ACI ltd. 1.645585 1.991121 2.522665 3.219924 3.494479 2.57475

2. Ambee Pharma 2.658581 3.455194 3.807594 2.262337 1.86442 2.80962

3. Beximco phrma 2.95854 3.613915 4.150235 2.558028 3.797667 3.24278

4. Glaxo smith 5.862634 7.587422 14.79538 13.57896 8.739176 10.1126

5. IBN Sina 4.570932 6.194362 6.233481 4.328835 4.191209 5.10376

6. Libra infusion 0.493064 0.82265 0.486081 1.364045 2.204879 1.07414

7. Pharma Aids 8.486895 14.51512 4.975923 4.240316 3.657345 7.17512

8. Reneta Pharma 4.881344 6.442315 6.953135 10.85673 7.007838 7.22825


10 Industry Average 3.832022 6.001389 5.852768 5.992157 4.823957 5.28124

Table no. 6: Z-Score Test Results of nine Pharmaceuticals Company

If we analyze each and every company we see that Glaxo smithkline, Pharma Aids Reneta

pharma and Square pharmaceuticals has very good Z-Score results. Their average Z=score

results is far better than industry average. So they are in Safe Zone that is Z > 2.99. IBN sina

has also a Z-Score results near the industry average. So Glaxo smithkline, IBN Sina,

Pharma Aids Reneta pharma and Square pharmaceuticals have no chance of being

bankrupt. If we analyze ACI Ltd they were in safe zone in safe zone in 2008 and 2009 . But

its Z Score falls in 2010 and 2011 and it was in Gray Zone i.e. 1.81 < Z < 2.99. but in 2012 a

further falls in Z Score Leads ACI to Distress Zone i.e. Z < 1.81. Ambee Pharma was in

Gray Zone in 2008 and 2009 and 2012. It was in safe zone for the next two years its Z Score

was 3.80 and 3.45 respectively. Which was greater than 2.99. Libra infusions Z Score was I

Gray Zone in 2008 i.e. 2.20 but since 2009 its Z score falls down to the distress zone i.e. Z <

1.81. So Libra Infusions has a great possibility of being Bankrypt. Beximco phrma ‗s Z-

Score is fluctuating frequently . In 2010 it was in Safe Zone in 2008. Its score was almost 3.5

http://en.wikipedia.org/wiki/Financial_distress


32

But the next year it Sore falls down to 2.55 i.e. in Gray Zone. But the next two years its score

was in Safe Zone i.e. Z > 2.99. The next year it Scores again falls down to Gray Zone.

The following Graph shows the Z-Score Test Results of nine Pharmaceuticals Company:

Graph no. 6: Z-Score Test Results of nine Pharmaceuticals Company

The above Graph Represents the Z-Score results of nine Pharmaceuticals Company. If we

analyze the graph we will see that Libra Libra Infusion has the lowest Z-Score results it

stayes in distress Zone and Glaxo smithkline has the highest average. Pharma Aids, Reneta

0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00 16.00

ACI ltd.

Ambee Pharma

Beximco phrma

Glaxo smith

IBN Sina

Libra infusion

Pharma Aids

Reneta Pharma

Square pharma ltd

Industry Average

ACI ltd.AmbeePharma

Beximcophrma

Glaxosmith

IBN SinaLibra

infusionPharma

AidsRenetaPharma

Squarepharma

ltd

IndustryAverage

Average 2.57 2.81 3.24 10.11 5.10 1.07 7.18 7.23 8.21 5.28

2008 3.49 1.86 3.80 8.74 4.19 2.20 3.66 7.01 8.46 4.82

2009 3.22 2.26 2.56 13.58 4.33 1.36 4.24 10.86 11.52 5.99

2010 2.52 3.81 4.15 14.80 6.23 0.49 4.98 6.95 8.75 5.85

2011 1.99 3.46 3.61 7.59 6.19 0.82 14.52 6.44 9.39 6.00

2012 1.65 2.66 2.96 5.86 4.57 0.49 8.49 4.88 2.93 3.83

Z-Score Test Results of nine Pharmaceuticals Company


33

Pharma Ltd and Square Pharmaceuticals have a good Score. IBN Sina has also a good Score

so they all are in Safe Zone i.e. there is no chance to be bankrupt. If we see the average of

ACI Ltd and Ambee Pharma it ZScore is in Gray Zone i.e. 1.81 < Z < 2.99. Beximco Pharma

has a fluctuating Score. But its average is in safe Zone that is greater than 2.99

3.4.Liquidity ratio:

The degree to which an asset or security can be bought or sold in the market without affecting

the asset's price. Liquidity is characterized by a high level of trading activity. Assets that can

be easily bought or sold are known as liquid assets.

3.4.1.Current ratio:

The ratio is mainly used to give an idea of the company's ability to pay back its short-term

liabilities (debt and payables) with its short-term assets (cash, inventory, receivables). The

higher the current ratio, the more capable the company is of paying its obligations.

The following table represents the current ratio of our respective nine companies:

SL.

No.


2012 2011 2010 2009 2008

1. ACI Limited 1.17361 1.30828 1.419351 1.284402 1.13369 1.263871

2. Ambee Pharmaceuticals 1.03950 1.02192 1.00168 0.99913 0.98459 1.009369



5. IBN Sina 1.15383 1.03143 0.94582 0.72966 0.83176 0.938505

6. Libra infusion 1.53389 1.33768 0.53439 0.68996 0.83920 0.987031

7. Pharma Aids 1.71495 1.68825 1.48520 1.19824 0.93031 1.403396

8. Reneta pharma ltd. 1.15063 0.72777 0.96306 1.1655 1.14670 1.030745



Table no. 7: Current Ratio of nine Pharmaceuticals Company


34

By analyzing the table we IBN Sina and Libra Infusion have the lowest current ratio. Their

average is less than 1 which means that they are unable to pay off their short term debt

obligations. Beximco Pharma and Glaxo smithkline has the highest current ratio. That is 2.38

and 2.37 respectively. The rest companies have almost a current ratio around the industry

average.

The following Graph shows the Current Ratios of nine Pharmaceuticals Company:

Graph no. 7: Current Ratio of nine Pharmaceuticals Company

0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50

ACI Limited



Glaxo Smithkline

IBN Sina

Libra infusion

Pharma Aids

Reneta pharma ltd.

Square Pharma ltd.

Industry average

ACILimited



GlaxoSmithkli

neIBN Sina

Librainfusion

PharmaAids

Renetapharma

ltd.

SquarePharma

ltd.

Industryaverage

Average 1.26 1.01 2.39 2.37 0.94 0.99 1.40 1.03 1.66 1.45

2008 1.13 0.98 1.12 3.07 0.83 0.84 0.93 1.15 1.46 1.28

2009 1.28 1.00 2.98 2.37 0.73 0.69 1.20 1.17 2.15 1.51

2010 1.42 1.00 2.46 2.59 0.95 0.53 1.49 0.96 1.50 1.43

2011 1.31 1.02 2.70 2.05 1.03 1.34 1.69 0.73 1.59 1.49

2012 1.17 1.04 2.67 1.79 1.15 1.53 1.71 1.15 1.58 1.53

Current Ratios of nine Pharmaceuticals Company


35

The graph above shows the current ratio position of the nine companies.by analyzing the

graph we see that Beximco Pharma and Glaxo smithkline has highest current ratio average.

they are almost two times able to pay off its debt. But IBN Sina and Libra Infusion have

lowest current ratio average.

3.4.2.Quick Ratio:

An indicator of a company‘s short-term liquidity. The quick ratio measures a company‘s

ability to meet its short-term obligations with its most liquid assets. For this reason, the ratio

excludes inventories from current assets,

The following table represents the Quick ratio of our respective nine companies:

SL.

No.


2012 2011 2010 2009 2008

1. ACI Limited 0.87383 0.97524 0.99948 0.90246 0.41922 0.83405025




5. IBN Sina 0.78039 0.73964 0.68578 0.52790 0.60492 0.667731

6. Libra infusion 0.70074 0.75268 0.25748 0.29333 0.42786 0.486422

7. Pharma Aids 1.55913 1.49229 1.27341 0.99657 0.80223 1.22473




Table no. 8: Quick Ratio of nine Pharmaceuticals Company

By analyzing the table we see that Beximco Pharmaceuticals, Glaxo Smithkline, Pharma Aids

and Square Pharma ltd. have a quick ratio above 1 among the nine companies. It means that

they are in a good cash position the other has a cash ratio less than 1 A company with a

quick ratio of less than 1 cannot currently pay back its current liabilities; it's the bad sign for

investors and partners.


36

The graph below Quick Ratio of nine Pharmaceuticals Company:

Graph no. 8: Quick Ratio of nine Pharmaceuticals Company

The graph shows the Quick ratio of nine pharmaceutical companies. Here we see that

Beximco pharma Glaxo smithkline Pharma Aids and Square Pharma Have the highest

quick ratio that is above 1. The higher the quick ratio, the better the position of the

company. So this company is in good position. And the other have less than 1.The

0.00 0.50 1.00 1.50 2.00 2.50

ACI Limited



Glaxo Smithkline

IBN Sina

Libra infusion

Pharma Aids

Reneta pharma ltd.

Square Pharma ltd.

Industry Average

ACILimited

AmbeePharmaceutical

s

BeximcoPharmaceutical

s

GlaxoSmithkli

neIBN Sina

Librainfusion

PharmaAids

Renetapharma

ltd.

SquarePharma

ltd.

IndustryAverage

Average 0.83 0.45 1.63 1.25 0.67 0.49 1.22 0.42 1.52 0.94

2008 0.42 0.37 0.55 1.70 0.60 0.43 0.80 0.42 1.46 0.75

2009 0.90 0.43 2.24 0.95 0.53 0.29 1.00 0.40 2.15 0.99

2010 1.00 0.49 1.67 1.60 0.69 0.26 1.27 0.36 1.50 0.98

2011 0.98 0.48 1.83 0.95 0.74 0.75 1.49 0.46 1.59 1.03

2012 0.87 0.49 1.88 1.05 0.78 0.70 1.56 0.46 0.92 0.97

Quick Ratio of nine Pharmaceuticals Company


37

commonly acceptable current ratio is 1 but this companies have a quick ratio below one.

So it can be said that they are in financial distress zone.

3.5.Debt Management Ratio:

Debt Management Ratios attempt to measure the firm's use of Financial Leverage and ability

to avoid financial distress in the long run. These ratios are also known as Long-Term

Solvency Ratios. With the use of debt also comes the possibility of financial distress and

bankruptcy.

3.5.1.Debt to Total Assets Ratio:

A financial ratio that measures the extent of a company‘s or consumer‘s leverage. The debt

ratio is defined as the ratio of total debt to total assets, expressed in percentage, and can be

interpreted as the proportion of a company‘s assets that are financed by debt. The higher this

ratio, the more leveraged the company and the greater its financial risk.

The Debt to Total Asset Ratio of our respective nine companies is following:

SL.

NO.


2012 2011 2010 2009 2008

1. ACI Limited 61.524 57.037 53.974 59.809 68.118 60.092




5. IBN Sina 36.932 52.612 57.050 55.203 63.226 53.004

6. Libra infusion 26.775 21.205 18.443 79.692 72.495 43.722

7. Pharma Aids 39.862 34.486 32.984 37.709 40.821 37.172




Table no. 9: Debt to total assets ratio of nine Pharmaceuticals Company


38

The table above represents the company‘s leverage. By analyzing this report we find that

Ambee Pharmaceuticals and Reneta Pharma Ltd have the highest percentage of debt ratio

(average) that ic 81.99 and 77.21 respectively. We know that the higher this ratio, the more

leveraged the company and the greater its financial risk. So these companies have higher

financial risk which may lead to the bankruptcy. Where Square Pharma. Ltd. has the lowest

average percentage of debt ratio i.e. 24.15. So it has a least possibility of being bankrupt.

The graph below represents the Debt to Total Asset ratios of nine Pharmaceuticals Company.

Graph no. 9: Debt to total assets of nine Pharmaceuticals Company

0 20 40 60 80 100 120 140 160 180

ACI Limited



Glaxo Smithkline

IBN Sina

Libra infusion

Pharma Aids

Reneta pharma ltd.

Square Pharma ltd.

Industry Average

ACILimited



GlaxoSmithkli

neIBN Sina

Librainfusion

PharmaAids

Renetapharma

ltd.

SquarePharma

ltd.

IndustryAverage

Average 60.092 81.997 30.159 39.698 53.004 43.722 37.172 77.214 24.156 51.004

2008 68.118 80.032 29.484 33.041 63.226 72.495 40.821 47.439 24.917 53.117

2009 59.809 83.586 45.275 31.606 55.203 79.692 37.709 74.451 23.122 56.707

2010 53.974 82.962 25.258 36.999 57.05 18.443 32.984 167.63 28.937 57.64

2011 57.037 82.156 25.637 45.327 52.612 21.205 34.486 48.533 24.177 44.151

2012 61.524 81.25 25.139 51.518 36.932 26.775 39.862 48.011 19.63 43.405

Debt to total assets ratio of nine Pharmaceuticals Company


39

If we analyzed the graph above it will be found that ambee pharmaceuticals and reneta

pharma Ltd. has the highest percentage of debt ratio. This means that these firms have higher

financial risk than others. This financial extra risk can lead a firm towards bankruptcy

3.5.2.Time Interest Earned (TIE) Ratio

The times interest earned ratio indicates the extent of which earnings are available to meet

interest payments. Times Interest Earned or Interest Coverage is a great tool when measuring

a company's ability to meet its debt obligations.

The Time Interest Earned Ratio of our respective nine companies is following:

SL.

NO.


2012 2011 2010 2009 2008

1. ACI Limited 2.60707 7.04246 5.90464 5.2061 2.08990 4.570038




5. IBN Sina 18.7439 11.4590 8.90156 10.8941 11.0980 12.21934

6. Libra infusion 1.11089 1.18828 1.24378 1.29291 1.48880 1.488808

7. Pharma Aids 9.67583 11.1492 3.64555 7.44192 7.52346 9.675831




Table no. 10: Time Interest Earned (TIE) Ratio of nine Pharmaceuticals Company

Glaxo smithkline use too little debt to finance its asset. For this reason it has to pay a too little

interest. If we analyzed the table above we will see that Glaxo smithkline is 276.39 time able

to pay out its cost of debt. This is 7.65 times more than industry average. But Libra infusion

has only 1.49 this is 25.26 times less than industry average. it is a warning sign when interest

coverage falls below 2.5xs.so it may said that Libra Infusion is in distress zone.


40

Time Interest Earned Ratios (TIE) are presented by the following graph:

Graph no. 10: Time Interest Earned (TIE) Ratio of nine Pharmaceuticals Company

The graph above represents the firm‘s ability to pay off its cost of debt that is interest. Here we

see that Glaxo smithkline is highly able to pay off its debt. But Libra Infusion is only 1.49

times able to pay off its debt but it should be above 2.5 times. So it may be said that Libra

infusions has a propensity of being bankrupt.

0.00 100.00 200.00 300.00 400.00 500.00 600.00 700.00

ACI Limited



Glaxo Smithkline

IBN Sina

Libra infusion

Pharma Aids

Reneta pharma ltd.

Square Pharma ltd.

Industry average

ACILimited

AmbeePharmaceutical

s

BeximcoPharmaceutical

s

GlaxoSmithkli

neIBN Sina

Librainfusion

PharmaAids

Renetapharma

ltd.

SquarePharma

ltd.

Industryaverage

Average 4.57 1.66 3.77 276.39 12.22 1.49 9.68 8.40 8.88 36.14

2008 2.09 1.81 4.67 25.23 11.10 1.49 7.52 9.74 5.96 7.59

2009 5.21 1.82 4.03 519.69 10.89 1.29 7.44 11.17 8.71 63.20

2010 5.90 1.03 3.22 653.17 8.90 1.24 3.65 7.98 10.23 77.61

2011 7.04 1.86 3.50 110.91 11.46 1.19 11.15 7.98 7.66 18.08

2012 2.61 1.75 3.42 72.96 18.74 1.11 9.68 5.83 11.84 14.22

Time Intersest Earned (TIE) Ratio of nine Pharmaceuticals Company


41

Chapter 4 :

Conclusion


42

4.1.Findings:

1. ACI Ltd‘s Z-Score was3.49 and 3.22 in 2008 and 2009 respectively that is in safe

zone but it falls since 2010 and in 2012 it falls down to 1.65 that is the distress zone.

2. The performance of Ambee pharmaceuticals is not satisfactory; though its Z-Score

was in Safe Zone in 2010 and 2011but its average performance is in Gray Zone.

3. The average performance of Beximco Pharma is in Safe Zone that is Z > 2.99.

4. Glaxo smith, IBN Sina Pharma, Aids Reneta Pharma and Square pharma ltd have

Performed very well their Z- Score value is far better than the industry average.that is

5.28

5. Libra infusion is in Distress Zone since 2009 to 2012. It was I Gray Zone in 2008. Its

average results are also very poor.

6. IBN Sina, Libra Infusion and Pharma Aids have negative average of working capital

to total asset ratio. A negative working capital means the firm could have face

problem to pay off its short term debt

7. Almost all the company has retained earnings to total asset ratio less than one. Theis

means all the company prefers to use debt to finance their project.

8. All the company has EBIT to total asset ratio less than one. Its means that company‘s

ability to generate profit using its assets is very low.

9. Libra Infusion and ACI Ltd has the lowest market value of equity to Total Liabilities

Ratio.so it means these firms are going backwards.

10. IBN has the highest asset turnover rate.

11. Beximco Pharmaceuticals and Glaxo Smithkline have the highest average of current

ratio than other. So these companies are highly able to pay off its short term debt than

others.

12. Ambee Pharmaceuticals and Reneta pharma ltd. have the highest percentage of Debt

to Total Asset. This means these firms have the highest financial risk.

13. Glaxo smithkline has the highest TIE ratio that is 276.39 (average) which indicates

that it has too little debt. And it is 276 times able to pay off its cost of debt.


43

4.2.Conclusion:

This research paper summary significant studies and the bankruptcy prediction area and

provides a comparison of the different models which are commonly used. The studies

selected show that various financial information can be useful in predicting business failure.

We use Dr. Altman‘s Z-Score to predict bankruptcy as a special tool with liquidity ratios and

debt management ratio. Analyze annual reports of nine companies for five years. And collect

the financial statements data which are needed to predict the propensity to be bankruptcy. By

analyzing and calculating all the ratios we reached on a decision that Libra Infusion is

performing very poorly and its Z-Score results belongs to the distress zone.Glaxo smithkline,

Beximco Pharma, Pharma Aids has performed very well ACI Ltd and Ambee Pharma is

belongs to in the Gray Zone.


44

References:

1. Altman, Edward I. (July 2000). ""Predicting Financial Distress of Companies"".

Retrieved on September 4th, 2009 from http://pages.stern.nyu.edu/~ealtman/Zscores.pdf:

15–22.

2. Altman, Edward I. (September 1968). ""Financial Ratios, Discriminant Analysis and the

Prediction of Corporate Bankruptcy"". Journal of Finance: 189–209.

3. Altman, Edward I. (May 2002). ""Revisiting Credit Scoring Models in a Basel II

Environment"". Prepared for "Credit Rating: Methodologies, Rationale, and Default

Risk", London Risk Books 2002.

4. Andrews,T., etal(2005), financial statement analysis Schweser Study Program.

5. Altman E.I. (1968), Financial ratios, discriminant analysis and the prediction of

corporate bankruptcy, The Journal of Finance, 23, pp 589-609.

6. Beaver, W.H (1966), Financial Ratios as predictors of failure. Journal of Accounting

Research, 4, pp 71-111.

7. Eidleman, Gregory J. (1995-02-01). "Z-Scores – A Guide to Failure Prediction". The

CPA Journal Online.

8. Eidleman, G. (1995), Z-scores- a guide to failure prediction. The CPA Journal, 12(9), pp

52-53.Schaeffer, M. (2000), International affairs. Business Credit available at

http://www.Highbeam.com/library/doc3.asp? accessed during May 2012

Appendix:

http://en.wikipedia.org/wiki/Edward_I._Altman

http://pages.stern.nyu.edu/~ealtman/Zscores.pdf



http://www.stern.nyu.edu/fin/workpapers/papers2002/pdf/wpa02041.pdf

http://www.stern.nyu.edu/fin/workpapers/papers2002/pdf/wpa02041.pdf

http://www.nysscpa.org/cpajournal/old/16641866.htm

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